Inheritance tax: a plain-English guide

Inheritance tax (IHT) is a tax on the estate — the money, property, and possessions — of someone who has died. It applies when the total value of the estate exceeds £325,000 (the nil-rate band). The rate is 40% on everything above that threshold. Most estates in the UK do not pay inheritance tax, but if you are dealing with one that does, understanding the rules early saves time, money, and stress during an already difficult period.

This guide covers who pays, what the thresholds are, how exemptions work, and what forms you need to complete. It covers England and Wales. All figures are verified against HMRC and gov.uk sources as of March 2026.

Quick reference

All figures sourced from gov.uk — inheritance tax, verified March 2026.

What inheritance tax is and when it applies

Inheritance tax is charged on the value of a person’s estate when they die. The estate includes everything they owned — property, savings, investments, vehicles, personal possessions, and any gifts made within seven years of death — minus debts such as mortgages, loans, and funeral costs.

The first £325,000 of an estate is tax-free. This is called the nil-rate band, and it has been frozen at this level since 2009. The government has confirmed it will remain frozen until at least April 2030. (Source: gov.uk — inheritance tax rates and allowances)

Anything above the nil-rate band is taxed at 40%. So if someone dies with an estate worth £425,000, the taxable amount is £100,000, and the IHT bill would be £40,000.

There is a reduced rate of 36% if at least 10% of the net estate is left to charity. This can make a meaningful difference on larger estates and is worth checking before the IHT return is filed.

The residence nil-rate band

The residence nil-rate band (RNRB) provides an additional £175,000 threshold when a person’s home — or a share of it — passes to their direct descendants. Direct descendants include children, stepchildren, adopted children, foster children, and grandchildren.

This means an individual who leaves their home to their children could have a combined threshold of £500,000 (£325,000 + £175,000) before any IHT is due.

Tapering for larger estates: The RNRB is reduced by £1 for every £2 that the estate’s net value exceeds £2 million. At an estate value of £2.35 million, the RNRB is reduced to zero. (Source: gov.uk — inheritance tax residence nil rate band)

The RNRB also applies if the person downsized or sold their home after 8 July 2015, provided the sale proceeds (or assets of equivalent value) pass to direct descendants. The executor must claim this on the IHT return. For full details on eligibility, the tapering calculation, and the downsizing addition, see our complete guide to the residence nil-rate band.

Transfers between spouses and civil partners

Everything that passes between married couples or civil partners is completely exempt from inheritance tax, regardless of the amount. There is no upper limit. If one partner dies and leaves their entire estate to the surviving partner, no IHT is due at all.

Transferable nil-rate band: When the first partner dies and does not use their full nil-rate band — because assets passed to the surviving spouse — the unused portion can be transferred to the surviving partner’s estate when they later die. This means a married couple or civil partnership can have a combined nil-rate band of up to £650,000, and a combined nil-rate band plus RNRB of up to £1,000,000.

The transfer is not automatic. The executor of the second partner’s estate must claim it on the IHT return. They will need details of the first partner’s estate to show how much of the nil-rate band went unused. (Source: gov.uk — inheritance tax — passing on a home)

Important: The spousal exemption only applies to partners with a permanent home in the UK. If the surviving spouse is domiciled outside the UK, the exemption is capped at the nil-rate band (£325,000) unless an election has been made.

How to value an estate for inheritance tax

The executor must work out the total value of the estate before they can determine whether IHT is due. HMRC expects a reasonable estimate on the date of death — not a precise figure to the penny, but a genuine effort to get valuations right.

