Inheritance Tax Thresholds, Rules and Allowances: Everything you Need to Know for 2026

Many people are concerned about the amount of inheritance tax that might come due on their estate after their death. This is completely understandable: any tax due could have a big impact on your loved ones and what they will inherit. It makes sense to want to know what to expect. 

In this post, we have set out everything you need to know about the current inheritance tax thresholds, rules and allowances.

Does everyone need to pay inheritance tax?

Though it is spoken of a great deal, in reality, only around 6% of estates in the UK are actually subject to inheritance tax. This means that the vast majority of people will not need to worry about their loved ones having to pay inheritance tax on their estates.

There will usually be no inheritance tax to pay on your estate if either:

• The total value of the estate falls below the £325,000 threshold
• The total value of the estate is above £325,000, but everything above this threshold is left to a spouse, civil partner, charity or amateur sports club.

This latter rule typically means that there is no inheritance tax to pay on the estate of the first spouse/civil partner to die, so long as they leave the bulk of their estate to their surviving spouse/civil partner. 

The tax-free threshold can be increased if you leave your home to direct descendants (including children, adopted children, stepchildren and grandchildren). This is known as the residence nil-rate band, which is currently worth up to £175,000 per person, and is in addition to the standard £325,000 nil-rate band. 

Together, the standard allowance and the nil-rate band can provide a total tax-free threshold of up to £500,000 per individual. However, the residence nil-rate band is only available where the total value of the estate is less than £2 million. Above this level, the nil-rate band allowance is reduced on a sliding scale. 

What happens when the second spouse/civil partner dies?

The inheritance tax rules allow married couples and couples in a civil partnership to benefit from inheritance tax allowances across both estates, rather than being taxed separately on each death. 

When the first spouse/civil partner dies – assuming they have left the majority of their share of any assets to their surviving spouse/civil partner – no inheritance tax will be due until the death of the second spouse/civil partner. 

On the second death, the surviving spouse or civil partner’s estate may be able to benefit from any unused nil-rate band and residence nil-rate band from the first spouse or civil partner.

If the couple’s family home is left to direct descendants, and the total value of the combined estate does not exceed £2 million, the total tax-free allowance for a couple could be as much as £1 million.

It’s important to note that cohabiting couples who are not married or in a civil partnership do not benefit from the spouse or civil partner exemption and cannot transfer unused inheritance tax allowances between them.

What if inheritance tax is due?

If an estate is liable to pay inheritance tax – either because it is worth more than the £325,000 individual threshold, or because it is worth more than the combined threshold of up to £1 million – it is important to understand that only the sum that is surplus to the threshold amount will be taxed.

For example, if an unmarried and childless individual dies leaving an estate worth £400,000, only £75,000 of that would be subject to inheritance tax. 

The standard rate that the surplus would be taxed at is 40%. In the case of this example, the total inheritance tax bill would be £30,000.

What about inheritance tax relief and reductions?

There are some reliefs and reductions available, meaning that the standard 40% rate of tax can be reduced in some circumstances. 

If more than 10% of the net value of the estate (this is the total value of the estate minus the value of any debts) is left to charity, then the overall inheritance tax that is due on certain assets will be reduced to 36%.

There are also tax reliefs for estates that include a business that is being passed on, and estates that include agricultural land, such as a farm or woodland. An experienced estate planning solicitor will be able to advise you on how your estate might be able to benefit from these tax reliefs. 

What about gifts that have been given while the person was alive?

It’s important to keep in mind that it is not just assets that still belong to the estate that might be subject to inheritance tax. Certain gifts made by the person who has died within the seven years before their death may still need to be taken into account when calculating inheritance tax. 

Depending on how long before the person’s death the gifts were given, the value of them may be subject to a tapered rate of tax rather than the full 40%.

What about the value of your pension?

Currently, any money that is still in your pension when you die is not considered as part of your estate. It is therefore not taken into account for the purposes of calculating inheritance tax. 

However, this is expected to change from April 2027. From that date, most unused pension funds and death benefits will be included when calculating the total value of an individual’s estate for inheritance tax purposes.

Who is responsible for paying inheritance tax, and when will it need to be paid?

The people who are responsible for administering an estate are also responsible for determining whether any inheritance tax will be due, and – if there is – for paying it from the estate funds. 

An inheritance tax bill will usually become due by the end of the sixth month after the month in which the person died. For example, if the person died in January, the bill will be due at the end of July. If inheritance tax is not paid by this deadline, HMRC will begin charging interest on the outstanding amount due

You will also often need to make a payment towards the balance of the bill before a Grant of Probate can be issued.

It might not be possible to pay an inheritance tax bill straight away. For example, because the personal representatives aren’t yet able to access the accounts of the estate, or because property belonging to the estate needs to be sold first in order to raise the necessary funds. 

In situations like these, the personal representatives might need to pay some of their own money towards the bill, then reimburse themselves from estate funds later on. Alternatively, they may choose to apply to HMRC to request permission for the payment to be postponed. 

Planning for the future of your estate 

If you’re keen to ensure that you are well prepared for the possibility of inheritance tax, there are things you can do. Our specialist estate planning solicitors will be able to offer advice on your particular circumstances. 

Why not get in touch to ensure you are fully prepared for the future, whatever it might hold?

FAQs

How much inheritance tax will your estate have to pay?

The vast majority of estates in the UK will not need to pay any inheritance tax at all. If your estate will be subject to inheritance tax, the 40% rate will apply only to any funds over and above the tax-free threshold that applies to you.  

Can inheritance tax thresholds be shared between married couples?

Yes, the tax-free threshold for inheritance tax can be shared between married couples and couples who are in a civil partnership. This means that any unused threshold amount from the first spouse/civil partner to die can be added to the total threshold for the surviving spouse/civil partner.

Will the total value of your pension be taken into account for inheritance tax? 

Currently, the total value of your pension is not considered to be part of your estate when you die, and is therefore not taken into account for inheritance tax purposes. However, this rule is expected to change from April 2027, when the total remaining value of an individual’s pension will be considered as part of their estate. 

When does inheritance tax need to be paid?

If there is an inheritance tax bill due on an estate, it will usually need to be paid by the end of the sixth month after the person has died. If there are any difficulties doing this, it may be possible to apply to HMRC for a postponement.