Question 1

How much is inheritance tax in the UK?

Accepted Answer

Inheritance Tax (IHT) is charged at 40% on the value of the estate above the nil-rate band of £325,000. If at least 10% of the 'baseline amount' (net estate minus NRB remaining after gifts, spouse exemption, and reliefs — excluding RNRB) is left to charity, the rate reduces to 36%. With the Residence Nil-Rate Band (RNRB), the tax-free threshold can be up to £500,000 per person, or £1,000,000 for a married couple.

Question 2

What is the nil-rate band for 2025-26?

Accepted Answer

The nil-rate band (NRB) for 2025-26 remains at £325,000, where it has been frozen since 2009. The Residence Nil-Rate Band (RNRB) is £175,000. Together, this gives an individual a potential tax-free threshold of £500,000. The NRB freeze is currently expected to continue until at least April 2028.

Question 3

How does the Residence Nil-Rate Band (RNRB) work?

Accepted Answer

The RNRB provides an additional £175,000 tax-free allowance if the deceased's main residence is passed to direct descendants (children, grandchildren, or step-children). However, for estates over £2,000,000, the RNRB reduces by £1 for every £2 above this threshold — meaning it is completely lost for estates over £2,350,000 (or £2,700,000 if a transferred RNRB from a spouse also applies).

Question 4

Can I transfer my spouse's unused nil-rate band?

Accepted Answer

Yes. If your spouse or civil partner died without using all of their NRB and RNRB, the unused percentage can be transferred to your estate. For example, if your spouse left everything to you (using none of their NRB), you can claim 100% of their NRB (£325,000) plus 100% of their RNRB (£175,000), giving a combined threshold of up to £1,000,000.

Question 5

How are gifts taxed for inheritance tax?

Accepted Answer

Gifts made more than 7 years before death are completely exempt from IHT. Gifts within 7 years are 'potentially exempt transfers' (PETs). If the total value of PETs exceeds the nil-rate band, IHT is due at 40% — but taper relief reduces the tax on gifts made 3-7 years before death. Each person also has an annual exemption of £3,000 for gifts.

Question 6

Is there any way to reduce my inheritance tax bill?

Accepted Answer

Several legal strategies can reduce IHT: (1) Leave assets to your spouse — unlimited exemption. (2) Leave at least 10% to charity for the 36% rate. (3) Make regular gifts from income. (4) Use the £3,000 annual exemption and small gift allowances. (5) Set up trusts. (6) Take out life insurance in trust to cover the IHT bill. (7) Use Business Property Relief for qualifying business assets. (8) Consider downsizing your property to stay under the RNRB taper threshold.

Question 7

What is the 36% charity rate and how does it work?

Accepted Answer

If at least 10% of the 'baseline amount' (the net estate after deducting the nil-rate band remaining after any 7-year gifts, spouse exemption, and reliefs — but not the RNRB or charity itself) is left to charity, the IHT rate drops from 40% to 36%. This 4% reduction can sometimes mean that leaving more to charity actually costs the beneficiaries less than paying the full 40% tax.

Question 8

Do I need to pay inheritance tax on a house I inherit?

Accepted Answer

Inheritance tax is paid by the estate before assets are distributed, not by the person receiving them. If the estate's total value exceeds the tax-free threshold, IHT may be due. However, if the property was the deceased's main residence and is left to direct descendants, the RNRB may apply, increasing the threshold by up to £175,000.

Question 9

When does inheritance tax need to be paid?

Accepted Answer

IHT is normally due 6 months after the end of the month in which the death occurred. If paying late, HMRC charges interest. For estates that include property, you can apply to pay IHT on the property in annual instalments over 10 years, though interest still applies on the unpaid balance.

Question 10

Are pensions subject to inheritance tax?

Accepted Answer

Most defined contribution pensions are outside of the estate for IHT purposes and can be passed on tax-free if you die before age 75. If you die after 75, beneficiaries pay income tax on withdrawals but not IHT. However, from April 2027, unused pension funds will be included in the estate for IHT purposes under proposed changes.

Allowance	Amount
Nil-Rate Band (NRB)	£325,000
Residence NRB (RNRB)	£175,000
Threshold for Estate	£500,000

Item	Amount
Gross Estate	£500,000
Less: Debts & Funeral Costs	−£10,000
Net Estate	£490,000
Tax-Free Threshold	−£500,000
Taxable Estate	£0
IHT at 40%	£0

Years Before Death	Taper Relief	Effective IHT Rate
0 – 3 years	0%	40%
3 – 4 years	20%	32%
4 – 5 years	40%	24%
5 – 6 years	60%	16%
6 – 7 years	80%	8%
7+ years	100%	0% (exempt)

Inheritance Tax Calculator

Allowances & Thresholds

Estate Breakdown

What Is Inheritance Tax?

Standard Rate

Charity Rate

Nil-Rate Band & Residence Nil-Rate Band

Combined Thresholds:

Gifts & the 7-Year Rule

Spouse Exemption & Transferable Allowances

Spouse Exemption

Transferable Bands

36% Charity Rate

Business Property Relief (BPR)

Common Mistakes to Avoid

Frequently Asked Questions

Embed Inheritance Tax Calculator

You Might Also Like