The full UK Inheritance Tax rulebook

Nil-rate band (NRB)

The first £325,000 of every estate is tax-free, no conditions attached.

Frozen at this level since 2009 and currently due to stay frozen until at least April 2030. Any unused portion can be transferred to a surviving spouse or civil partner, so a couple can potentially pass on up to £650,000 tax-free between them before the residence nil-rate band is even considered.

Residence nil-rate band (RNRB)

An extra tax-free amount on top of the NRB, but only if your home goes to children or other direct descendants.

Applies when a home you've lived in is left to children, grandchildren or other direct descendants (not siblings, nieces/nephews, or unrelated beneficiaries). It tapers away for large estates — reduced by £1 for every £2 an estate is worth over £2 million — and disappears entirely for very large estates. Also transferable between spouses/civil partners, and can sometimes survive selling or downsizing your home via the "downsizing addition" (see below).

Standard Inheritance Tax rate

Everything above your tax-free bands is taxed at 40%.

Applied to the portion of the estate above the combined nil-rate band and residence nil-rate band. There is no tax at all within those bands.

Reduced rate for charitable giving

Leave at least 10% of your estate to charity and the rate on the rest drops from 40% to 36%.

The 10% threshold is measured against the "baseline" estate — broadly, the taxable estate after deducting reliefs, exemptions and the nil-rate bands, not the whole gross estate. Charitable gifts themselves are always fully exempt regardless of whether this threshold is reached.

Spouse / civil partner exemption

Anything left to your UK spouse or civil partner is entirely tax-free, however much it's worth.

Applies only to a legally married spouse or registered civil partner, not an unmarried partner. It can be restricted where the receiving spouse doesn't meet the UK's "long-term resident" test (see the domicile/residence rule below) — historically there was a fixed cap in that situation.

Charity exemption

Gifts to UK-registered charities, during life or in your will, are always completely tax-free.

Also counts toward unlocking the reduced 36% rate above once it reaches 10% of the baseline estate. Gifts to certain other bodies — registered political parties, and some national institutions such as major museums, universities and the National Trust — are exempt on the same basis.

Family maintenance payments

Reasonable payments to support a spouse, ex-spouse, child's education, or a dependent relative don't count as gifts for tax purposes at all.

A long-standing but often-overlooked exemption: reasonable provision for the maintenance of a spouse or former spouse, for a child's education or training (typically until they stop full-time education), or for a dependent relative, falls outside the gift rules entirely — it was never a "transfer of value" in the first place, so it doesn't use up any allowance and isn't a PET. Log this in the Gift Planner as a "Family maintenance payment" to track it separately from an ordinary gift.

Annual exemption

Give away £3,000 a year, to one person or split between several, completely tax-free.

If you don't use it, you can carry the unused amount forward exactly one year — so with a fully unused previous year, you could gift up to £6,000 in one go. It doesn't carry forward more than one year.

Small gifts exemption

Give up to £250 to as many different people as you like each year, tax-free.

The catch: it can't be combined with any other exemption for the *same* person in the same tax year — if someone has already received part of your £3,000 annual exemption, they can't also get the small gifts exemption on top.

Wedding / civil partnership gifts

Extra tax-free amounts for a wedding or civil partnership: £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else.

Must be made in consideration of the marriage or civil partnership (broadly, on or shortly before it, and it falls away if the marriage doesn't go ahead). Can be combined with the £3,000 annual exemption, but not with the £250 small gifts exemption for the same person.

Gifts from surplus income (including salary)

Regularly gifting part of your salary, pension or other income — not savings — is tax-free immediately, with no 7-year wait at all.

HMRC calls this "normal expenditure out of income" (s.21 IHTA 1984). Three conditions must all be met: (1) it's paid from genuine income — salary, pension, dividends, rental income and similar all count — not capital or savings; (2) it forms part of a normal, regular pattern of giving (HMRC typically wants to see this over at least 3-4 years); and (3) it still leaves you enough income to maintain your usual standard of living. Unlike every other lifetime gift, this one is completely separate from the 7-year rule — it's exempt the moment it's given, not 7 years later. There's no fixed monetary limit, but keep records (bank statements, a written note of the pattern), since your executors must document it on HMRC form IHT403 after your death to actually claim the exemption.

Potentially Exempt Transfer (the "7-year rule")

Give something to a person (not most trusts) and survive 7 years, and it falls out of your estate completely.

