Inheritance Tax Explained: How It Works in the UK (2026 Guide)
Who pays UK inheritance tax, the £325,000 and £175,000 allowances, the 7-year gift rule, the 2027 pension change and how executors pay it.
Picture two families in the same street. Both have just lost a parent. Both are left a semi-detached house worth about £550,000 and a modest pot of savings. One family pays nothing to HMRC. The other faces a bill of more than £100,000, due within six months, before they have sold anything.
The difference is not luck, and it is not how rich the parents were. It comes down to a handful of rules most people never read until they are sitting at a kitchen table with a pile of paperwork: who the house was left to, whether a husband or wife died first, what was given away in the last seven years, and whether anyone wrote any of it down.
Around 1,800 people die in the UK every day, as we explained in how many people die in the UK every day, part of the roughly 170,000 deaths a day you can watch on our live counter. Only a small share of those estates pay inheritance tax. But for the families who do, it is often the largest single bill they will ever deal with, and it lands at the worst possible moment. This guide explains how it actually works, using HMRC's own figures and the rules as they stand in October 2026.
How many estates actually pay inheritance tax?
Inheritance tax has a reputation as a tax on everyone's parents. The official numbers say otherwise. HMRC's latest liabilities statistics, for deaths in the 2023 to 2024 tax year, show that 30,400 estates paid inheritance tax, which is 4.72% of all UK deaths. That is roughly 1 in 21.
But those estates paid a lot. Total liabilities came to £7.03 billion, an average of £231,000 per taxpaying estate.
| Taxpaying estates (2023 to 2024) | Number |
|---|---|
| Per year | 30,400 |
| Per month | about 2,530 |
| Per week | about 585 |
| Per day | about 83 |
| Share of all UK deaths | 4.72% (about 1 in 21) |
| Total tax liabilities | £7.03 billion |
| Average bill per taxpaying estate | £231,000 |
So of the roughly 1,800 people who die in the UK each day, around 83 leave an estate that owes inheritance tax. The number has been creeping up for years, and it is expected to keep rising, for reasons we will get to: the allowances have been frozen since 2009 while house prices have not, and from April 2027 most unused pensions will be counted too. HMRC's annual receipts have now passed £8 billion a year.
The basic rule in one sentence
When someone dies, everything they own is added up (property, savings, investments, possessions, minus debts and funeral costs). If the total is above their tax-free allowance, 40% is charged on the part above the allowance, not on the whole estate.
That last point matters. An estate worth £425,000 with a £325,000 allowance does not pay 40% of £425,000. It pays 40% of the £100,000 above the line: £40,000.
The allowances: £325,000, £175,000 and the £1 million couple
| Allowance | Amount | Who gets it |
|---|---|---|
| Nil-rate band | £325,000 | Everyone |
| Residence nil-rate band | up to £175,000 | Only if a home goes to children or grandchildren |
| Combined for one person | up to £500,000 | If both apply |
| Combined for a married couple or civil partners | up to £1,000,000 | If unused allowances pass to the survivor |
| Frozen until | April 2031 | Confirmed in the Autumn Budget 2025 |
The nil-rate band is the basic £325,000 every estate gets. It has been £325,000 since 2009 and is now frozen until April 2031. Had it risen with inflation, it would be far higher today, which is why more families are being pulled in each year.
The residence nil-rate band adds up to £175,000, but only when a home (or a share of one) passes to direct descendants: children, stepchildren, adopted or foster children, grandchildren and their spouses. Leave your house to a nephew, a niece, a friend or a sibling, and this extra allowance does not apply. It also tapers away for very large estates: it shrinks by £1 for every £2 the estate is worth over £2 million.
Spouses and civil partners can pass anything to each other completely tax free. And whatever allowance the first partner did not use can be transferred to the survivor. If a husband dies first and leaves everything to his wife, none of his £325,000 or £175,000 is used up, so when she dies her estate can use up to £1 million. This is the single biggest reason the two families on our imaginary street ended up with such different bills.
Unmarried couples get none of this. Long-term partners who never married or formed a civil partnership are taxed as strangers, and if there is no will they may inherit nothing at all, as we explain in what happens if you die without a will.
Three example estates
Here is how those rules play out on real-looking numbers. These are simplified examples for deaths in 2026 and assume no large gifts in the previous seven years.
| Estate A | Estate B | Estate C | |
|---|---|---|---|
| Situation | Widow, husband died first and left her everything | Single parent | Single, no children |
| Home | £550,000 | £550,000 | £550,000 |
| Savings and other assets | £250,000 | £150,000 | £50,000 |
| Total estate | £800,000 | £700,000 | £600,000 |
| Home left to | Her children | His children | A nephew |
| Allowances available | £1,000,000 (both partners' bands) | £500,000 | £325,000 (no residence band) |
| Taxable amount | £0 | £200,000 | £275,000 |
| Inheritance tax at 40% | £0 | £80,000 | £110,000 |
Estate C is the smallest of the three and pays the most. That is the quirk at the heart of the system: who you leave things to matters as much as how much you leave.
