Inheritance Tax UK 2026: Thresholds, Rates and How to Reduce Your IHT Bill
Updated April 2026 · 11 min read
Understanding UK Inheritance Tax
Inheritance tax at 40 percent is often called the most hated tax in Britain. Rising house prices mean more estates now exceed the GBP 325,000 threshold than ever before. However, with proper planning, many families can significantly reduce or eliminate their IHT liability using legitimate allowances and reliefs. Use our tax calculator to model your estate value.
The Residence Nil-Rate Band: Extra GBP 175,000
If you leave your main residence to your children, grandchildren, or other direct descendants, you get an additional GBP 175,000 allowance on top of the GBP 325,000 nil-rate band. A married couple leaving their home to children can pass up to GBP 1,000,000 IHT-free. This is the single most valuable IHT planning tool for homeowners.
Legitimate Ways to Reduce Your IHT Bill
Use your annual GBP 3,000 gift exemption every year (unused amount carries forward one year only). Make gifts from surplus income (exempt immediately with no 7-year wait). Leave 10 percent to charity to reduce the IHT rate from 40 to 36 percent. Consider life insurance in trust to cover the expected IHT bill — the payout goes directly to beneficiaries outside the estate. Plan your long-term wealth strategy with our retirement calculator and savings calculator.
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Frequently Asked Questions
What is the inheritance tax threshold in 2026?
The nil-rate band is GBP 325,000 per person. The residence nil-rate band adds GBP 175,000 if you leave your home to direct descendants. A married couple can combine both allowances for GBP 1,000,000 total before IHT applies.
How much is inheritance tax?
40 percent on the estate value above the nil-rate band. If you leave 10 percent or more of your estate to charity, the rate reduces to 36 percent. On an estate worth GBP 500,000 (single person, no residence relief): IHT is GBP 70,000.
Can married couples avoid inheritance tax?
Transfers between spouses are completely IHT-exempt. When the first spouse dies, their unused nil-rate band transfers to the surviving spouse. Combined, a married couple can pass up to GBP 1,000,000 (two nil-rate bands plus two residence bands) IHT-free.
Are gifts exempt from inheritance tax?
Annual gifts up to GBP 3,000 are exempt. Wedding gifts up to GBP 5,000 (from parent) are exempt. Regular gifts from income (that do not reduce your standard of living) are exempt. Other gifts become exempt if you survive 7 years after making them.
Can I put my house in trust to avoid IHT?
Putting your home in a trust can potentially reduce IHT but has complex rules and may trigger other tax charges. If you continue to live in the property, it is usually still counted in your estate (gift with reservation). Professional advice is essential.