Inheritance tax exemptions and reliefs

Inheritance tax applies at 40% on the value of an estate above the nil-rate band of £325,000. But several exemptions and reliefs can reduce that bill — in some cases to zero. Some apply automatically (like the spouse exemption), while others must be claimed on the IHT return. If you are dealing with an estate, knowing which reliefs are available is one of the most important steps in working out what tax is owed.

This guide covers the main exemptions and reliefs, what they are worth, and who qualifies. All figures are verified against HMRC and gov.uk guidance as of March 2026.

Key exemptions and reliefs at a glance

All figures sourced from gov.uk — Inheritance Tax and gov.uk — Gifts and Inheritance Tax, verified March 2026.

Spouse and civil partner exemption

Transfers between married couples or civil partners are completely exempt from inheritance tax, with no upper limit. This applies to assets passing during lifetime and on death — whether through a will, under the intestacy rules, or by right of survivorship for jointly owned property (gov.uk — Inheritance Tax).

When the first spouse dies and leaves their estate to the survivor, no IHT is due. The first spouse’s nil-rate band goes unused — and that unused allowance can be transferred to the surviving spouse’s estate when they die, giving a combined nil-rate band of up to £650,000. Combined with the residence nil-rate band, a couple can pass on up to £1,000,000 tax-free.

The domicile caveat

The unlimited spouse exemption applies only where both parties are UK domiciled (or, from 6 April 2025, where both are long-term UK residents under the new residence-based rules). If the receiving spouse is not UK domiciled, the exemption is capped at the nil-rate band — currently £325,000 — under section 18(2) of the Inheritance Tax Act 1984 (HMRC Internal Manual — IHTM11033). The non-domiciled spouse can elect to be treated as UK domiciled for IHT purposes to remove this cap, but the election has wider tax consequences and professional advice is essential.

Unmarried partners

The spouse exemption does not extend to unmarried couples, regardless of how long they have lived together. Cohabiting partners have no IHT exemption for transfers between them. If your partner died without a will, our guide on intestacy rules explains what happens.

Charity exemption

Gifts to UK-registered charities are fully exempt from inheritance tax — whether made during lifetime or left in a will. There is no upper limit. Gifts to qualifying political parties, national museums, universities, and the National Trust are also exempt (gov.uk — Inheritance Tax).

The reduced rate: 36% instead of 40%

If at least 10% of the net estate is left to charity, the IHT rate on the remaining taxable estate drops from 40% to 36%. The net estate for this purpose is the value after deducting debts, funeral expenses, the nil-rate band, and any exemptions — but before deducting the charitable gifts themselves.

The reduced rate is claimed on form IHT430, submitted alongside the IHT400 return. HMRC provides an online calculator to check whether the estate qualifies (gov.uk — Inheritance Tax reduced rate calculator).

On larger estates, the 4% saving can be substantial — and in some cases, leaving slightly more to charity so that the 10% threshold is met can result in a lower total tax bill, meaning the beneficiaries receive more even after the charitable gift.

Business property relief (BPR)

Business property relief reduces the taxable value of qualifying business assets on death, and in some cases removes them from the IHT calculation entirely. It is one of the most valuable reliefs available (gov.uk — Business Relief for Inheritance Tax). For a full guide to BPR — including qualifying conditions, the trading test, AIM shares, and how to claim — see our dedicated business property relief article.

What qualifies

100% relief (within the allowance — see below):

• A business or an interest in a business (sole trader, partnership share)
• Shares in an unlisted company (including shares traded on the Alternative Investment Market, subject to the April 2026 changes below)

50% relief:

• Shares giving control (more than 50% of voting rights) of a listed company
• Land, buildings, or machinery owned by the deceased and used in a business they were a partner in or controlled
• Land, buildings, or machinery held in a trust and used in the business of the trust beneficiary

Ownership requirement

The deceased must have owned the business or asset for at least two years before death (gov.uk — Business Relief for Inheritance Tax).

What does not qualify

Businesses whose main activity is dealing in securities, stocks, shares, land, or buildings — or holding investments — are excluded. This is one of the most common areas of dispute. A company that owns and lets residential property, for example, does not qualify for BPR because it is an investment activity. The test is whether the business is mainly a trading business or mainly an investment business.

Also excluded: businesses being wound up (unless for the purposes of continuing the business), not-for-profit organisations, and assets not used mainly for business purposes in the two years before death.

Changes from 6 April 2026

The Autumn Budget 2024 announced significant reforms to BPR, subsequently amended during the passage of Finance Bill 2025–26. The key changes taking effect from 6 April 2026 are:

A new combined allowance of £2.5 million. The first £2.5 million of qualifying BPR and APR assets (combined) continues to receive 100% relief. Qualifying assets above that threshold receive 50% relief — giving an effective IHT rate of 20% on the excess (gov.uk — Agricultural property relief and business property relief changes).