What to include:

• Property and land (at open market value — an estate agent or chartered surveyor can help)
• Bank accounts, building society accounts, and cash ISAs (contact each institution for the balance on the date of death)
• Stocks, shares, and other investments (use the closing price on the date of death, or the quarter-up method for listed shares)
• Vehicles, boats, and other valuables
• Personal possessions — jewellery, antiques, artwork, collectibles (items worth over £1,500 individually should be professionally valued)
• Life insurance policies that pay into the estate (policies written in trust are excluded)
• Pension lump sums payable to the estate (see the 2027 pension changes section below)
• The deceased’s share of any jointly owned assets
• Gifts made within seven years of death

What to deduct:

• Outstanding mortgage
• Loans and credit card debts
• Unpaid bills (utilities, council tax, care home fees)
• Reasonable funeral expenses

The resulting figure — assets minus debts — is the net estate value used to calculate IHT. (Source: gov.uk — valuing the estate of someone who died)

For jointly owned property held as joint tenants, the deceased’s share is typically half the property value (for two owners). For tenants in common, the share is whatever percentage they owned. If a property was jointly owned with someone other than a spouse, HMRC allows a 10% discount on the deceased’s share to reflect the difficulty of selling a part-share. See our guide to what happens to bank accounts after death for how joint accounts are treated.

Gifts and the seven-year rule

Gifts made during a person’s lifetime can reduce the value of their estate for IHT purposes — but only if they survive for at least seven years after making the gift. Gifts made within seven years of death are added back to the estate’s value.

Taper relief

If the total value of gifts made in the seven years before death exceeds the nil-rate band (£325,000), taper relief reduces the rate of tax on those gifts. The relief applies to the tax rate, not the value of the gift.

Taper relief rates sourced from gov.uk — inheritance tax on gifts, verified March 2026.

Annual and other gift exemptions

Several types of gift are exempt from IHT regardless of the seven-year rule:

Gift allowances sourced from gov.uk — inheritance tax on gifts, verified March 2026.

The “gifts from regular income” exemption is particularly useful but often overlooked. If someone regularly pays into a child’s savings account, helps with school fees, or makes monthly payments to family members from their income — and they can still afford their normal living expenses — those payments are exempt from IHT with no cap. The executor will need to demonstrate the pattern to HMRC.

When inheritance tax must be paid

IHT is due six months from the end of the month in which the person died. If someone died on 15 March, the deadline is 30 September. Miss the deadline, and HMRC charges interest from day one — currently at the Bank of England base rate plus 4% (the current rate is 7.75% as of January 2026, following the change introduced on 6 April 2025). (Source: HMRC interest rates for late and early payments)

The practical difficulty: IHT must typically be paid before the grant of probate is issued, but most of the estate’s assets — bank accounts, property, investments — cannot be accessed without probate. This creates a catch-22 that surprises many executors.

How to bridge the gap:

• Direct Payment Scheme: Banks participating in this scheme will release funds directly to HMRC to pay IHT from the deceased’s accounts, before probate is granted. Ask each bank whether they participate.
• Instalment option for property: If the estate includes land or property, the executor can elect to pay IHT on that asset in ten equal annual instalments. Interest is charged on the outstanding balance. This is often the only realistic option when the estate’s value is tied up in a house that has not yet been sold.
• Heritage assets: HMRC may accept certain national heritage items in lieu of IHT (known as acceptance in lieu). This is rare and applies to items of outstanding scenic, historic, artistic, or scientific interest.

For a full walkthrough of payment methods, the Direct Payment Scheme, and instalment options, see our guide to how to pay inheritance tax. For the full timeline of how IHT interacts with the probate application, see our guide to how to apply for probate and how long probate takes.

How to tell HMRC — forms and reporting

The reporting process depends on the size and complexity of the estate, and whether the death occurred before or after 1 January 2022.

Deaths on or after 1 January 2022 (current rules)

For deaths from 1 January 2022 onwards, the old IHT205 form has been abolished. The reporting process is now simpler for most estates:

If the estate is an excepted estate (no IHT to pay), you do not need to complete a separate HMRC inheritance tax form. Instead, you declare the estate values as part of your probate application (form PA1P if there is a will, or PA1A if there is no will). An estate qualifies as excepted if:

• The gross value is £325,000 or less (or £650,000 if transferring an unused nil-rate band from a deceased spouse/civil partner)
• Everything passes to a spouse, civil partner, or qualifying charity, and the estate is worth less than £3 million
• The deceased was domiciled outside the UK, and UK assets are worth £150,000 or less

If the estate is not excepted (IHT may be due, or the estate is complex), you must complete form IHT400 and send it to HMRC. You also need to submit the relevant supplementary schedules — for example, IHT405 for houses and land, IHT409 for pensions, IHT403 for gifts. IHT400 must be submitted within 12 months of the death.