Die within 7 years and the gift is brought back into your estate for tax purposes, using up your nil-rate band before your death estate does (oldest gifts first). Only gifts to individuals qualify as PETs — most gifts into trust are taxed differently (see "chargeable lifetime transfers" below).

Taper relief

Survive at least 3 years and the tax rate on a failed gift starts dropping, even if you don't make the full 7.

A commonly misunderstood rule: it reduces the *rate* of tax charged on the gift, not the value of the gift itself, and only bites if tax is actually due on it. The scale: 0% relief (full 40%) within 3 years, then 20% off in years 3-4, 40% off in years 4-5, 60% off in years 5-6, 80% off in years 6-7, and full (100%) relief — no tax at all — once you've survived 7 years.

Gift with reservation of benefit (GWROB)

Give something away but keep using it — like gifting your house but still living in it rent-free — and HMRC treats it as if you never gave it away.

The classic trap: the asset stays fully inside your taxable estate regardless of how many years pass, and the 7-year clock never starts. To make it a genuine gift, you generally need to give up all benefit — for a home, that means moving out for good, or paying the new owner the full market rent to keep living there.

Chargeable lifetime transfer (gifts into most trusts)

Unlike a gift to a person, putting money or assets into most trusts is taxed straight away, not just potentially.

Any amount above your available nil-rate band is taxed immediately at 20% (half the death rate) when it goes into the trust. If you die within 7 years, it's recalculated at the full death rate (with taper relief for years 3-7 applied, same as a PET), with credit given for the 20% already paid. This is already built into the Trust structure strategy's "entry charge" figure, shown in your tax breakdown once the strategy is switched on.

Business Relief (BR)

Qualifying trading business assets, held for at least 2 years, can pass free of Inheritance Tax.

From 6 April 2026, Business Relief and Agricultural Relief share one combined £1 million allowance of 100% relief per person; value above that gets 50% relief (an effective 20% tax rate). Any unused allowance is transferable to a surviving spouse or civil partner. Shares listed on the Alternative Investment Market (AIM) are treated more harshly still — they lose 100% relief altogether and only ever get 50%, regardless of the £1m allowance.

Agricultural Relief (APR)

Actively farmed land and farmhouses can pass free of Inheritance Tax, on the same terms as Business Relief above.

Covers the agricultural value of qualifying farmland and farmhouses. From 6 April 2026 it shares the same combined £1 million 100%-relief allowance with Business Relief — larger farms and estates need to plan around this cap rather than assume unlimited 100% relief continues.

AIM / Business Relief-qualifying investments

You can also buy your way into Business Relief, not just inherit a business — via shares in certain smaller trading companies.

Moving cash or investments into shares of qualifying smaller trading companies (commonly via AIM, the London Stock Exchange's junior market) through a specialist platform or adviser can qualify for the same Business Relief treatment after a 2-year holding period. This is a real investment decision with real risk (illiquidity, share-price volatility), not a guaranteed tax shelter.

Woodlands relief

A narrow, less-used relief that can defer tax on the value of standing timber in commercial woodland.

Covers only the timber, not the underlying land, and only defers the tax (until the timber is eventually sold) rather than removing it. In practice, most qualifying woodland today is better covered by Business or Agricultural Relief where those apply, but this older relief can still matter for pure timber-growing land that doesn't qualify for either. Mark a property's type as "Commercial woodland" and switch on the Woodlands relief strategy to model it (this app treats it as a flat 100% relief on the asset, a simplification of the real timber-only deferral).

Conditional exemption for heritage assets

Outstanding heritage property — historic houses, land, works of art — can be exempt if you agree to preserve it and let the public see it.

A niche relief for assets of national heritage, scientific, historic or artistic interest. It defers tax indefinitely in exchange for formal undertakings (maintenance, and reasonable public access) — breaching those undertakings or selling the asset can trigger the deferred tax. Flag a property or valuables asset as a heritage asset and switch on the Heritage property relief strategy to model it — this genuinely needs a solicitor experienced in heritage property, not just this tool.

Pensions — current treatment

Right now, most pension pots sit outside your estate and pass to whoever you've nominated, tax-free.

Applies to most defined-contribution pension pots, passed on via an "expression of wish" with your provider — separate from your will. Because of this, many people deliberately spend other assets first in retirement and leave pensions untouched for as long as possible.