The allowance is transferable between spouses and civil partners. If the first spouse to die does not use their full £2.5 million allowance, the unused portion transfers to the surviving spouse. This means a couple can shelter up to £5 million of qualifying business and agricultural assets. Combined with two nil-rate bands (£650,000), a married couple could pass on approximately £5.65 million in qualifying assets free of IHT (gov.uk — Inheritance tax reliefs threshold to rise to £2.5m).

AIM shares move to 50% relief. Shares traded on AIM (the Alternative Investment Market) — previously eligible for 100% BPR as unlisted securities — will receive only 50% relief from April 2026. This change applies regardless of the £2.5 million allowance and does not consume any of it (gov.uk — Summary of reforms to APR and BPR).

Interest-free instalments. The option to pay IHT in ten equal annual interest-free instalments is extended to all assets qualifying for BPR or APR, whether at 100% or 50%.

The original Budget announcement set the combined allowance at £1 million. This was increased to £2.5 million by government amendment during the passage of Finance Bill 2025–26, confirmed on 12 January 2026 (House of Commons Library — Changes to agricultural and business property reliefs for inheritance tax).

Agricultural property relief (APR)

Agricultural property relief reduces the taxable value of qualifying agricultural property on death. It works alongside BPR — and from April 2026, shares the same combined £2.5 million allowance (gov.uk — Agricultural Relief on Inheritance Tax).

What qualifies

Agricultural property means land or pasture used for growing crops or rearing animals, together with farm buildings, farm cottages, and farmhouses of a character appropriate to the farming activity. Also included: stud farms for horse breeding, short-rotation coppice, and land under environmental stewardship or habitat schemes.

100% relief (within the allowance):

• Agricultural property the owner farmed themselves
• Property let on a tenancy beginning on or after 1 September 1995
• Property let on a short-term grazing licence

50% relief:

• Agricultural property let on a tenancy that began before 1 September 1995

Ownership requirements

• 2 years if the owner occupied the property for agricultural purposes (either farming it themselves or through their company or spouse)
• 7 years if the property was occupied by someone else for agricultural purposes

What “agricultural property” does not include

Relief applies only to the agricultural value of the property. If a farmhouse commands a premium because of its character as a country residence (above what it would be worth as a working farmhouse), the excess does not qualify for APR. HMRC scrutinises farmhouse claims carefully — the farmhouse must be of a “character appropriate” to the agricultural land it serves.

Farm equipment, harvested crops, livestock, and derelict buildings are also excluded from APR (though some may qualify for BPR separately).

Changes from 6 April 2026

The same reforms that affect BPR apply to APR. From 6 April 2026, the first £2.5 million of combined APR and BPR assets receives 100% relief, with 50% relief above that threshold. The allowance is transferable between spouses (up to £5 million combined). Interest-free instalment payments over ten years are available on all qualifying APR assets.

From 6 April 2025, APR also extends to land managed under an environmental agreement with a UK government body, devolved government, or approved responsible body (gov.uk — Agricultural property relief and business property relief changes).

Annual exemption, small gifts, and wedding gifts

Several exemptions cover everyday giving and smaller transfers. These gifts are fully exempt from IHT and do not enter the seven-year gift calculation (gov.uk — Gifts and Inheritance Tax).

Annual exemption: Each person can give away £3,000 per tax year free of IHT. If the full £3,000 is not used in one tax year, the unused portion can be carried forward to the next year — but only one year, and only once. The maximum in any single year is therefore £6,000 (current year plus one year’s unused allowance).

Small gifts exemption: Gifts of up to £250 per person per tax year are exempt. There is no limit on the number of people who can receive small gifts — but you cannot give the same person both a small gift and an annual exemption gift in the same year.

Wedding and civil partnership gifts: Gifts made on the occasion of a marriage or civil partnership are exempt up to:

• £5,000 from a parent
• £2,500 from a grandparent or great-grandparent
• £1,000 from anyone else

Regular gifts from income: Gifts made as part of a regular pattern of giving from surplus income — where the giver can still afford their normal standard of living — are fully exempt with no upper limit. This is a powerful exemption for those with income above their needs. HMRC will look for a clear pattern of regular giving and evidence that the gifts came from income rather than capital. The executor may need to provide records of income and expenditure. Our guide to inheritance tax gift rules and the 7-year rule covers these exemptions in full alongside the rules for larger gifts.

Woodland relief, heritage assets, and other reliefs

A few further reliefs exist for specialist circumstances. They are less commonly claimed but worth knowing about for completeness.