You can apply for an IHT reference number from HMRC before submitting IHT400. Allow at least three weeks for this. (Source: gov.uk — pay your inheritance tax bill)

Deaths before 1 January 2022

For earlier deaths, the old system applied: excepted estates used form IHT205 (a shorter return confirming no IHT was due), and taxable or complex estates used IHT400.

For more on how HMRC fits into the bereavement process — including income tax, PAYE, self-assessment, and Child Benefit — see our full guide to notifying HMRC when someone dies.

Pensions and inheritance tax from April 2027

From 6 April 2027, most unused pension funds and death benefits will be brought within the scope of inheritance tax. This is a significant change announced in the Autumn Budget 2024.

What this means in practice: If someone dies after 6 April 2027 with money remaining in their pension pot (whether a defined contribution scheme, SIPP, or similar), the value of that pot will be included in their estate when calculating IHT. Previously, most pension pots passed outside the estate and were not subject to IHT.

What is excluded from the change:

• Death in service benefits payable from a registered pension scheme
• Dependant’s scheme pensions from defined benefit arrangements
• Pension funds under £1,000

Who is responsible: The executor (personal representative) will be liable for reporting and paying any IHT due on pension assets — the pension scheme administrator is not responsible. HMRC has confirmed that personal representatives can instruct the pension scheme to withhold up to 50% of taxable benefits for up to 15 months while IHT is calculated. (Source: gov.uk — inheritance tax: unused pension funds and death benefits)

Why this matters for estate planning: Many people have been advised that pensions sit outside their estate for IHT purposes. From April 2027, that will no longer be true for most pension types. This may affect how beneficiaries are nominated and how pensions are drawn down during retirement. Anyone concerned should speak to a qualified financial adviser.

Business and agricultural relief

Two valuable reliefs can reduce or eliminate IHT on specific types of assets:

• Business relief can reduce the taxable value of a business or business assets by 50% or 100%, depending on the type of asset. A qualifying trading business that the deceased owned outright, for example, may attract 100% relief — meaning no IHT is due on its value.
• Agricultural relief applies to agricultural property (farmland, farm buildings) and can also reduce the taxable value by 50% or 100%.

Both reliefs have detailed qualifying conditions and were reformed by Finance Bill 2025–26, effective from April 2026. The combined 100% relief is now capped at £2.5 million (transferable between spouses, so up to £5 million for a couple), with 50% relief applying above that threshold.

These reliefs are complex. If the estate includes a business or agricultural property, seek advice from a solicitor or accountant who specialises in IHT. Applying the wrong relief — or failing to claim one that applies — can result in a significant over- or underpayment of tax. Our full guide to inheritance tax exemptions and reliefs covers BPR, APR, the charity exemption, and all the main reliefs in detail. (Source: gov.uk — inheritance tax: business relief)

Summary

Inheritance tax affects a minority of estates, but when it does apply, the amounts involved are substantial and the deadlines are strict. The key points to remember:

• The nil-rate band is £325,000, frozen until 2030
• The residence nil-rate band adds up to £175,000 when a home passes to direct descendants
• Transfers between spouses and civil partners are 100% exempt
• The tax rate is 40% (or 36% for charitable estates)
• Payment is due six months from the end of the month of death
• For deaths from 2022 onwards, excepted estates report through the probate application — no separate HMRC form is needed
• From April 2027, most unused pension pots will be included in the estate for IHT
• Gifts made more than seven years before death are exempt; within seven years, taper relief may apply

If IHT is likely to apply, start the process early. Valuing the estate, gathering documents, and completing IHT400 takes time — and the six-month payment deadline does not wait for probate to be granted.

For the next steps in managing the estate, see our guides to whether you need probate, how to apply for probate, how long probate takes, and probate costs. For an overview of all the financial tasks after a bereavement, including benefits you may be entitled to, see our benefits hub.