Pensions from 6 April 2027

From April 2027, most unused pension funds and death benefits become subject to Inheritance Tax like everything else.

A major upcoming change — it removes much of the benefit of the "spend other assets first, leave the pension" strategy above. Death-in-service benefits from a registered scheme stay excluded, and the existing exemption for pension death benefits passing to a spouse, civil partner, or charity is expected to remain.

RNRB downsizing addition

Sold or downsized your home since July 2015? You can often still claim the residence nil-rate band it would have earned.

Applies if you sold, gave away, or downsized your main home on or after 8 July 2015, as long as broadly equivalent value from the rest of your estate goes to children, grandchildren or other direct descendants. A second or third property never qualified for RNRB, so selling one doesn't reclaim anything here.

Pre-Owned Assets Tax (POAT)

You can't sell your home to a beneficiary and then get the benefit back some other way while still living there.

Introduced in 2005 to close off "home loan" or similar schemes. Trying to keep the benefit of an asset you've technically given away either falls back into gift-with-reservation treatment, or triggers an ongoing income tax charge instead — a genuine, full-value sale with no benefit kept afterwards is unaffected.

Relevant property regime

Most trusts face their own ongoing tax charges — it's a planning tool, not a way to sidestep tax entirely.

An entry charge (see chargeable lifetime transfers above) when assets go in above the nil-rate band, a periodic charge of up to 6% of the trust's value every 10 years it continues, and an exit charge when assets leave the trust — each needs weighing against the trust's actual benefit.

Trusts for disabled persons / bereaved minors

Trusts set up for a disabled person, or for a bereaved minor after a parent's death, are exempt from the ongoing trust charges above.

A genuinely favourable exception to the relevant property regime, recognising that these trusts exist for care and protection rather than tax planning — worth knowing if a beneficiary you're providing for is disabled or a child who has lost a parent.

When Inheritance Tax is due

The tax bill is due within 6 months of the end of the month someone died — after that, interest starts.

Interest accrues even if probate itself is still being sorted out, which is one reason a house or business tied up in an illiquid estate can be a genuine cash-flow problem for executors.

Paying in instalments

Tax on property, a business, or certain farmland can be spread over 10 years instead of paid as one lump sum.

Useful specifically because these assets are illiquid — instalments avoid a forced, rushed sale purely to raise cash for the tax bill. Interest may still apply depending on the asset.

Direct Payment Scheme

Some banks will pay Inheritance Tax straight to HMRC from the deceased's account before probate is even granted.

Solves the common chicken-and-egg problem where an estate's bank accounts are frozen pending probate, but probate itself often can't be granted until the tax bill is settled.

Excepted estates

Many straightforward, lower-value estates don't need to file a full IHT400 account at all.

Reporting requirements for simple estates well within the nil-rate band (or otherwise clearly exempt) have been simplified in recent years, often needing only the probate application itself rather than a separate full account. The exact thresholds and conditions are set by HMRC and can change, so check current guidance rather than assuming. This tool flags when your estate looks like it may qualify, based on tax due and your combined nil-rate bands — a rough signal, not a definitive check, since the real HMRC conditions also depend on specified transfers, foreign assets and trust interests it doesn't track.

Domicile → long-term UK residence

Whether your worldwide estate is taxed by the UK now depends on your residence history, not the older idea of "domicile".

Broadly, you're now in scope as a "long-term UK resident" if you've been UK-resident for at least 10 of the last 20 tax years. This also changed how excluded-property trusts work for anyone who previously relied on non-domiciled status — if this could affect you, it's worth checking your specific position.

ISAs

An ISA wrapper protects you from Income Tax and Capital Gains Tax — not Inheritance Tax.

The full value remains part of your taxable estate on death. One narrow exception: AIM-listed shares held inside an ISA can separately qualify for Business Relief. A surviving spouse or civil partner can also inherit an extra ISA allowance (the "Additional Permitted Subscription"), but that preserves the ISA wrapper for them — it doesn't reduce Inheritance Tax.

Deed of Variation

Your beneficiaries can, after your death, agree to redirect their inheritance and have it treated as if you'd left it that way originally.

Must be done within 2 years of death, with the agreement of everyone who'd otherwise benefit. It's a decision your family makes after the fact, not something you can set up in advance — but useful to know as an option, for example to redirect an inheritance straight to grandchildren or to charity.