Leaving 10% to charity: the 36% rate
Gifts to UK charities are free of inheritance tax. There is also a lesser-known bonus: if you leave at least 10% of your net estate to charity, the rate on the rest drops from 40% to 36%.
Take Estate C. After the £325,000 allowance, the net estate is £275,000, so 10% is £27,500.
| Estate C | No charity gift | 10% to charity |
|---|---|---|
| Left to charity | £0 | £27,500 |
| Taxable amount | £275,000 | £247,500 |
| Tax rate | 40% | 36% |
| Inheritance tax | £110,000 | £89,100 |
| Left for the nephew | £490,000 | £483,400 |
The charity receives £27,500, yet the family is only £6,600 worse off, because most of the gift comes out of what would have gone to HMRC. Anyone thinking about a charity gift in their will should ask their solicitor to run these numbers.
Gifts and the 7-year rule
Many people assume they can simply give their money away before they die. You can, but HMRC looks back seven years.
A gift to a person is usually tax free if you live for seven years after making it. If you die within seven years and your total gifts in that period are over £325,000, tax may be due. Gifts made three to seven years before death get taper relief, which reduces the rate:
| Years between gift and death | Tax rate on the gift |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | 0% |
Two things catch families out. First, gifts in the seven years before death use up the £325,000 allowance first, which leaves less for the rest of the estate. Second, if you give something away but keep using it, such as signing your house over to your children and carrying on living there rent-free, HMRC treats it as still yours.
Some gifts are tax free straight away, however long you live:
| Exemption | Limit |
|---|---|
| Annual exemption | £3,000 a year in total, and one unused year can be carried forward |
| Small gifts | Up to £250 per person per year (not to someone who got your £3,000) |
| Wedding or civil partnership gifts | £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else |
| Normal gifts out of income | No limit, if regular, from income (not savings) and you can still afford your usual lifestyle |
| Gifts to a spouse or civil partner | Unlimited (if both live in the UK) |
| Gifts to UK charities and political parties | Unlimited |
The "normal expenditure out of income" exemption is one of the most generous rules in the tax system, and one of the least used, mainly because it needs records. Paying a grandchild's rent every month or a regular sum into a child's savings can qualify, but executors have to prove it was regular and came from spare income. A simple note of what was paid, when and from which account makes that far easier.
The big change coming in April 2027: pensions
Until now, most unused pension pots sat outside the estate. That is changing. From 6 April 2027, most unused pension funds and pension death benefits will count towards the estate for inheritance tax. The legislation is in the Finance Act 2026.
What this means in practice:
| Before 6 April 2027 | From 6 April 2027 |
|---|---|
| Most unused defined contribution pots outside the estate | Most unused pots added to the estate's value |
| Pension could be left as a tax-free inheritance pot | Pension can push an estate over its allowance |
| Residence band taper rarely affected by pensions | A large pension can push an estate over £2 million and reduce the residence band |
| Not something executors reported | Personal representatives report and pay any tax due |
Death-in-service lump sums from a registered pension scheme are excluded, and pensions left to a spouse or civil partner still pass free of tax. Executors will be able to ask the pension scheme to withhold some of the benefits to cover the bill.
This change has not yet taken effect, but anyone with a sizeable pension pot who planned to leave it untouched should look at their position before 2027. It is also another reason to keep a clear list of every pension, including old workplace schemes from jobs decades ago, because an executor cannot report a pot they do not know exists.
Farms and family businesses
Business Relief and Agricultural Relief used to remove qualifying business and farm assets from inheritance tax entirely. From 6 April 2026, 100% relief applies only to the first £2.5 million of combined business and agricultural property per person. Above that, relief is 50%, which works out at an effective tax rate of 20%. Any unused £2.5 million allowance can pass to a surviving spouse or civil partner, so a couple can pass on up to £5 million at full relief.
The original plan was a £1 million cap; it was raised to £2.5 million in December 2025 after a long campaign by farmers. Tax on qualifying farm and business property can be paid in 10 annual interest-free instalments.
