Inheritance tax is charged at 40% on the part of an estate above the £325,000 nil-rate band. A further £175,000 residence nil-rate band applies when a home is left to children or grandchildren, taking a single person’s tax-free total to £500,000, and anything left to a spouse or civil partner is exempt with the unused allowances passing to the survivor, so a couple can leave up to £1 million tax free. An £800,000 estate with a home left to children pays £120,000. Both thresholds are frozen until at least April 2030, which is why more ordinary estates are being drawn in each year.
The thresholds
| 2026/27 | |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band | £175,000, capped at the value of the home |
| Residence band taper | lost at £1 for every £2 of estate above £2 million, gone at £2.35 million |
| Rate above the thresholds | 40% |
| Rate where 10% or more of the net estate goes to charity | 36% |
| Spouse or civil partner exemption | unlimited |
The residence nil-rate band only applies where a home the deceased lived in passes to direct descendants: children, stepchildren, adopted and foster children and grandchildren, or their spouses. A home left to a sibling, a partner who is not a spouse or a friend attracts only the £325,000. Where the deceased downsized or sold the home before death, a downsizing addition can preserve the relief if assets of equivalent value pass to descendants.
Married couples and civil partners
Everything passing between spouses or civil partners is exempt, and any portion of the nil-rate band and residence band not used on the first death transfers to the survivor’s estate. A widow or widower whose spouse left everything to them therefore has £650,000 of nil-rate band and £350,000 of residence band, £1 million in total, provided the home passes to descendants and the estate stays below the £2 million taper line. The transfer must be claimed by the executors on the second death, with the first death’s paperwork, and applies however long ago the first death occurred.
What estates pay
| Estate | Home left to descendants | Tax-free total | Inheritance tax | Rate on the whole estate |
|---|---|---|---|---|
| £400,000 | no | £325,000 | £30,000 | 7.5% |
| £400,000 | yes, home £300,000 | £500,000 | £0 | 0% |
| £600,000 | yes, home £350,000 | £500,000 | £40,000 | 6.7% |
| £800,000 | yes, home £400,000 | £500,000 | £120,000 | 15% |
| £1,200,000 | yes, home £600,000 | £500,000 | £280,000 | 23.3% |
| £2,200,000 | yes, home £900,000 | £400,000 | £720,000 | 32.7% |
| £2,350,000 | yes, home £900,000 | £325,000 | £810,000 | 34.5% |
These are for a single person, or a surviving spouse whose partner used their own allowances. Doubling the tax-free totals for a survivor with fully transferred bands leaves the £800,000 estate paying nothing and the £1.2 million estate paying £80,000. The inheritance tax calculator runs any estate, home value and beneficiary mix, including the taper.
Gifts and the seven-year rule
Gifts made more than seven years before death fall outside the estate. Gifts within seven years are added back, using up the nil-rate band first, and tax on gifts above the band is reduced by taper relief once the gift is more than three years old: 32% for gifts three to four years before death, 24% for four to five, 16% for five to six and 8% for six to seven. Several gifts are exempt outright: £3,000 a year in total, with one year’s unused exemption carried forward; small gifts of up to £250 per person; wedding gifts of £5,000 to a child, £2,500 to a grandchild or £1,000 to anyone else; regular gifts out of surplus income that leave your standard of living intact; and anything to a spouse, a charity or a political party. Gifts with reservation, such as giving away a house while continuing to live in it rent free, remain in the estate.
Pensions, business assets and the home
Pension funds have sat outside the estate, which made them the most tax-efficient asset to leave untouched. From 6 April 2027 most unused pension funds and death benefits are due to be brought into the estate for inheritance tax, so that planning is changing. Business and agricultural property relief was also reformed from 6 April 2026: 100% relief now applies to the first £1 million of qualifying combined business and agricultural assets, with 50% relief above that, an effective 20% rate. Assets that pass on death are also revalued for capital gains tax, so heirs take shares or property at the value on death, as our capital gains tax guide explains.
Paying the tax
Inheritance tax is due by the end of the sixth month after the month of death, and interest runs from then. Tax on land and buildings can be paid in ten annual instalments, with interest, which lets executors settle the bill before a house is sold. Payment normally comes before probate is granted, and banks will release funds from the deceased’s accounts directly to HMRC under the direct payment scheme. The executors report the estate on form IHT400 unless it qualifies as an excepted estate, which most estates below the thresholds do.
Common questions
What is the inheritance tax threshold for 2026/27? £325,000 per person, plus £175,000 where a home is left to children or grandchildren. A couple can pass on up to £1 million with both sets of allowances.
How much inheritance tax on a £500,000 estate? Nothing if a home worth at least £175,000 is left to descendants. Otherwise 40% of £175,000, which is £70,000, unless the estate passes to a spouse or a transferred band is available.
Is everything left to my husband, wife or civil partner tax free? Yes, without limit, and your unused allowances pass to them for use on their death. Unmarried partners have no such exemption.
Do I pay inheritance tax on gifts? Not on gifts made more than seven years before death, or on exempt gifts such as the £3,000 annual exemption. Larger gifts within seven years are counted back into the estate, with taper relief after three years.
What is the residence nil-rate band taper? Estates over £2 million lose £1 of residence band for every £2 above that figure, so a single person’s £175,000 is gone at £2.35 million and a couple’s £350,000 at £2.7 million.
When does inheritance tax have to be paid? By the end of the sixth month after the month of death, with instalments available over ten years for property. Interest is charged on anything paid late.
Information, not financial or legal advice. Thresholds and rates are the published 2026/27 figures on gov.uk: inheritance tax and gov.uk: residence nil-rate band; worked figures are estimates from the site’s calculator for a single person. Estate planning depends on individual circumstances, so take advice before acting on them.