UK IHT Estimate — 2025/26 rules
Inheritance Tax (IHT) is a tax on the estate (money, property, and possessions) of a person who has died. The standard rate is 40% on the value above the nil-rate band. If at least 10% of the net estate is left to charity, a reduced rate of 36% applies instead.
The nil-rate band (NRB) is £325,000 and is frozen until 2028. The residence nil-rate band (RNRB) of £175,000 applies when a residential property is left to direct descendants (children, grandchildren). This gives a potential total threshold of £500,000 per person, or £1 million for a married couple using both sets of allowances.
Inheritance Tax is charged at 40% on the value of an estate above the nil-rate band (£325,000). A reduced rate of 36% applies if at least 10% of the estate is left to charity. The residence nil-rate band (RNRB) of £175,000 can be added to the NRB if a home is passed to direct descendants, raising the threshold to £500,000 per person. Estates left to a spouse or civil partner are fully exempt from IHT.
The nil-rate band remains frozen at £325,000 until at least April 2028. The residence nil-rate band adds a further £175,000 if a home is left to direct descendants, giving a potential £500,000 per person. If a spouse died before you and didn't use their full NRB, the unused amount can be transferred to your estate — potentially giving a combined NRB of £650,000 and RNRB of £350,000, totalling £1 million before IHT applies.
No. Assets passed between married spouses or civil partners are completely exempt from Inheritance Tax regardless of value. This is known as the spouse exemption. Additionally, any unused nil-rate band from the first spouse to die is automatically transferred to the surviving spouse's estate. This is claimed by the executors of the second estate and can effectively double the available allowances.
Several gifts are exempt: the annual exemption allows you to give up to £3,000 per year tax-free (and carry forward one year's unused allowance). Small gifts up to £250 per person per year are exempt. Wedding gifts up to certain limits are exempt (£5,000 to children, £2,500 to grandchildren, £1,000 to anyone else). Gifts to charity, political parties, and housing associations are also exempt. Gifts made more than 7 years before death are generally outside the estate.
Gifts made within 7 years before death are included in the estate for IHT purposes and are called "potentially exempt transfers" (PETs). If you die within 3 years of making the gift, it is taxed at the full 40%. Between 3–7 years, a sliding scale called taper relief reduces the tax: 32% (3–4 yrs), 24% (4–5 yrs), 16% (5–6 yrs), 8% (6–7 yrs). After 7 years, the gift is completely outside the estate.