Woodland relief allows the value of timber (not the underlying land) to be left out of the IHT calculation on death. IHT on the timber is deferred until the timber is sold or otherwise disposed of. The land itself remains part of the estate. This relief can be useful for estates with significant forestry holdings.

Heritage assets — certain nationally important items including listed buildings, works of art, scientific collections, and land of outstanding scenic or historic interest — can be conditionally exempt from IHT. The exemption is granted on condition that the items are properly maintained, preserved, and made accessible to the public. If the conditions are breached or the item is sold, the deferred IHT becomes payable. HMRC can also accept heritage assets in lieu of tax.

Political party exemption: Gifts to qualifying political parties (those with at least two MPs, or one MP and at least 150,000 votes at the most recent general election) are fully exempt from IHT.

These reliefs defer or conditionally exempt IHT rather than removing it permanently. Professional advice is essential when considering any of them.

How reliefs interact with each other

Reliefs and exemptions can be combined. A few common scenarios:

BPR plus spouse exemption. If a business owner dies and leaves their business to their spouse, the spouse exemption covers the transfer — no BPR claim is needed. But the surviving spouse then holds the business asset. When they die, BPR can be claimed on the business (subject to the qualifying conditions and the £2.5 million allowance).

Charity exemption plus the reduced rate. If an estate includes a charitable legacy of 10% or more of the net estate, the 36% reduced rate applies to the taxable portion. The charitable gift itself is fully exempt. On a large estate, this combination can save tens of thousands of pounds.

BPR and APR combined. A farming estate that includes both agricultural land and a separate trading business can claim APR on the farmland and BPR on the business. From April 2026, both draw on the same £2.5 million allowance for 100% relief.

Practical example: An estate worth £3 million includes a farm valued at £2 million (qualifying for APR) and a separate business interest worth £800,000 (qualifying for BPR). The combined qualifying assets are £2.8 million. The first £2.5 million receives 100% relief. The remaining £300,000 receives 50% relief, leaving £150,000 taxable. The nil-rate band of £325,000 covers that — so no IHT is due on any of the qualifying assets.

Common questions

Do I need to claim IHT reliefs?

Most reliefs must be claimed. BPR and APR are claimed on the IHT400 form (supplementary schedules IHT412 for business relief and IHT414 for agricultural relief). The spouse exemption applies where the estate passes to a spouse, but the executor still needs to report it correctly. The charity exemption and 36% reduced rate require form IHT430. Missing a claim means the relief is not applied — so it is worth checking every relief that might apply before submitting the IHT return.

Can I claim BPR on AIM shares?

Yes, AIM shares can qualify for BPR because they are classified as unlisted for IHT purposes. Until 5 April 2026, qualifying AIM shares receive 100% BPR. From 6 April 2026, AIM shares will receive 50% relief — meaning IHT is charged at an effective rate of 20% on their value. This change applies regardless of the £2.5 million combined allowance (gov.uk — Summary of reforms to APR and BPR).

What happens to reliefs if I give assets away before death?

If someone gives away business or agricultural property during their lifetime and dies within seven years, BPR or APR can still apply to the gift — provided the recipient still holds the qualifying asset at the date of death (or, if the recipient has sold it, replaced it with other qualifying property). The original ownership period of the donor counts towards the two-year requirement. If the asset no longer qualifies at the date of death, the gift is taxed under the normal seven-year gift rules.

Summary

Inheritance tax exemptions and reliefs can substantially reduce — or eliminate — the tax payable on an estate. The spouse exemption removes transfers between married couples from IHT entirely. The charity exemption does the same for charitable gifts, with a reduced 36% rate available for estates leaving 10% or more to charity. Business property relief and agricultural property relief can shelter qualifying assets up to £2.5 million at 100%, with 50% relief above that threshold from April 2026.

These reliefs interact with the nil-rate band and residence nil-rate band to determine the final IHT position. For estates that include business assets, agricultural land, or significant charitable legacies, getting the reliefs right can save very large sums. If you are dealing with an estate where any of these reliefs might apply, professional advice from a solicitor or tax adviser is strongly recommended.

For the full picture on inheritance tax thresholds, see our guides to the nil-rate band, the residence nil-rate band, and gift rules and the 7-year rule. For help with the probate process, see our probate hub.

All figures verified against HMRC and gov.uk guidance, March 2026. BPR and APR reform details sourced from Finance Bill 2025–26 and confirmed gov.uk publications. This guide covers England and Wales. It is for information only and does not constitute legal or tax advice. For complex estates — particularly those involving business assets, agricultural property, or overseas domicile issues — a solicitor or tax adviser can save considerable time and money.