Inheritance Tax in the UK Explained (2026): Thresholds, Calculator, Rates & Reliefs

2. The nil rate band & why it quietly traps families

The nil rate band (NRB) allows every individual to pass on £325,000 tax‑free.

Here’s the problem most people miss:

The threshold hasn’t risen since 2009.

A modest family home bought for £180,000 in 2005 can easily be worth £450,000+ in 2026. Without planning, that single asset can create a five‑figure tax bill.

Anything above the £325,000 threshold is taxed at 40%. No inflation adjustment. No automatic protection.

3. When Inheritance Tax is not owed

You may owe no Inheritance Tax if:

• The estate value is below £325,000
• Everything is left to a spouse or civil partner
• Assets pass to a registered charity
• Residence Nil Rate Band applies correctly

This is why couples often pay nothing, while single homeowners can unexpectedly face large bills.

4. How to calculate Inheritance Tax (step by step)

To calculate IHT in 2026:

1. Add up all assets at market value
2. Include gifts from the last 7 years
3. Subtract mortgages and debts
4. Apply allowances (£325,000 + any residence relief)

Example:
Estate value: £525,000
Allowance: £325,000
Taxable amount: £200,000
IHT due: £80,000

5. Inheritance Tax calculator (UK)

Online calculators give a fast estimate based on current rules. They factor in:

• Estate value
• Gifts
• Spousal exemptions
• Property reliefs

6. The 40% rate (and why few pay the full amount)

The headline rate is 40%, but effective rates are often lower due to reliefs and exemptions. HMRC data shows that fewer than 5% of estates pay IHT, yet the total tax collected exceeded £7 billion in recent years.

7. Married couples: how allowances double

If the first spouse leaves everything to the survivor, their unused allowances transfer.

In 2026, this means couples can potentially pass on up to £1 million tax‑free (£325,000 NRB + £175,000 residence band each).

8. Valuing an estate correctly

HMRC expects accurate market valuations at date of death. Property valuations should reflect realistic sale prices, not optimism. Professional valuations reduce disputes and delays.

9. Taper relief and gifting rules

Gifts made more than 7 years before death are tax‑free. Gifts made 3–7 years before death receive taper relief, reducing the tax rate on those gifts—not the value.

10. Inheritance Tax threshold in 2026

• Nil rate band: £325,000
• Residence nil rate band: £175,000
• Taper starts at estate value over £2 million

11. Inheritance Tax FAQs (what people really ask)

The biggest misconception? That this is someone else’s problem.

In 2026, Inheritance Tax isn’t about wealth. It’s about timing, property values, and whether you planned before you needed to.

If you know the rules early, the tax shrinks. Ignore them, and it grows quietly in the background.