Inheritance tax is charged at 40% on the part of an estate above the allowances available when someone dies. For 2026/27 those allowances are the same as they have been since 2020/21, and they are fixed until 5 April 2031.
| Allowance | 2026/27 |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band | £175,000 |
| Residence nil-rate band taper starts | £2,000,000 |
| Standard rate | 40% |
| Rate if 10% or more of the net estate goes to charity | 36% |
The nil-rate band: £325,000
Everyone has a nil-rate band of £325,000. Any part of it you don’t use passes to your spouse or civil partner when you die, so a surviving spouse can have up to £650,000. Gifts made in the seven years before death use up the nil-rate band first.
The residence nil-rate band: up to £175,000
If your home, or your share of it, passes to your direct descendants (children, grandchildren, step-children, adopted and foster children and their spouses), you get an extra allowance of up to £175,000. It’s limited to the value of the home, and any unused amount also transfers to a surviving spouse or civil partner. That’s how a couple can leave up to £1 million without inheritance tax.
The £2 million taper
For estates worth more than £2 million, the residence nil-rate band is reduced by £1 for every £2 over the threshold. A single person loses it completely at £2.35 million; a surviving spouse with a transferred allowance loses it at £2.7 million. From 6 April 2027, unused pensions count towards the estate value for this test, which will pull more estates over the line.
Three examples
| Single, home to children | Couple, second death | Couple, estate over £2m | |
|---|---|---|---|
| Estate | £600,000 | £1,200,000 | £2,400,000 |
| Of which home | £300,000 | £500,000 | £900,000 |
| Nil-rate band | £325,000 | £650,000 | £650,000 |
| Residence nil-rate band | £175,000 | £350,000 | £150,000 |
| Taxable | £100,000 | £200,000 | £1,600,000 |
| Inheritance tax | £40,000 | £80,000 | £640,000 |
In the third example the estate is £400,000 over £2 million, so £200,000 of the couple’s £350,000 residence nil-rate band is lost.
Gifts you can make without inheritance tax
- Annual exemption: £3,000 a year in total, and you can carry forward one unused year.
- Small gifts: up to £250 each to as many people as you like (not to someone who has had your annual exemption).
- Wedding and civil partnership gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
- Regular gifts from surplus income: exempt straight away, with no limit, if they come from income and don’t reduce your standard of living. Keep records.
- Larger gifts: fall outside the estate if you live seven years. Taper relief reduces the tax on gifts above the nil-rate band made between three and seven years before death.
Downsizing
If you sell your home or move somewhere cheaper after 8 July 2015, you can still keep the residence nil-rate band you would have had, through the downsizing addition, as long as other assets of equal value pass to your direct descendants.
What to do next
Use our calculator for a first estimate, then talk to us. The allowances are fixed for another four and a half years while most estates keep growing, so the earlier you plan, the more options you have.
Sources
- Inheritance Tax thresholds and interest rates (HMRC)
- Inheritance Tax: thresholds, Budget 2025 (HMRC)
- How Inheritance Tax works: gifts (GOV.UK)
This guide is general information, not personal advice, and reflects our understanding of the rules on 31 October 2026. Tax rules can change and their effect depends on your circumstances.