What Is Inheritance Tax? UK Definition, Threshold & Rates 2026

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Written by: SL · Reviewed by: SL, Estate Planning Specialist · Last updated: May 2026

Simple definition

Inheritance tax is the UK tax on the value of an estate transferred on (and shortly before) death. It is charged on the worldwide assets of UK-domiciled individuals and on UK-located assets of those domiciled elsewhere. The tax is administered by HMRC and the statutory framework is the Inheritance Tax Act 1984.

IHT is usually paid by the executors out of the estate before assets are distributed to the beneficiaries. In some cases — for example, certain lifetime gifts that fail the seven-year survival rule — the tax can fall on the recipient instead.

Why inheritance tax matters

For most UK estates, no inheritance tax is due. HMRC statistics show that only around 4% to 6% of estates in any given year pay any IHT. But the proportion is rising as property prices have outpaced the frozen nil-rate band, and the residence nil-rate band rules are easy to lose. For families with a paid-off house in London or the South East, the IHT bill can run into six figures — and is due before the property can be transferred.

The good news: most of the larger reliefs depend on having a will. The spouse exemption, the transferable nil-rate band, the residence nil-rate band, and the 36% charity rate all depend on the right beneficiary receiving the right asset. Without a will, the intestacy rules may force assets to pass in ways that lose reliefs — meaning the IHT bill is higher than it had to be.

UK legal context — the 2026 rates and allowances

The nil-rate band (NRB)

£325,000 per person. The NRB has been frozen at this level since April 2009 and is now frozen until April 2030. Any unused proportion can be transferred to a surviving spouse or civil partner.

The residence nil-rate band (RNRB)

£175,000 per person, available where the main residence (or its value) is left to direct descendants — children, grandchildren, step-children, adopted children, foster children, and their issue. Cohabiting partners are not direct descendants and do not qualify on their own. The RNRB tapers away by £1 for every £2 of estate value over £2 million.

The combined family threshold

Married couples and civil partners can combine allowances on the death of the survivor:

The rate

40% on the value above the available nil-rate bands. 36% if at least 10% of the net estate is left to a UK-qualifying charity.

The spouse exemption

Section 18 of the Inheritance Tax Act 1984 exempts transfers between spouses and civil partners who are both UK-domiciled. The exemption is unlimited — a spouse can leave everything to the other free of IHT, no matter how large the estate.

Lifetime gifts and the seven-year rule

Gifts during the donor's lifetime are usually "potentially exempt transfers" (PETs). If the donor survives seven years, no IHT applies. If they die within three years, the full 40% rate applies to the gift; between three and seven years, taper relief reduces the rate as follows:

• 3–4 years before death: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%
• 7+ years: 0%

Annual exemptions sit outside the seven-year rule: £3,000 of gifts per tax year are exempt, plus small gifts of £250 per recipient, regular gifts out of surplus income, and gifts on marriage (£5,000 from parents, £2,500 from grandparents, £1,000 from others).

When IHT is due

Inheritance tax must usually be paid by the end of the sixth month after the month of death. The Grant of Probate is not usually issued until the IHT has been paid (or arrangements made). HMRC's Direct Payment Scheme lets executors pay IHT directly from the deceased's bank accounts. Tax on land and certain other assets can be paid in 10 annual instalments, with interest on the outstanding balance.

Common mistakes about inheritance tax

"There's nothing I can do — IHT is unavoidable"

For most estates, careful structuring can reduce or eliminate IHT entirely. The four most powerful levers are: (1) using the spouse exemption to defer tax to the second death; (2) using the residence nil-rate band by leaving the home to direct descendants; (3) lifetime gifts more than seven years before death; (4) gifting at least 10% to charity to reduce the rate to 36%.

"My estate is below £1 million so I'll pay nothing"

The £1 million figure only applies to married couples and civil partners on the second death, where the home is left to direct descendants. A single person without children pays IHT on everything over £325,000 — there is no residence nil-rate band, and no transferable allowance. Many single homeowners over 60 are within the IHT net.

"Putting the house in my children's names will save tax"

Almost always wrong. If you continue to live in the house, it counts as a "gift with reservation of benefit" and is treated as still part of your estate for IHT. You may also lose the residence nil-rate band, trigger CGT for the children, and lose the rebased value on death. Speak to an estate planner before transferring the home.

"Cohabiting partners get the same allowances as married couples"

No. The spousal exemption and transferable nil-rate band are only available to married couples and civil partners. Cohabitants get £325,000 each but cannot pool the allowances. See our guide on cohabiting partner inheritance UK.

"Gifts to charity are always tax-free"

Charitable gifts are exempt from IHT and can also reduce the rate on the rest of the estate from 40% to 36% if they meet the 10% test. The relief only applies to UK-qualifying charities; gifts to foreign charities may not qualify.

How a will reduces inheritance tax

A will does not change the amount of IHT due; it changes the structure that drives the bill. The simplest IHT-aware will for most couples:

• Leaves everything to the surviving spouse on first death (uses spouse exemption)
• On second death, leaves the residence (or its value) to direct descendants (uses both residence nil-rate bands)
• Considers a 10% charity gift to reduce the rate on the rest from 40% to 36%
• Captures the transferable nil-rate band from the first death

For estates approaching or above the threshold — and particularly second-time-around marriages, business owners, and people with overseas assets — a one-off estate-planning conversation usually saves more tax than the fee costs.

Frequently asked questions

What is inheritance tax in the UK?

A 40% tax on the value of an estate above £325,000, governed by the Inheritance Tax Act 1984 and administered by HMRC.

What is the inheritance tax threshold in 2026?

£325,000 per person, plus up to £175,000 residence nil-rate band where the home passes to direct descendants. Married couples can combine allowances — up to £1 million IHT-free.

What is the inheritance tax rate?

40% on the value above the available nil-rate bands. 36% if at least 10% of the net estate is left to charity.

Do spouses pay inheritance tax to each other?

No. Transfers between UK-domiciled spouses and civil partners are unlimited and IHT-free.

Do cohabiting partners pay inheritance tax?

Yes. Each has a £325,000 nil-rate band, but the spousal exemption and transferable allowance do not apply.

When is inheritance tax due?

By the end of the sixth month after the month of death. Tax on property can be paid in 10 annual instalments, with interest.

Does a will reduce inheritance tax?

A will controls who inherits, which determines whether reliefs (spouse exemption, residence nil-rate band, charity rate) can be used.

Are lifetime gifts subject to inheritance tax?

Gifts more than seven years before death are usually outside the estate. Between three and seven years, taper relief reduces the rate. Annual exemptions of £3,000 apply outright.