Inheritance Tax UK 2025/26: Thresholds, Rates and Exemptions
Learn about the 325000 pound nil rate band, 175000 pound residence nil rate band, 40% IHT rate, 7-year gifting rule and how to plan your estate to minimise IHT.
What Is Inheritance Tax?
Inheritance Tax (IHT) is a tax on the estate of someone who has died. It applies to the total value of everything the deceased owned — property, savings, investments, and personal possessions — above a certain threshold. IHT is paid by the estate (not the beneficiaries) before assets are distributed, and must be paid before probate is granted.
Despite widespread concern about IHT, fewer than 5% of estates in the UK actually pay it. However, rising property values mean more families are being caught than ever before, particularly in areas where house prices are high.
IHT Thresholds and Rates 2025/26
| Threshold / Rate | Amount | Notes |
|---|---|---|
| Nil Rate Band (NRB) | £325,000 | No IHT on first £325,000 of estate |
| Residence Nil Rate Band (RNRB) | £175,000 | Applies when main home is passed to direct descendants |
| Combined Maximum (individual) | £500,000 | For those passing main home to children/grandchildren |
| Married/Civil Partner Combined | £1,000,000 | Both nil rate bands can be transferred on first death |
| Standard IHT Rate | 40% | Applied to value above available thresholds |
| Charitable Legacy Rate | 36% | If at least 10% of net estate is left to charity |
The Residence Nil Rate Band (RNRB)
The RNRB is an additional allowance worth up to £175,000 that can be used when you pass your main home (or a share of it) to direct descendants — children, grandchildren, stepchildren, or adopted children. Combined with the standard £325,000 NRB, individuals can pass up to £500,000 free of IHT if they own a qualifying home.
For married couples and civil partners, unused allowances transfer to the surviving partner. This means the second estate can benefit from £650,000 NRB plus £350,000 RNRB, totalling £1,000,000 completely free of IHT. The RNRB is tapered away for estates valued over £2 million — reduced by £1 for every £2 above the threshold.
The 7-Year Gift Rule
Gifts made during your lifetime fall outside your estate for IHT purposes — but only if you survive for 7 years after making the gift. These are called Potentially Exempt Transfers (PETs). If you die within 7 years, taper relief may reduce (but not eliminate) the IHT due.
- 0–3 years before death: Full 40% IHT on the gift
- 3–4 years: 32% (20% taper relief)
- 4–5 years: 24% (40% taper relief)
- 5–6 years: 16% (60% taper relief)
- 6–7 years: 8% (80% taper relief)
- Over 7 years: Exempt — outside the estate entirely
Annual Gift Exemptions
Certain gifts are immediately exempt from IHT without the need to survive 7 years:
- Annual exemption: £3,000 per year per donor (can carry forward one unused year, maximum £6,000)
- Small gifts: Up to £250 per person per year to any number of recipients
- Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else
- Normal expenditure from income: Regular gifts from surplus income (not capital) are fully exempt if they don't reduce your standard of living
- Gifts to spouse or civil partner: Completely exempt if the recipient is UK-domiciled
- Gifts to charity: Fully exempt from IHT
Pensions and IHT
Pension pots are currently outside your estate for IHT purposes, making defined contribution pensions a powerful estate planning tool. From April 2027, however, the government plans to bring inherited pension pots into scope for IHT. Until then, pensions remain an extremely tax-efficient way to pass wealth to the next generation, as beneficiaries may also receive pension funds free of Income Tax if the pension holder dies before age 75.
Use our Inheritance Tax Calculator to estimate the IHT due on an estate →