Inheritance tax

Overview

Most estates in the UK do not pay inheritance tax (IHT) because their value, 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 IHT completely, or may qualify for certain ‘reliefs’.

However, even if there is no IHT to pay, you may need to complete some IHT forms depending on the circumstances. You can read more about this on GOV.UK.

  Up until 5 April 2025, there were special rules that applied for IHT purposes to people who were non-UK domiciled. You can read more about domicile generally in our International section. The rules have changed significantly from the 2025/26 tax year onwards. HMRC have produced information about this, which can be found on GOV.UK, and included an overview of how the new rules might impact your IHT position.

Tax-free allowances for IHT

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

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

Any unused NRB and RNRB can usually be transferred to a surviving spouse or civil partner.

The nil rate band (NRB)

Each individual has their own NRB which is £325,000 for 2025/26. The value of the estate up to the NRB threshold is chargeable to IHT at a rate of 0%. Any part of the estate that exceeds the NRB threshold is usually chargeable to IHT on death at 40%.

The NRB 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 in this page.

The residence nil rate band (RNRB)

The residence nil rate band (RNRB) is available where a death occurs on or after 6 April 2017. It is an additional nil rate amount of £175,000. It is only available where the deceased left a residence, or the sale proceeds of a residence, to his or her direct descendants. It is explained further on GOV.UK. The RNRB is reduced in the case of high value estates (net value exceeding £2 million).

Please note that the RNRB 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 RNRB 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 NRB and RNRB.

For spouses and civil partners, it is possible for any unused proportion of the NRB/RNRB transferred to the survivor. This means that any part of the NRB and/or RNRB 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.

Where HMRC accept a claim to transfer unused NRB and RNRB, 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 IHT NRB and RNRB 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.

Note that the whole amount of the NRB and RNRB may be transferred to the surviving spouse or civil partner. This will be in cases where there was no taxable estate on first death – for example where the whole estate was left to a spouse and qualified for spousal exemption, see below. The NRB of the survivor will therefore be worth £650,000 and the potential RNRB will be £350,000 (2025/26 rates). This means it is sometimes possible for an estate of up to £1 million to be left IHT free, provided the specific RNRB conditions are met.

Gifts/transfers that are exempt from IHT

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

The availability of IHT 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 IHT, or partially exempt, that exempt element will not be included in the calculations when working out whether any IHT is due.

  Although there may not be any IHT 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 IHT 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 IHT. 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 IHT 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 IHT 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.

Gifts to political parties

You can make an IHT-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 exempt from IHT 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 IHT

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 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’ (PET). The value of the PET will then only become chargeable to IHT 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 PET rules. For example, if you give away your home and want it to be a PET, 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 PET 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 PETs 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.

IHT reliefs

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

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

IHT on lifetime gifts (failed PETs)

If you die within seven years of making a gift which is a PET, the gift may become chargeable to IHT. However, there will only be IHT to pay if the value of your taxable estate on death, together with the value of PETs made within the last seven years, exceeds the NRB at date of death. Note, the RNRB cannot be set against failed PETs – 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 NRB (£325,000 in 2025/26), there will be no IHT to pay on the gifts. However, the gifts use up some of the NRB that could have otherwise been set against the value of your estate on death, so the gifts could, overall, affect the amount of IHT paid on your estate.

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 IHT to pay. This IHT payable would be in addition to any IHT 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.

IHT on certain gifts to trust (chargeable lifetime transfers)

As mentioned, if you make a lifetime gift into some types of trust, the gift will be a chargeable lifetime transfer (CLT). You may have to pay IHT at the time of making the CLT, if its value is more than the IHT nil rate band (£325,000 in 2025/26).

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 CLTs generally and about gifts into trusts.

Further help and information

For basic information on IHT 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.