When and how the bill is paid
This is the part that frightens families most.
| Step | Deadline or rule |
|---|---|
| Pay the tax | By the end of the 6th month after the death (died in January, pay by 31 July) |
| Interest | Charged by HMRC on anything paid late |
| Report the estate on form IHT400 | Within 12 months, if tax is owed |
| Apply for probate | Only after the IHT400 has been submitted, where one is needed |
| Property and land | Tax can be paid in 10 yearly instalments while the property is kept |
The awkward part: inheritance tax often has to be paid before probate is granted, which means before the executor can sell the house or access most of the money. HMRC allows payment directly from the dead person's bank, building society or investment accounts, which solves this for many estates. Executors can also use their own money and reclaim it from the estate later. Our guides to what happens to your bank account when you die and probate in the UK walk through those steps.
Most estates owe no tax and do not need the full IHT400 form. GOV.UK has a short checker for whether full details must be sent. Debts are deducted before tax is worked out, as are reasonable funeral costs, so it is worth keeping the receipts. See how much a funeral costs and what happens to your debts when you die.
Inheritance tax is UK-wide, so the rules above apply in England, Wales, Scotland and Northern Ireland alike. What differs is the paperwork around it: in Scotland, probate is called confirmation and follows its own process.
Help your executors: what to write down now
Here is the uncomfortable truth about inheritance tax. Many bills are not too high because of bad planning; they are wrong, late or chased by HMRC because the executor could not find things. Every allowance and exemption above depends on evidence:
- Transferring a late spouse's allowance needs details of the first death and that estate.
- The residence band needs to show the home went to direct descendants.
- Gifts from income need proof they were regular and affordable.
- Pensions from April 2027 need the executor to know every scheme exists.
- Debts and funeral costs need statements and receipts to be deducted.
A short written record solves most of this. It should list:
- Each bank, savings and investment account
- Each pension, with the provider's name
- Property and mortgages
- Insurance and life policies
- Large gifts made in the last seven years, with dates
- Where the will is kept
- Who your solicitor or accountant is, if you have one
None of this needs to be complicated. A clear page per category, kept somewhere your family knows about, can save an executor months. If you want a ready-made structure, our When I'm Gone planner covers money, documents and final wishes in one place, and our guide to planning your own funeral covers the practical side.
Common questions
Do I pay inheritance tax on money I inherit? Usually not directly. The tax is paid by the estate before you receive your share. The exception is a gift you received in the seven years before someone died, where the recipient can sometimes become liable.
Is there inheritance tax between husband and wife? No, as long as both are UK-domiciled or long-term UK residents. Everything can pass between spouses and civil partners tax free, and the unused allowance moves to the survivor.
Does my house count? Yes. The home is usually the largest asset in an estate. The extra £175,000 residence band only applies if it goes to children or grandchildren.
Can I just give my house to my children now? You can, but if you carry on living there without paying a market rent, HMRC treats it as still part of your estate. There can also be capital gains tax and practical risks. Take advice first.
Do ISAs avoid inheritance tax? No. ISAs are free of income and capital gains tax while you are alive, but they count towards your estate. A surviving spouse can, however, inherit an extra ISA allowance.
What if the estate cannot pay the bill? Tax on land and property can be spread over ten years. Executors can also ask HMRC about paying from the dead person's accounts before probate. Contact HMRC early: interest builds on late payments.
The bottom line
Inheritance tax touches about 1 in 21 UK estates, but it hits them hard: an average bill of £231,000. Whether your family is in that group often depends less on how much you own than on three things: whether you are married, who your home is left to, and whether anyone can find the paperwork. The frozen allowances and the 2027 pension change mean more families will be drawn in over the next few years, so a will, a little planning and a written list of what you own are worth more than ever.
While you were reading this guide, roughly 1,500 people died somewhere in the world, about 16 of them in the UK. A handful of those UK families are now starting exactly the process described above. You can see the number climbing in real time on our live death counter, or explore the full picture for Britain on the United Kingdom page.
Sources: GOV.UK, Inheritance Tax guidance (thresholds, rates, gifts, taper relief, charity rate); GOV.UK, Paying Inheritance Tax and yearly instalments; HMRC, Inheritance Tax liabilities statistics commentary (tax year 2023 to 2024, updated July 2026); HM Treasury, Autumn Budget 2025 (nil-rate band and residence nil-rate band frozen until April 2031); GOV.UK policy paper, Inheritance Tax on unused pension funds and death benefits (from 6 April 2027); GOV.UK policy paper, Changes to agricultural property relief and business property relief (£2.5 million allowance from 6 April 2026). Figures are correct as of October 2026 and rules can change at any Budget. This article is general information, not tax or legal advice. For your own situation, speak to a solicitor or a qualified tax adviser.
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