What is Inheritance Tax and who pays it?

Inheritance Tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has died. The estate's personal representative (executor or administrator) is responsible for paying IHT before distributing the estate. Beneficiaries don't pay IHT themselves; it comes out of the estate. IHT is due within 6 months of the death.

What is the nil-rate band?

The nil-rate band (NRB) is the threshold below which no IHT is charged. For 2026/27 it is £325,000. Anything above this is taxed at 40%. The NRB has been frozen at £325,000 since 2009 and is set to remain frozen until 2030. Unused NRB from a deceased spouse or civil partner can be transferred to the surviving partner, potentially doubling it to £650,000.

What is the residence nil-rate band?

The residence nil-rate band (RNRB) is an additional allowance of £175,000 available when you leave your main home to direct descendants (children, grandchildren, stepchildren, adopted children). Combined with the standard NRB, this gives a potential tax-free threshold of £500,000 per person (or £1,000,000 for a married couple using both sets of allowances). The RNRB starts tapering away for estates worth more than £2,000,000.

Can spouses pass assets free of IHT?

Yes. Transfers between spouses and civil partners are entirely exempt from IHT, regardless of the amount, provided the recipient is UK-domiciled. On the second death, any unused NRB and RNRB from the first death can be transferred to the surviving spouse, effectively doubling the combined threshold. This is why many married couples can pass up to £1,000,000 IHT-free if they own their home and leave it to children.

What gifts are exempt from IHT?

Several gifts are exempt: the annual exemption (£3,000/year, plus any unused amount from the previous year); small gifts up to £250 per person per year; wedding gifts up to £5,000 (parent), £2,500 (grandparent or party to marriage), £1,000 (others); regular gifts from surplus income; gifts to charities, political parties, and national institutions. Larger gifts above these limits are "potentially exempt transfers" and are only fully free of IHT if the donor survives 7 years after making them.

Does leaving money to charity reduce IHT?

Yes. Gifts to UK charities are exempt from IHT entirely. Additionally, if you leave at least 10% of your net estate to charity, the IHT rate on the remainder is reduced from 40% to 36%. The "net estate" for this calculation is the estate after deducting the nil-rate band. This reduced rate can sometimes make it tax-efficient to give more to charity.

Inheritance Tax Calculator

Calculate UK Inheritance Tax for 2026/27. Covers the nil-rate band, residence nil-rate band, spousal transfer of allowances, and the charity reduced rate.

Your details

Total estate value

Property, savings, investments, and other assets minus debts and funeral costs

Main residence value

Enter 0 if no main residence included in the estate

Main residence passing to direct descendants (children, grandchildren etc.)Include full transferred nil-rate band from deceased spouse/civil partner (+£325,000)Include transferred residence nil-rate band from deceased spouse (+£175,000)

% of net estate left to charity (optional)

Gifts to charity are exempt. 10%+ also reduces IHT rate to 36%

Your results

Inheritance Tax on a £800,000 Estate

Inheritance Tax due

£120,000

Taxable estate

£300,000

Total tax-free threshold: £500,000
IHT rate: 40%
Effective rate: 15.0%

Breakdown

Total estate: £800,000
Nil-rate band: -£325,000
Residence nil-rate band: -£175,000
Total tax-free threshold: -£500,000
Taxable estate: £300,000

Inheritance Tax due (40% of taxable estate): £120,000
Net estate to beneficiaries: £680,000

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Related guides

How Inheritance Tax Works

Frequently asked questions

Estate Planning Guide

How Inheritance Tax works in the UK

Inheritance Tax (IHT) is charged on the estate of someone who has died, their property, money, and possessions above a certain threshold. Despite generating significant political debate, only around 4–5% of UK estates actually pay it each year, largely because of the nil-rate band and residence nil-rate band reliefs. Understanding the thresholds and available exemptions can help you plan effectively and reduce the bill for your beneficiaries.

The nil-rate band and residence nil-rate band

Everyone has a nil-rate band (NRB) of £325,000, the portion of their estate that is exempt from IHT. Any estate above this is taxed at 40% (or 36% if at least 10% of the net estate is left to charity). Married couples and civil partners can also transfer any unused nil-rate band to the surviving spouse, potentially giving a combined NRB of £650,000.

The residence nil-rate band (RNRB) adds up to £175,000 per person if you leave your main home to direct descendants (children or grandchildren). This gives couples a potential combined threshold of £1,000,000 before IHT applies. The RNRB tapers away for estates above £2 million at £1 for every £2 over the threshold.

Gifts and the 7-year rule

Gifts made during your lifetime can reduce the value of your estate, but most are only fully exempt if you survive for 7 years after making them. These are called potentially exempt transfers (PETs). If you die within 7 years, the gift may be subject to IHT on a sliding scale, 40% within 3 years, tapering to 8% between 6 and 7 years. Gifts to spouses and civil partners are always exempt. Everyone also has an annual gifting allowance of £3,000 that resets each tax year.

Business and agricultural relief

Business Property Relief (BPR) can reduce the taxable value of qualifying business assets by 50–100%. From April 2026, BPR and Agricultural Property Relief (APR) will be capped: combined assets attracting 100% relief will be limited to £1 million per person (£2 million for couples), with excess value attracting a 20% effective rate. This is a significant change for farming families and business owners who have historically relied on full relief.

Paying the IHT bill

IHT is due within 6 months of the end of the month in which the person died. Probate cannot be granted until the tax is paid, which creates a timing problem: the estate's assets may be frozen until probate is obtained, yet the tax is due before probate. Banks can sometimes release funds directly to HMRC to break this deadlock. Property may be paid in equal annual instalments over 10 years, which helps where the main asset is illiquid. Life insurance written in trust can provide a lump sum to cover the bill without increasing the estate's value.

Sources & methodology

Built and maintained by UK Money Tools, a personal finance resource (not a financial adviser). Last reviewed April 2026. Rates and thresholds come from official UK government publications.

HMRC: Income Tax rates and allowances · Official rates, bands and thresholds
GOV.UK: National Insurance rates · Employee and employer NI rates
Scottish Government: Income Tax · Scottish income tax rates and bands
HMRC: Stamp Duty Land Tax · Rates, thresholds and first-time buyer relief
GOV.UK: Capital Gains Tax on property · Property CGT rates and exemptions

Figures are estimates only. This is not financial or tax advice. For help with your specific situation, speak to HMRC or a qualified adviser.