Dealing with inheritance tax rarely happens at a calm, convenient moment. It usually arrives alongside probate paperwork, competing family priorities, and decisions that can’t wait. In that situation, one question tends to cut through everything else: will this estate be taxed?
That’s where the threshold matters — and in 2026, it’s more complicated than it used to be.
The base figure is still £325,000. But once you factor in property allowances, spouse transfers, the April 2026 business and farm cap, and the pension changes coming in 2027, the calculation shifts significantly depending on what the estate contains. What most executors find surprising is how quickly a “simple” estate becomes anything but once property, pensions, or business assets are involved.
This guide covers the full picture: how the thresholds work, how to calculate your position, what changed in April 2026, and what’s coming next year that could affect estates currently in planning.
⚠️ Complexity Warning: If the estate includes a business, agricultural land, AIM shares, or a large pension pot, a DIY threshold calculation is no longer reliable. The 2026 and 2027 rule changes interact in ways that require professional advice for larger or mixed estates.
What Is the Inheritance Tax Threshold?
The inheritance tax threshold is the maximum value of an estate that passes on without triggering inheritance tax (IHT). Everything below the threshold: no tax. Everything above it: taxed at 40%, but only on the excess — not the full estate value.
The standard threshold — called the nil-rate band (NRB) — is £325,000 per person. It has been frozen since 2009 and remains fixed until at least April 2028. That freeze is doing significant work. Property values have risen substantially over the same period, meaning estates that would have fallen comfortably below the threshold fifteen years ago now exceed it. Families who never expected to pay inheritance tax are now paying it — not because they became wealthier in any meaningful sense, but because the threshold hasn’t kept pace.
That’s fiscal drag in practice, and it’s why understanding the full picture of allowances matters.
UK Inheritance Tax Thresholds in 2026
| Allowance Type | Amount |
|---|---|
| Standard nil-rate band (NRB) | £325,000 |
| Residence nil-rate band (RNRB) | £175,000 |
| Total — individual with qualifying property | £500,000 |
| Total — married couple (maximum) | Up to £1,000,000 |
A single person passing their home to children or grandchildren can protect up to £500,000. A married couple using both sets of allowances can protect up to £1 million. But both figures depend on conditions being met — particularly around property and who inherits it.
The Residence Nil-Rate Band Explained
The residence nil-rate band (RNRB) adds £175,000 to your threshold — but only when you pass a qualifying home to direct descendants (children, stepchildren, grandchildren).
If you don’t own property, or your estate passes to siblings, friends, or a trust rather than direct descendants, the RNRB doesn’t apply. Your effective threshold remains £325,000.
This is one of the most commonly misunderstood aspects of IHT planning. Many families assume the £500,000 figure applies automatically. It doesn’t.
How to Calculate Your Inheritance Tax Position
- Step 1 — Start with the nil-rate band: £325,000 per person.
- Step 2 — Add the RNRB if eligible: +£175,000 if passing a qualifying home to direct descendants.
- Step 3 — Add a spouse’s unused allowance if applicable: Married couples and civil partners can transfer unused NRB and RNRB to the surviving partner.
- Step 4 — Apply the result to the estate value.
Worked Examples
1: Single person, no property relief
- Estate: £400,000
- Threshold: £325,000
- Taxable amount: £75,000
- Tax due: £30,000
2: Single person with a qualifying home
- Estate: £450,000
- Combined threshold: £500,000
- Tax due: £0
3: Married couple
- Estate: £900,000
- Combined threshold: £1,000,000
- Tax due: £0
Inheritance Tax for Married Couples and Civil Partners
When everything passes between spouses or civil partners, no inheritance tax applies — regardless of estate value. More importantly, the surviving partner inherits their deceased partner’s unused NRB and RNRB allowances.
In practice, this means a couple who both use their full allowances can protect up to £1 million from IHT. But the transfer isn’t automatic — the executor needs to claim the transferred allowance from HMRC when the second partner dies. Missing this step is a surprisingly common and costly mistake.
If your family has experienced this situation recently, the guide on what happens when the second parent dies covers the specific steps executors need to take.
The £2 Million Taper: When the Property Allowance Shrinks
If an estate exceeds £2 million, the residence nil-rate band begins to reduce. For every £2 above £2 million, £1 of RNRB is lost.
Example:
- Estate: £2.2 million
- Excess over £2m: £200,000
- RNRB reduction: £100,000
- Remaining RNRB: £75,000
At around £2.35 million, the residence allowance disappears entirely. For estates approaching this level, careful gifting and planning in advance can preserve a significant portion of the allowance.
