Inheritance Tax Thresholds, Rates and How to Plan Ahead
By CareFinder Team · Published 2026-06-30 · Last reviewed 2026-09-18
Inheritance tax is charged at 40% on the part of an estate above the £325,000 nil-rate band. Leaving a home to children or grandchildren can add up to £175,000, and anything left to a spouse or civil partner is normally exempt, so a couple can often pass on up to £1 million tax-free. These thresholds are fixed until April 2031, and pensions join estates from April 2027.
Inheritance tax is charged at 40% on the value of an estate above the tax-free threshold of £325,000. On top of that, leaving your home to children or grandchildren can add a further allowance, and anything left to a husband, wife or civil partner is normally tax-free. Planned well, many families pay little or nothing.
This guide explains how the rules work across the UK. Figures change over time, so check GOV.UK for current thresholds. It is general information: for planning, speak to a solicitor or a regulated financial adviser.
What are the inheritance tax thresholds?
- Nil-rate band: £325,000 per person. Tax is only due on the value above this.
- Residence nil-rate band: up to £175,000 extra when a home, or a share of one, passes to children (including adopted, foster and stepchildren) or grandchildren. GOV.UK says this can take the threshold to £500,000.
- Taper: the residence allowance is reduced for estates worth more than £2 million, by £1 for every £2 over that level.
The government has fixed these thresholds until April 2031, as confirmed in the Budget 2025 tax overview. With house prices and savings rising while the thresholds stay still, more estates are brought into the tax each year.
How do married couples and civil partners pass on more?
Anything left to a spouse or civil partner is normally exempt. Any unused nil-rate band, and unused residence nil-rate band, can pass to the survivor. So when the second partner dies, their estate can use up to double the allowances: in the right circumstances, up to £1 million in total.
This transfer is not automatic: the executors of the second estate claim it, so keep records of the first estate.
What are the rates?
- 40% on the value above the available thresholds.
- 36% on some assets if 10% or more of the net estate is left to charity.
- Gifts to charities are exempt.
What changed for pensions, farms and businesses?
Pensions from April 2027
From 6 April 2027, most unused pension funds and pension death benefits will count as part of the estate for inheritance tax. Death-in-service benefits are excluded, and pensions left to a spouse or civil partner remain exempt. The executors, rather than the pension scheme, will be responsible for reporting and paying the tax. Anyone relying on a pension to pass wealth on outside their estate should review their plans.
Agricultural and business property relief from April 2026
From 6 April 2026, 100% relief applies to the first £2.5 million of qualifying agricultural and business property combined, with 50% relief above that. The government announced this higher allowance in December 2025, replacing the £1 million first proposed. Unused allowance can pass to a surviving spouse or civil partner.
How do gifts work?
Most gifts to people are "potentially exempt". If you live for seven years after making the gift, it falls outside your estate. If you die within seven years, the gift uses up your nil-rate band first. If gifts made in the seven years before death add up to more than the nil-rate band, tax on them is reduced by taper relief for gifts made three to seven years before death:
| Years between gift and death | Rate on the gift |
|---|---|
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
Some gifts are exempt straight away, according to the GOV.UK gifts guide:
- Annual exemption: £3,000 of gifts each tax year, with one unused year carried forward.
- Small gifts: up to £250 per person, where no other exemption is used for them.
- Wedding and civil partnership gifts, up to set limits depending on the relationship.
- Normal expenditure out of income: regular gifts from surplus income, with no limit, if you can keep your usual standard of living.
- Gifts to a spouse, civil partner or charity.
Watch out for gifts with reservation
If you give something away but keep benefiting from it, such as giving your house to your children and carrying on living there rent-free, it still counts as part of your estate. The seven-year rule does not help.
How can you plan ahead sensibly?
- Make or update a will, so allowances are used and your home goes where you intend.
- Estimate your estate, including your home, savings, investments, life insurance not in trust and, from 2027, pensions.
- Use exemptions such as the annual exemption and regular gifts from income, and keep records.
- Consider charitable giving, which is exempt and can reduce the rate.
- Put life insurance in trust so payouts do not add to the estate.
- Keep enough for yourself. Care costs in later life can be high, and giving away money you may need for care can also be treated as deprivation of assets in a council means test.
When is inheritance tax paid?
The executors usually pay the tax by the end of the sixth month after the death, and GOV.UK explains the options, including paying from the deceased's bank accounts and paying tax on property in yearly instalments. Some tax usually has to be paid before probate is granted.
Frequently asked questions
Do I have to pay inheritance tax on my parents' house?
Only if the whole estate is worth more than the available thresholds. Leaving the home to children or grandchildren can add the residence nil-rate band, and a surviving parent may be able to use the unused allowances of the first to die.
Do beneficiaries pay inheritance tax themselves?
Normally no. The executors pay it from the estate before distributing it. People who received gifts in the seven years before death may have to pay tax on those gifts in some cases.
Is the seven-year rule the same for care fees?
No. The seven-year rule is an inheritance tax rule. Councils assessing care fees can look at gifts from any time if they think the aim was to avoid care charges.
Will my pension be taxed when I die?
From 6 April 2027, most unused pension funds and death benefits will count towards the estate for inheritance tax. Pensions left to a spouse or civil partner remain exempt. Income tax may also apply to some pension payments after death.
Are the thresholds the same in Scotland, Wales and Northern Ireland?
Yes. Inheritance tax is a UK-wide tax with the same thresholds and rates, although property and succession law differs, particularly in Scotland.
Key takeaways
- Inheritance tax is 40% on estates above £325,000, with extra allowance when a home passes to direct descendants.
- Spouses and civil partners can pass unused allowances to each other.
- Thresholds are fixed until April 2031.
- Most pensions will count towards estates from April 2027.
- Gifts survived by seven years, and exempt gifts, reduce the estate.
- Take advice before making large gifts, especially if care costs may lie ahead.