In one paragraph: UK IHT is 40% on the value of an estate above the £325,000 nil-rate band, with an extra £175,000 "residence nil-rate band" if the home passes to direct descendants. A married couple can pass up to £1,000,000 IHT-free where the home goes to children. Lifetime gifts can be IHT-free if the donor survives 7 years (the 7-year rule). Business assets, agricultural property, and gifts out of regular income may also be exempt. The Autumn 2024 Budget capped BPR/APR 100% relief at £1m from April 2026, the biggest change in over a decade.
The 2026/27 headline figures
| Allowance / rate | Value |
|---|---|
| Nil-rate band (per person) | £325,000 |
| Residence nil-rate band (per person) | £175,000 |
| Combined per couple (with full transfers) | £1,000,000 |
| Standard IHT rate | 40% |
| Charitable estate rate (10%+ to charity) | 36% |
| Lifetime gift rate (CLT, above NRB) | 20% |
| Annual gift exemption | £3,000 |
| RNRB taper threshold | £2,000,000 estate |
| BPR/APR cap (from April 2026) | £1,000,000 at 100% |
NRB has been frozen since 2009 at £325,000. RNRB has been frozen since 2020/21 at £175,000. Both are confirmed frozen until April 2030 — a major fiscal drag effect.
The £1m couple allowance — when it works
The headline "couples can pass £1m IHT-free" requires specific conditions:
- Married or civil partners
- First spouse leaves everything to the surviving spouse (uses spouse exemption, doesn't use NRB)
- Second spouse's estate uses their own £325k NRB + transferable £325k NRB = £650k
- Plus £175k own RNRB + £175k transferable RNRB = £350k (if home passes to direct descendants)
- Total: £1,000,000
- Caveat: above £2m total estate, the RNRB tapers — reducing the £1m
Full mechanics: Transferable nil-rate band explained.
The 7-year gift rule
Most lifetime gifts become IHT-free if you survive 7 years from the date of the gift. Die within 7 years and the gift is added back to your estate, with taper relief reducing the tax (not the gift) for years 3-7.
| Years between gift and death | % of full IHT due |
|---|---|
| 0-3 | 100% |
| 3-4 | 80% |
| 4-5 | 60% |
| 5-6 | 40% |
| 6-7 | 20% |
| 7+ | 0% |
Critical: taper relief reduces the tax, not the gift's value — and only on gifts exceeding the nil-rate band. A £200k gift made 4 years before death is fully covered by NRB and tax-free, but it uses up NRB needed for the estate.
Full mechanics: The 7-year gift rule explained.
Gifts out of normal income — the most under-used exemption
Under section 21 IHTA 1984, regular gifts made from your surplus income (not capital) are immediately exempt — no 7-year rule, no upper limit. Three tests must be met:
- The gift is part of your normal expenditure (a pattern).
- The gift is made out of income.
- After all gifts, you have enough income to maintain your standard of living.
Reportedly used in <10% of eligible estates, mostly because of the evidential burden. Keep a contemporaneous record each tax year showing income, normal expenditure, and the resulting surplus.
Full mechanics: Gifts out of normal income explained.
Business Property Relief (BPR) — the April 2026 cap
BPR removes qualifying business assets from your estate for IHT. Historically:
- 100% relief on unincorporated trading businesses, unquoted shares (including AIM)
- 50% relief on controlling shareholding in a quoted company, or land/equipment used in your business
- 2-year ownership rule
From April 2026, the Autumn 2024 Budget capped BPR + APR combined at £1m per individual at 100% rate, with 50% relief on the excess. This is the biggest IHT change since the introduction of RNRB.
Estate of £5m in qualifying business assets: pre-2026 paid £0 IHT (full 100% BPR); post-April-2026 pays £800,000 IHT.
Full mechanics: Business Property Relief explained.
Deeds of variation — fixing a will after death
Within 2 years of death, beneficiaries can redirect their inheritance via a deed of variation. For IHT and CGT purposes, the variation is treated as if the deceased had made it — retrospectively.
Common uses:
- Generation-skipping (children pass to grandchildren) to reduce future IHT in the children's estates
- Equalising bequests where the will is outdated
- Redirecting to a charity to trigger the 36% rate
- Setting up a discretionary trust
Full mechanics: Deeds of variation explained.
Gifts and exemptions you can use today
| Exemption | Value | Notes |
|---|---|---|
| Annual gift | £3,000/year | Carry forward 1 year unused |
| Small gifts to many people | £250/recipient/year | Separate from annual exemption |
| Wedding gift (parent → child) | £5,000 | One-off, per parent |
| Wedding gift (grandparent → grandchild) | £2,500 | One-off |
| Wedding gift (anyone else) | £1,000 | One-off |
| Gifts to spouse / civil partner | Unlimited | Both UK-domiciled |
| Gifts to charity | Unlimited | Also triggers 36% rate at 10%+ |
| Gifts out of normal income | Unlimited | Subject to 3 tests |
Tools and deeper guides
Sources
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