⚠️ April 2026 Update: The New Business and Farm Cap
This is the most significant change to IHT in years, affecting farmers, business owners, and anyone holding AIM shares.
Business Property Relief and Agricultural Property Relief
Before April 6, 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) could shelter the full value of qualifying business or agricultural assets from IHT — with no upper limit.
From April 6, 2026, that unlimited relief no longer exists.
The new structure:
| Value of Business/Agricultural Assets | Relief |
|---|---|
| First £2.5 million (per person) | 100% — fully tax-free |
| Above £2.5 million | 50% relief only — effective tax rate of 20% |
For married couples, the £2.5m allowance can be combined, protecting up to £5 million in qualifying business or agricultural assets between them.
This change catches many family businesses and farms off guard. An estate that would have passed entirely tax-free under the old rules may now face a substantial bill on the portion above £2.5 million.
Instalment option: To prevent forced asset sales, the government now allows IHT due on business and agricultural assets to be paid in 10 annual instalments. This applies to qualifying property and is designed to protect trading businesses and working farms from having to liquidate to pay a tax bill.
AIM Shares
AIM shares previously attracted 100% BPR after a two-year holding period, making them a popular IHT planning tool. From 2026, that 100% relief no longer applies. AIM shares are now subject to the same 50% relief cap that applies to other business assets above the £2.5m threshold.
For portfolios that relied on AIM shares as an IHT shelter, this is a material change. If this applies to your estate, seek advice on how the new structure affects your position — Labour’s inheritance tax changes explains the policy background.
Trusts
Trusts now have a matching £2.5m allowance for 100% APR/BPR relief. Anything above this within a trust structure faces the same 50% relief cap. Existing trust arrangements set up under the old rules may need reviewing.
Non-Dom Status: The 2025/26 Abolition
The “non-domiciled” tax regime — which allowed UK residents with foreign domicile status to shelter overseas assets from IHT — was abolished in 2025/26. The UK has moved to a residency-based system.
Under the new rules, long-term UK residents are taxed on their worldwide assets regardless of domicile status. For high-net-worth individuals who relied on non-dom status as part of their IHT planning, the implications are significant, and the window to restructure has largely closed.
The 7-Year Rule and Taper Relief
If you give away assets and survive for seven years, those gifts fall outside your estate entirely — no IHT applies.
If you die within seven years, tax still applies but reduces progressively:
| Years Between Gift and Death | Tax Rate |
|---|---|
| 0–3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% |
One thing many people overlook: taper relief reduces the tax rate, not the value of the gift. A large gift made three years before death still counts against your nil-rate band at its full value — the reduction only applies to the tax calculated on it.
There’s also a human cost worth considering. Many people rush to give away assets purely to reduce their IHT exposure. But gifting is immediate and irreversible. Once you hand over that money, you no longer control it. Don’t give away your financial cushion just to reduce the taxman’s share — the security that money represents is often worth more than the tax saving.
For a full breakdown of annual gift allowances and what qualifies as exempt, see how much you can gift tax-free.
2027 Pension Changes: What’s Coming and Why It Matters Now
Current position (2026)
Most pension funds — particularly Defined Contribution (DC) pensions — currently sit outside the taxable estate. This has made unused pension pots a widely used IHT planning tool: spend other assets first, leave the pension intact.
What changes in April 2027
From April 2027, unused DC pension funds will be included in the taxable estate and subject to 40% IHT. This fundamentally changes the planning logic.
How it will work in practice: Under the new Pension Inheritance Tax Payments Scheme, pension administrators will pay HMRC directly from the fund before the remainder passes to beneficiaries. This removes the burden from executors but also means beneficiaries receive less than they would under the current rules.
Why planning in 2026 matters:
If your estate strategy currently relies on a large pension pot sitting outside IHT, that assumption needs revisiting now — before the 2027 change takes effect. Options include drawing down more of the pension during your lifetime, exploring spousal pension strategies, or adjusting gifting plans in light of the new combined estate value.
The pension tax-free lump sum changes and Rachel Reeves’ pension tax relief reforms cover the broader pension tax context if you need more background.
For anyone with concerns about how the 2027 change affects an estate currently in planning, the HMRC inheritance tax changes 2027 guide goes deeper on the transition mechanics.
Ways to Reduce Inheritance Tax
Use the £3,000 annual gift allowance. Fully exempt, no seven-year clock, and you can carry forward one unused year — so up to £6,000 in the first year if the previous year’s allowance was unused.
Give small gifts. Up to £250 per person per year to any number of individuals — no seven-year rule applies.
