Inheritance Tax in the UK: Thresholds, Rates and Exemptions Explained

Inheritance tax is one of the most searched topics in UK estate administration, and one of the most misunderstood. If you have recently lost someone and are trying to work out whether inheritance tax applies to their estate, this guide will walk you through everything you need to know.

The good news: most UK estates pay no inheritance tax at all.

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What Is Inheritance Tax (IHT)?

Inheritance tax (commonly referred to as IHT) is a tax charged on the estate of someone who has died. The estate includes all their assets, such as property, bank accounts, savings, investments, and personal possessions, minus any outstanding debts, mortgages, and funeral costs.

The standard UK inheritance tax rate is 40%, but it only applies to the portion of the estate above a certain threshold. Below that threshold, no tax is due.

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How Much Is the UK Inheritance Tax Threshold in 2025/26?

The main threshold is known as the nil rate band. For the 2025/26 tax year, it is:

Nil Rate Band: £325,000

This threshold is the same across the whole of the UK, covering England, Wales, Scotland, and Northern Ireland. It has been frozen at this level until April 2028.

If the net estate (assets minus liabilities) is worth less than £325,000, no inheritance tax is due and no tax needs to be paid.

Example:

• Net estate value: £425,000
• Nil rate band: £325,000
• Taxable amount: £100,000
• Inheritance tax due: £40,000 (40% of £100,000) Only the £100,000 above the threshold is taxed, not the full £425,000.

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What Is the Residence Nil Rate Band?

If the person who died owned a home and is leaving it to their children or grandchildren, an additional tax-free allowance may apply. This is called the Residence Nil Rate Band (RNRB).

Residence Nil Rate Band: £175,000 (2025/26)

This allowance is available when:

• The property was the deceased's main residence at some point
• It is being left to direct descendants, including children, stepchildren, adopted children, or grandchildren
• The total estate is valued below £2 million (the allowance tapers above this) When both allowances are combined, a single person may be able to pass on up to £500,000 inheritance tax free.

Example:

• Net estate value: £550,000 (including the family home)
• Home passes to adult children
• Nil rate band: £325,000
• Residence nil rate band: £175,000
• Total allowance: £500,000
• Inheritance tax due: £20,000 (40% of £50,000)

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Can Married Couples and Civil Partners Transfer Allowances?

Yes. When one spouse or civil partner dies, any unused portion of their nil rate band and residence nil rate band can be transferred to the surviving partner. This effectively doubles the available allowances at the second death.

Combined allowances for married couples and civil partners:

Allowance	Per Person	Combined Maximum
Nil Rate Band	£325,000	£650,000
Residence Nil Rate Band	£175,000	£350,000
Total	£500,000	£1,000,000

For many couples with a family home passing to their children, up to £1 million can pass free of inheritance tax, making it a significant relief for the surviving family.

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Key Inheritance Tax Exemptions in the UK

Beyond the nil rate bands, several important exemptions can reduce or eliminate inheritance tax.

Spouse and Civil Partner Exemption

Assets left to a UK-domiciled spouse or civil partner are completely exempt from inheritance tax, regardless of the amount. This is one of the most widely used exemptions and means many estates pay no tax at all at the first death.

Charity Exemption

Gifts to UK registered charities are fully exempt from inheritance tax. If the deceased left at least 10% of their net estate to charity, the inheritance tax rate on the remainder reduces from 40% to 36%.

Annual Gift Exemption

Up to £3,000 per year in gifts made during the deceased's lifetime can be exempt from inheritance tax. There is also a small gifts exemption allowing unlimited gifts of up to £250 per person per year.

The Seven-Year Rule

Larger gifts made during the person's lifetime are treated as Potentially Exempt Transfers (PETs). If the person survived for seven or more years after making the gift, it falls outside the estate entirely. If they died within seven years, the gift may be partially or fully included in the estate, with a sliding scale of relief known as taper relief.

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Who Actually Pays Inheritance Tax in the UK?

According to HMRC figures, only around 4% of UK estates pay any inheritance tax. The combination of the nil rate band, the residence nil rate band, the spouse exemption, and other reliefs means the vast majority of families are not affected.

If the estate you are dealing with is below £325,000, or the deceased was married and their estate is passing to a surviving spouse, there is a strong likelihood that no inheritance tax is due.

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When Does Inheritance Tax Need to Be Paid?

Inheritance tax must be paid within six months of the end of the month in which the person died. HMRC charges interest on any amount paid late.

