A Guide to Inheritance Tax (IHT) in 2026

Inheritance Tax is charged on the value of a person’s estate above the available tax-free thresholds when they die, at a standard rate of 40% on the excess.

The nil-rate band and residence nil-rate band

Every individual has a nil-rate band of £325,000. Where a qualifying home passes to direct descendants, an additional residence nil-rate band of £175,000 is available, taking the combined allowance up to £500,000 per person, or up to £1 million for a married couple or civil partnership where allowances are transferred between spouses. These thresholds are frozen until April 2031.

Gifts and the seven-year rule

Lifetime gifts can fall outside the estate if the donor survives seven years, with tapering relief potentially reducing the tax due on gifts made within that period.

Important upcoming change: pensions and IHT from April 2027

From 6 April 2027, most unused pension funds and pension death benefits will be brought into the estate for Inheritance Tax purposes for the first time. Pension pots that currently pass outside the estate will then be tested against the same nil-rate band as the rest of the estate. Exemptions for transfers to a surviving spouse, civil partner or registered charity are expected to continue to apply. Anyone who has relied on their pension sitting outside their estate should review their planning during the 2026/27 tax year.

Financing and estate planning

Some clients raise capital via a mortgage or equity release rather than selling assets, as part of wider estate and inheritance planning. This is a complex, individual decision that sits alongside — not instead of — proper legal and tax advice.