Leave 10% to charity. This reduces your IHT rate from 40% to 36% on the taxable portion, and supports a cause you care about.
Use spouse transfers fully. Missing the transferred NRB claim is one of the most avoidable and costly executor errors.
Review pension strategy before April 2027. Don’t wait.
Get advice if your estate is complex. The 2026/27 overlaps involving business assets, pensions, and the non-dom abolition are genuinely difficult to navigate without specialist input.
Common Mistakes
- Assuming the £500,000 or £1 million threshold applies automatically without checking the RNRB conditions
- Forgetting to claim a deceased spouse’s transferred allowance
- Not planning gifts early enough — the seven-year clock starts from the date of the gift, not the date of death
- Ignoring the £2 million taper for larger estates
- Assuming business or agricultural assets are fully exempt post-April 2026
- Treating pension pots as permanently outside the estate without factoring in the 2027 change
Quick Reference: IHT Threshold Summary
- £325,000 — standard nil-rate band per person
- £500,000 — with qualifying property and direct descendants
- £1,000,000 — married couple using full combined allowances
- £2.5m — new BPR/APR cap per person (above this, 50% relief only)
- 40% — standard IHT rate on the taxable portion
- 36% — reduced rate when 10% or more goes to charity
- 7 years — gift survival period for full exemption
- April 2027 — date DC pensions enter the taxable estate
Why “Avoiding IHT” Isn’t Always the Right Goal
It’s tempting to structure everything around minimising the tax bill. But that approach can backfire.
Giving away assets too early can compromise your own financial security — particularly if care costs or unexpected expenses arise later. Some planning strategies are genuinely complex and expensive to set up, and the tax savings don’t always justify the cost for smaller estates. And sometimes, paying some tax is simply more straightforward than restructuring your entire financial life to avoid it.
Efficient planning and total avoidance aren’t the same thing. The goal is to understand your position clearly, use the allowances you’re legitimately entitled to, and make decisions that work for your family — not just for the tax calculation.
Frequently Asked Questions
Q. What is the inheritance tax threshold in the UK in 2026?
The inheritance tax threshold in the UK for 2026 is £325,000 per person. This can increase to £500,000 if you qualify for the residence nil-rate band (by passing your home to direct descendants), and up to £1 million for married couples using combined allowances.
Q. How much can you inherit tax-free in the UK?
You can inherit up to £325,000 tax-free per person as a baseline. This can rise to £500,000 with property allowances, or £1 million for couples, depending on marital status, home ownership, and eligibility for additional reliefs.
Q. What is the inheritance tax rate in the UK?
The inheritance tax rate is 40% on the portion of the estate above the threshold. A reduced rate of 36% applies if at least 10% of the net estate is left to charity.
Q. Do beneficiaries pay inheritance tax in the UK?
No. Inheritance tax is paid by the estate, not the beneficiaries. The tax is deducted before assets are distributed. From April 2027, pension providers will pay any due tax directly to HMRC from pension funds under updated rules.
Q. What is the 7-year rule for inheritance tax?
The 7-year rule means gifts become fully exempt from inheritance tax if the person making the gift survives seven years. If death occurs within 3 to 7 years, tax is reduced on a sliding scale (taper relief).
Q. Will pensions be subject to inheritance tax in 2027?
Yes. From April 2027, unused Defined Contribution pension funds will be included in the taxable estate and may be subject to 40% inheritance tax, with payment handled directly by pension administrators.
Q. Does property increase the inheritance tax threshold?
Yes. Property can increase your threshold by £175,000 through the residence nil-rate band. This applies only when the home is passed to direct descendants and all qualifying conditions are met.
Q. What changed for business and farm assets in April 2026?
From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) are capped at £2.5 million per person (£5 million for couples). Assets above this limit receive 50% relief instead of 100%, resulting in an effective 20% tax rate on the excess.
Conclusion
The UK inheritance tax threshold in 2026 is more flexible than the headline figure suggests — but also more complicated than it’s been in years.
The base position: £325,000 standard, up to £500,000 with property relief, up to £1 million for couples. Those figures apply to straightforward estates.
For estates involving business assets, farms, AIM shares, or large pension pots, the April 2026 changes and the incoming 2027 pension reform change the calculation materially. If your estate falls into any of those categories, the planning you did two years ago may no longer be accurate.
The single most useful step you can take today: calculate your estate against the thresholds above, identify whether any of the 2026/27 changes affect you, and — if they do — take professional advice before the 2027 pension cliff arrives.
For more guides on UK tax and estate planning, visit Pure Magazine.
