Updated on 6 April 2026

Inheritance tax

Inheritance tax (also known as IHT) is a tax on the estate (property, money, and possessions) of someone who has died. There are also some specific circumstances involving trusts when inheritance tax may be payable during an individual’s lifetime. Not all deceased estates pay inheritance tax. Here we provide an overview of when it applies and the reliefs available.

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Overview

Many estates in the UK do not currently pay inheritance tax because the value of the estate, including gifts made by the deceased in the seven years prior to death, is less than the tax-free limits (called nil rate bands).

There are also further gifts/transfers that may also be exempt from inheritance tax completely, or may qualify for certain ‘reliefs’.

What inheritance tax reporting is required for an estate depends on a variety of factors, including whether there is any inheritance tax to be paid. Even if no tax is due, some forms may require to be submitted. You can read more about this on GOV.UK.

From 6 April 2027, most unused pension pots as well as death benefits will be included within an individual’s taxable estate for inheritance tax purposes. Benefits passed to a surviving spouse or civil partner will continue to be exempt from inheritance tax. This measure will bring many more estates within the scope of inheritance tax.

Up until 5 April 2025, there were special rules that applied for inheritance tax purposes to people who were non-UK domiciled. Broadly, non-UK domiciled individuals only paid UK inheritance tax on their UK-situated assets. You can read more about domicile generally in our International section. The rules changed significantly from the 2025/26 tax year onwards, with the inheritance tax regime shifting to a residence-based test and the concept of domicile now largely ignored. HMRC have produced information about this, which can be found on GOV.UK.

Tax-free allowances for inheritance tax

There are two main tax-free allowances potentially available on death:

the nil rate band (also known as the NRB) – this is the amount up to which an estate has no inheritance tax to pay. All estates can benefit from this.
the residence nil rate band (also known as the RNRB) – this may apply in addition to the nil rate band, depending on circumstances.

Any unused nil rate band and residence nil rate band can usually be transferred to a surviving spouse or civil partner.

The nil rate band

Each individual has their own nil rate band which is £325,000 for 2026/27. The value of the estate up to the nil rate band threshold is chargeable to inheritance tax at a rate of 0%, meaning estates valued at less than £325,000 usually pay no inheritance tax. Any part of the estate that exceeds the nil rate band threshold is usually chargeable to inheritance tax on death at 40%.

The nil rate band applies to the taxable, non-exempt estate passing on death together with any taxable gifts made within the seven years before death. We discuss more about lifetime gifts and what parts of an estate might be exempt later on this page.

The residence nil rate band

The residence nil rate band is available where a death occurs on or after 6 April 2017. It is an additional nil rate amount, which is £175,000 for 2026/27. It is only available where the deceased left a residence, or the sale proceeds of a residence, to his or her direct descendants (this includes children or grandchildren and their spouses). Further information, including a full list of who is a counted as a direct descendent, can be found on GOV.UK. The residence nil rate band is gradually reduced in the case of high value estates (net value exceeding £2 million).

Please note that the residence nil rate band can be complex to apply, especially, for example, where the deceased downsized their home prior to their death – for example, they sold a residence and bought a less valuable property or sold a residence and went into residential care. HMRC publish guidance explaining how the residence nil rate band works in respect of people who have downsized.

We would, however, recommend that you take professional advice due to the complexity of this area.

Transferring the nil rate bands

Each individual has their own nil rate band and residence nil rate band.

For spouses and civil partners, it is possible for any unused proportion of the nil rate band/residence nil rate band transferred to the survivor. This means that any part of the nil rate band and/or residence nil rate band that is not used when the first spouse or civil partner dies can be transferred to the surviving spouse or civil partner for use on their later death. The transfer is not automatic, and a claim has to be made to HMRC within two years from the end of the month in which the surviving spouse/civil partner dies.

Where HMRC accept a claim to transfer unused nil rate band and residence nil rate band, the bands that are available when the surviving spouse or civil partner dies are increased by the proportion of the bands unused on the first death.

Remember that the inheritance tax nil rate band and residence nil rate band have not always been the same level. You can find information about the historic levels of each on GOV.UK. This will be relevant when working out any unused proportion to be used on second death, as illustrated below.

Example: residue of nil rate band transferred to spouse’s estate

Jim died in December 2005, when the nil rate band was £275,000. He only used £137,500 of his nil rate band, being cash left to his children – the rest of his estate was left to his widow Renata, and therefore was covered by the spousal exemption (see below).

The remaining proportion of his nil rate band – being 50% – is available to Renata’s estate when she dies.

If Renata then passes away in 2026/27 when the nil rate band is £325,000, her personal representatives are able to claim an additional 50%. The nil rate band is therefore increased by £162,500, being 50% of £325,000 (not just by the £137,500, the amount actually unused by Jim in 2005). Renata’s total nil rate band, including the amount transferred from Jim, would therefore be £487,500.

