What are the inheritance tax thresholds for 2026-27?

Both the nil-rate band and residence nil-rate band have been frozen since 2009 and April 2017 respectively. The government has confirmed they will remain frozen until at least April 2030. With average UK house prices continuing to rise, more estates are being drawn into the inheritance tax net each year.

How can I reduce my inheritance tax bill?

1. Use your annual gift exemption every year: You can give away £3,000 per tax year free of inheritance tax. If you did not use last year's allowance, you can carry it forward for one year, giving £6,000 in the first year. Additional small gifts of up to £250 per person are also exempt.
2. Make regular gifts from surplus income: Gifts made from your income (not capital) that form a regular pattern and do not reduce your standard of living are fully exempt from inheritance tax with no seven-year waiting period. There is no upper limit on this exemption. Keep detailed records showing the gifts are regular and affordable.
3. Use the seven-year rule for larger gifts: Gifts above the annual exemptions become potentially exempt transfers. If you survive 7 years after making the gift, it falls outside your estate completely. If you die within 7 years, taper relief reduces the tax on a sliding scale from 3 to 7 years.
4. Leave your home to direct descendants: This qualifies you for the £175,000 residence nil-rate band on top of the standard £325,000 nil-rate band. Direct descendants include children, grandchildren, and stepchildren. Downsizing does not necessarily disqualify you if you moved to a less valuable home after July 2015.
5. Write life insurance in trust: A life insurance policy written in trust pays out directly to your beneficiaries outside your estate. This means the payout is not subject to inheritance tax and is not delayed by probate. Most insurers arrange this at no extra cost.
6. Leave 10% or more to charity: Estates that leave at least 10% of the net estate to qualifying charities pay inheritance tax at 36% instead of 40%. On a £1 million estate with a £325,000 nil-rate band, this can save your family thousands while supporting a cause you care about.
7. Use business property relief: Qualifying business assets can attract 50% or 100% relief from inheritance tax. This includes shares in unlisted companies, interests in a partnership, and business property used wholly or mainly for business purposes. The rules changed in the 2024 Autumn Budget, with relief on AIM shares reduced to 50% from April 2026.

How much can I inherit without paying tax?

The amount you can inherit tax-free depends on the deceased's circumstances and any unused allowances from a predeceased spouse.

Single person

Up to £325,000 tax-free using the nil-rate band alone. If the estate includes a main home left to direct descendants, this rises to £500,000 with the residence nil-rate band.

Surviving spouse or civil partner

Up to £1,000,000 tax-free. The surviving partner can claim any unused nil-rate band and residence nil-rate band from the first partner who died, effectively doubling the thresholds.

Estates above the threshold

Only the amount above the threshold is taxed at 40%. For example, a single person with a £600,000 estate and a £500,000 combined threshold pays 40% on £100,000 = £40,000 in inheritance tax. The remaining £560,000 passes to beneficiaries tax-free.

Do you pay inheritance tax if you inherit your parents' house?

Inheritance tax on a parents' house depends on the total value of the estate, not just the property.

• Estate below £500,000: If the house is left to direct descendants (children, grandchildren, stepchildren) and the total estate is below £500,000, no inheritance tax is due. The £325,000 nil-rate band plus £175,000 residence nil-rate band covers the full amount.
• Surviving parent with transferable allowance: If one parent died first and did not use their full allowances, the surviving parent can claim the unused portion. This can raise the tax-free threshold to £1,000,000 for a couple, meaning estates worth up to £1 million pay no inheritance tax.
• Estate above the threshold: Only the portion above the threshold is taxed at 40%. If you inherit a house worth £400,000 and the total estate is £600,000 with a £500,000 threshold, the tax is 40% of £100,000 = £40,000. This must be paid before the grant of probate is issued.
• RNRB taper for large estates: If the total estate exceeds £2,000,000, the residence nil-rate band is reduced by £1 for every £2 above this threshold. It is completely lost for estates above £2,350,000.