How Inheritance Tax Works in the UK: 2026 Guide

IHT is charged at 40% on the value of your estate above the nil-rate band. The nil-rate band is £325,000 and has been frozen since 2009. There's also the residence nil-rate band of £175,000 if you leave your main home to direct descendants (children, grandchildren). This means an individual can potentially pass on £500,000 tax-free, and a married couple £1 million. But if your estate exceeds these thresholds, the excess is taxed at 40%.

Everything you own at death: property, savings, investments, pensions (in some cases), life insurance policies not written in trust, valuable possessions, and gifts made within the last 7 years. This is why rising house prices are dragging more people into IHT territory — a house worth £400,000 plus savings of £200,000 already exceeds the individual nil-rate band. Joint property passes to a surviving spouse IHT-free, but the full estate is assessed on the second death.

Spouse/civil partner exemption: everything you leave to your spouse is IHT-free (they inherit your unused nil-rate band too). Annual gift exemption: you can give away £3,000 per year tax-free. Small gift exemption: unlimited gifts of up to £250 per person per year. Wedding gifts: up to £5,000 for a child, £2,500 for a grandchild. Business Property Relief: business assets can qualify for 50-100% relief. Agricultural Property Relief: similar for qualifying farmland.

1. Write a will — dying intestate can mean IHT is paid unnecessarily. 2. Use your annual gifting allowances — £3,000/year adds up over decades. 3. Put life insurance in trust — the payout won't count in your estate. 4. Consider a discretionary trust for assets above your nil-rate band. 5. Make gifts from surplus income — regular gifts from income (not capital) can be IHT-free with no 7-year rule. 6. Charitable gifts — leaving 10%+ to charity reduces the IHT rate from 40% to 36%.