Renata’s personal representatives may also be able to claim the residence nil rate band and transferrable residence nil rate band, but this will depend on her circumstances. Note that even though Jim died before the residence nil rate band was introduced in 2017, the transferrable element is still potentially available to Renata. There is more information about this on GOV.UK.

Note that the whole amount of the nil rate band and residence nil rate band may be transferred to the surviving spouse or civil partner. This will be in cases where there was no taxable estate on the first death – for example where the whole estate was left to a spouse and qualified for spousal exemption, see below. The nil rate band of the survivor will therefore be worth £650,000 and the potential residence nil rate band will be £350,000 (2026/27 rates). This means it is sometimes possible for an estate of up to £1 million to be left inheritance tax free, provided the specific residence nil rate band conditions are met.

Gifts/transfers that are exempt from inheritance tax

In the context of a deceased estate, as we have mentioned, inheritance tax is calculated based on the total taxable value of the estate, including lifetime gifts within the previous seven years, after taking into account any inheritance tax exemptions.

The availability of inheritance tax exemptions can depend on the nature of the asset and to whom it is transferred. It can also vary depending on when the transfer takes place.

Some exemptions apply whether the gift occurs during your lifetime or on your death
Some exemptions apply to transfers on death only
Other exemptions only apply to gifts made during your lifetime.

If any gift is exempt from inheritance tax, or partially exempt, that exempt element will not be included in the calculations when working out whether any inheritance tax is due.

Although there may not be any inheritance tax payable on lifetime gifts you make, the capital gains tax effect must be considered if you are disposing of chargeable capital assets during your lifetime – say, for example, you have a second home and decide to give it to your children. You can read more about this on our page Capital gains tax on gifts.

Gifts exempt from inheritance tax during lifetime and on death

Gifts to your spouse or civil partner

If you make a gift to your spouse or civil partner, during lifetime or on death, this is usually exempt from inheritance tax. This exemption for gifts to spouses or civil partners does not cover gifts you make to your unmarried partner or a partner that you are not in a registered civil partnership with.

There have been significant changes to the tax rules for international taxpayers from 6 April 2025. Please see the information document on GOV.UK, which sets out the previous rules related to domicile and deemed domicile for inheritance tax purposes and the new rules as effective from 2025/26, which affect those who are long-term non UK resident. These can impact the availability of spousal exemption.

Gifts to charities

You can make inheritance tax exempt gifts, during lifetime or on death, to most UK charities or to registered community amateur sports clubs. From April 2024 it is no longer possible to obtain relief for bequests to non-UK charities, so if you have a bequest in your will that would have previously qualified, you may wish to revisit your will. A lower rate of inheritance tax can also apply to the whole taxable estate if a certain percentage of the estate is left to charity. You can find out more about this on GOV.UK.

Gifts to political parties

You can make an inheritance tax-free gift to any UK political party as long as at the last general election it had either at least two MPs in the House of Commons, or one MP and received at least 150,000 votes.

Gifts to certain exempt organisations

You can also make an inheritance tax-free gift if it is for national purposes and is made to a heritage body such as the National Trust.

Gifts exempt from inheritance tax on death only

There are certain gifts that will be exempt on death only, so would only apply to assets passing on death (whether under a will or under the rules of intestacy). The exemptions apply in situations where certain members of the armed forces or emergency services are killed during active duty. You can read more about these exemptions on GOV.UK.

Lifetime gifts exempt from inheritance tax

If you make a gift during your lifetime, and it is not covered by one of the exemptions that apply on lifetime or death as outlined above (such as the spousal exemption), then there are other exemptions and allowances that might apply. These are only relevant to lifetime gifts. You can read about these on GOV.UK.

An important exemption to be aware of is the £3,000 annual exemption. This annual exemption is available against any gifts you make up to £3,000 per tax year - whether as a single gift or split between various gifts to several people. If you do not use the annual exemption (or do not use all of it) in a particular tax year, you can carry the unused amount forward for one tax year only. Therefore the maximum annual exemption in a particular tax year cannot exceed £6,000.

After deducting any lifetime gift annual exemptions (or other exemptions), the remaining value of the lifetime gift is usually called a ‘potentially exempt transfer’ (also known as a PET). The value of the potentially exempt transfer will then only become chargeable to inheritance tax if you die within seven years. Note, however, that there are special rules that can apply to certain lifetime transfers into trust, see later in this page.

You must have given up all rights to the asset for it to fall within the potentially exempt transfer rules. For example, if you give away your home and want it to be a potentially exempt transfer, you cannot usually continue to live in it, unless you pay a full market rent. This is due to the rules related to ‘gifts with reservation of benefit’. You can read more about these rules on GOV.UK.