There is an exception for property: inheritance tax on property can be paid in annual instalments spread over ten years.

England and Wales: In most cases, inheritance tax must be paid before probate is granted. This can create a cash-flow challenge since the estate's assets are typically inaccessible until probate is in hand. Some banks participate in a Direct Payment Scheme, allowing them to pay inheritance tax directly to HMRC from the deceased's accounts before probate is granted.

Scotland: The timing works slightly differently within the Confirmation process handled by the Sheriff Court.

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Do I Need to Report an Estate to HMRC Even If No Tax Is Due?

Yes, in most cases. Even if the estate falls below the inheritance tax threshold, executors or administrators typically still need to complete HMRC's reporting requirements as part of the probate or Confirmation application. The requirement to report does not mean tax is owed. Since 2022, this is all handled within the Probate or Confirmation application.

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Which Inheritance Tax Forms Are Required?

The forms needed depend on the estate's size, complexity, and jurisdiction.

England, Wales, and Northern Ireland

For deaths on or after 1 January 2022, simpler estates that fall below the inheritance tax threshold use an integrated reporting process within the online probate application (replacing the older IHT205 form).

More complex estates, including those where inheritance tax is due, those involving trusts, foreign assets, or business property, require form IHT400 along with the relevant supplementary schedules.

Scotland

In Scotland, the application for Confirmation uses form C1, submitted to the local Sheriff Court.

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Inheritance Tax in Scotland: Is It Different?

The inheritance tax thresholds, rates, and exemptions are identical across the whole of the UK. The differences in Scotland relate to the legal process:

• The process is called Confirmation rather than probate
• Applications go to the Sheriff Court, not HMCTS
• The executor may be referred to as Executor-Nominate (named in a will) or Executor-Dative (appointed by the court where there is no will)
• Estates under £36,000 may qualify for a simplified small estate process

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When Should You Get Professional Help with Inheritance Tax?

For many straightforward estates, families manage the process themselves. But it is worth speaking to a solicitor or tax adviser if:

• The estate is likely to be above the available thresholds
• The person who died made significant gifts in the seven years before death
• Business assets or agricultural property are involved
• There are assets held abroad
• Trusts are involved
• You are unsure about property valuations

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Inheritance Tax: Key Terms at a Glance

• Nil Rate Band (NRB): The standard inheritance tax threshold of £325,000
• Residence Nil Rate Band (RNRB): An additional £175,000 allowance when a family home passes to direct descendants
• Transferable Nil Rate Band: Unused allowances from a deceased spouse that pass to the surviving partner
• Potentially Exempt Transfer (PET): A lifetime gift that becomes exempt from IHT if the donor survives seven years
• Taper Relief: A sliding scale reduction of IHT on gifts made between three and seven years before death
• Excepted Estate: An estate that falls below HMRC's reporting thresholds for a full IHT return
• IHT400: The full inheritance tax return required for more complex or taxable estates
• Probate (England, Wales, NI): The legal process that grants an executor authority to administer an estate
• Confirmation (Scotland): The Scottish equivalent of probate, issued by the Sheriff Court

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Frequently Asked Questions About Inheritance Tax

What is the inheritance tax threshold for 2025/26?

The nil rate band is £325,000. With the residence nil rate band, a single person may be able to pass on up to £500,000 free of inheritance tax. Married couples and civil partners can potentially combine allowances up to £1,000,000.

Does a surviving spouse pay inheritance tax?

No. Assets left to a UK-domiciled spouse or civil partner are fully exempt from inheritance tax, regardless of the amount.

Is there inheritance tax on a house left to children?

If the home qualifies for the Residence Nil Rate Band and is left to direct descendants, up to £175,000 of its value is covered by that additional allowance. Whether any tax applies depends on the total estate value and which allowances are available.

How is inheritance tax calculated on an estate?

Add up all assets, subtract liabilities (debts, mortgage, funeral costs) to reach the net estate. Deduct any exemptions (such as the spouse exemption), then deduct the applicable nil rate bands. Tax is charged at 40% on whatever remains above the threshold.

Can you avoid inheritance tax legally in the UK?

There are a number of legitimate ways to reduce an inheritance tax liability, including making use of annual gift exemptions during a person's lifetime, leaving assets to a spouse or civil partner, including charitable gifts in a will, and using life insurance policies written in trust. These are planning considerations rather than avoidance.

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Working Out Where You Stand