You do not need to notify HMRC about any potentially exempt transfer when you make the gift during your lifetime and there will be no tax to pay at that time. However, you should keep a record, in date order, of all the potentially exempt transfers that you make, until the seventh anniversary of each gift, and ensure this list can be easily found by the personal representatives of your estate following your death, as they will have to include details of any potentially exempt transfers made in any inheritance tax reporting to HMRC.

Inheritance tax reliefs

Some types of assets get special relief from inheritance tax (in other words their value is reduced for inheritance tax purposes, meaning that less inheritance tax is due). These reliefs affect property relating to a trading business or agricultural property. We do not cover these reliefs in detail here.

We would, however, recommend that you take professional advice due to the complexity of these reliefs.

Inheritance tax on lifetime gifts (failed potentially exempt transfers)

If you die within seven years of making a gift which is a potentially exempt transfer, the gift may become chargeable to inheritance tax. However, there will only be inheritance tax to pay if the value of your taxable estate on death, together with the value of potentially exempt transfers made within the last seven years, exceeds the nil rate band at date of death. Note, the residence nil rate band cannot be set against failed potentially exempt transfers – this is only available in respect of assets held at the date of death.

If you die within seven years of having made a gift, but your total taxable gifts to date (within the seven-year period) are less than the nil rate band (£325,000 in 2025/26), there will be no inheritance tax to pay on the gifts. However, the gifts use up some of the nil rate band that could have otherwise been set against the value of your estate on death, so the gifts could, overall, affect the amount of inheritance tax paid on your overall estate.

Example: gifts made within seven years of death

In 2023, Fred gives £100,000 to his son. In 2026 he dies leaving an estate worth £350,000. His will gives a legacy of £100,000 to his wife and the rest is left to his son. His estate is held in cash and stocks and shares. He has never owned a residence, as he was a tenant farmer all his life and lived in rented accommodation. Inheritance tax is payable as follows:

	£
Gift to son within 7 years of death (after annual exemption x 2)*	94,000
Value of estate	350,000
Sub-total	444,000
Minus: exempt bequest to spouse	-100,000
Chargeable estate	344,000
Inheritance tax calculation:
Chargeable estate	344,000
Minus: nil rate band	-325,000
Balance	19,000
Tax on balance at 40%	7,600

* Note: the example assumes that Fred had not used his lifetime gift annual exemptions for the tax year of the gift or the previous tax year, and therefore was able to set £6,000 against the £100,000 gift.

If you die within seven years of making a gift, and your total gifts within the last seven years are more than £325,000 (after deducting any gift annual exemptions), the recipient of the gift might have some inheritance tax to pay. This inheritance tax payable would be in addition to any inheritance payable by the personal representatives on the estate held at death.

You can see how this works on GOV.UK under the heading How Inheritance Tax on a gift is paid.

Taper relief for failed potentially exempt transfers

As explained above, if you make a gift to another individual and then die within seven years, that gift can become subject to inheritance tax.

However, if you die more than three years after making the gift but within seven years, taper relief can apply, which may reduce the amount of tax due. Taper relief works on a sliding scale – the longer you survive after making the gift (between three and seven years) the lower the tax rate applied to it. The gift then becomes completely exempt after seven years. The inheritance tax is reduced as follows:

Years between the gift and death	Rate of tax applied
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more	0%

It is important to note that taper relief reduces the tax payable, not the value of the gift. It can therefore only apply when the gift exceeds the nil rate band.

Example: failed PET and taper relief

Taylor gifts £350,000 to her son Benjamin in September 2021. She dies just over five years later in October 2026. Taylor’s nil rate band is £325,000. The chargeable amount of the gift is £25,000 (being £350,000 less £325,000).

The inheritance tax due without taper relief would be 40% of £25,000 = £10,000.

As Taylor died five years after the gift was made, the rate of tax is reduced to 16%. The tax due therefore becomes £25,000 at 16% = £4,000.

There is more information about taper relief in HMRC’s inheritance tax manual on GOV.UK

Inheritance tax on certain gifts to trust (chargeable lifetime transfers)

As previously mentioned, if you make a lifetime gift into some types of trust, the gift will be a chargeable lifetime transfer (also known as a CLT). You may have to pay inheritance tax at the time of making the chargeable lifetime transfer, if its value is more than the inheritance tax nil rate band (£325,000 in 2026/27).

You can read about the tax implications of making gifts into trust on our page Trusts and estates.

There is also information on GOV.UK on chargeable lifetime transfers generally and about gifts into trusts.

Further help and information

For basic information on inheritance tax have a look at the section on GOV.UK.

More technical information can be found in HMRC’s Inheritance Tax Manual. In particular, their section on gifts with reservation can be found starting at page IHTM04071. Their guidance on exempt lifetime gifts starts on page IHTM14131.

For sources of advice, see our page Tax help on bereavement, trusts and estates.