Farra is a death administration assistant for UK families. Get step-by-step guidance for registering a death, applying for probate, notifying banks, and managing bereavement admin. From essential documents to practical checklists, Farra simplifies estate paperwork and funeral-related tasks so you can focus on what matters.
Inheritance tax UK 2025/26: 40% tax on estates above £325,000 nil-rate band + optional £175,000 residence nil-rate band (if main home to children) = up to £500,000 per person, £1 million married couples. Due within 6 months of death. 7-year rule: Gifts within 7 years of death potentially taxable—taper relief if survived 3-7 years. Exemptions: Spouse/civil partner inheritance tax-free (unlimited), annual gift allowance £3,000, small gifts £250 per person, wedding gifts (£5K child, £2.5K grandchild, £1K other). Business/agricultural property relief: Up to 100% relief for qualifying assets. Only 4% estates pay IHT but rising—frozen thresholds + house price inflation pulling more families into tax.
Have more questions on UK death administration? Let Farra help.
Inheritance tax (IHT) is a 40% tax on estates above certain thresholds when someone dies. Most estates don't pay it, but if yours does, the bill can be substantial. This guide explains everything executors and beneficiaries need to know about UK inheritance tax in 2025/26.
Inheritance tax is a tax on the estate (property, money, and possessions) of someone who's died. According to HMRC, it's charged at 40% on the value of the estate above the tax-free threshold.
The good news: only about 4% of UK estates actually pay inheritance tax. This is because most estates fall below the tax-free thresholds, especially when you factor in exemptions and allowances for married couples.
The bad news: if your estate does exceed the threshold, the tax bill can be significant—40p for every pound over the limit.
There are two main tax-free allowances (also called nil-rate bands):
Everyone gets a personal allowance of £325,000. No inheritance tax is charged on estates worth up to this amount.
This threshold has been frozen since 2009 and is set to remain at £325,000 until at least April 2030 according to GOV.UK. With house prices rising, more estates are being caught by IHT each year—a phenomenon called "fiscal drag".
If you leave your home to your children or grandchildren (direct descendants), you may get an additional allowance called the residence nil-rate band (RNRB).
For 2026/26, the RNRB is:
For a single person leaving their home to children:
The RNRB is more complicated than the standard allowance. Here's what you need to know:
To claim the RNRB, all of these must be true:
If someone sold their home and moved into rented accommodation or a care home, they may still qualify for RNRB through downsizing relief—but this is complex and requires careful calculation.
Warning: The RNRB is one of the most complicated parts of UK tax law. If you're claiming it, consider professional advice—mistakes can cost tens of thousands in lost relief.
Here's where married couples get a big advantage:
Anything you leave to your spouse or civil partner is completely tax-free, regardless of value, as stated by HMRC. This means:
When the first spouse dies and leaves everything to the surviving spouse, their nil-rate bands aren't lost—they're transferred to the surviving spouse.
Example:
This is why married couples can often pass on estates worth up to £1 million without any inheritance tax.
If you give money or assets away during your lifetime, these gifts can affect your inheritance tax bill—depending on how long you live after making the gift.
If you survive for 7 years after making a gift, it falls completely outside your estate for IHT purposes. No tax is charged.
If you die within 7 years, the gift is added back to your estate and may be taxed—but the amount of tax reduces the longer you survive. This is called taper relief.
| Years between gift and death | Tax rate on gift |
|---|---|
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
Some gifts are completely exempt from IHT and don't count towards the 7-year rule:
Unlimited. You can give your spouse or civil partner as much as you like, tax-free (if both UK-domiciled).
Unlimited. Gifts to UK registered charities are completely exempt according to HMRC guidance.
Bonus: if you leave 10% or more of your estate to charity, the IHT rate on the rest drops from 40% to 36%.
You can give away £3,000 per year, tax-free. You can also carry forward one year's unused exemption, giving a maximum of £6,000 in one year if you didn't use last year's allowance.
You can give £250 to as many people as you like, each year, tax-free. You can't combine this with the annual exemption for the same person.
If you make regular gifts out of your normal income (not savings) that don't affect your standard of living, these are exempt. For example:
This exemption is powerful but poorly understood. Keep detailed records to prove the gifts were regular and from income.
Here's the step-by-step process:
Add up everything the person owned (see our guide to valuing an estate):
Subtract:
Subtract:
Whatever's left is taxed at 40% (or 36% if 10%+ goes to charity).
Estate of single person:
Deductions:
Allowances (leaving home to children):
Tax calculation:
According to HMRC, inheritance tax must be paid within 6 months of the end of the month in which the person died.
Examples:
The probate catch-22: You usually need to pay at least some IHT before you can get the grant of probate. But you often can't access the deceased's money to pay the tax without probate. Many executors need to arrange a loan or use their own funds temporarily.
If you pay late:
The IHT400 is HMRC's inheritance tax account form. It's required for estates that owe IHT or exceed certain thresholds.
You must complete IHT400 if:
The IHT400 is 17 pages long and has 8 supplementary schedules covering:
This isn't a form you fill in over a cup of tea. It requires:
You can pay IHT:
If the deceased had accessible cash (bank accounts), some banks will release funds directly to HMRC before probate—but not all will.
Some banks offer specific IHT loans to executors. These are repaid once probate is granted and estate funds are accessible.
If the estate includes property, land, or a business, you can pay the tax in 10 annual instalments. Interest is charged on the outstanding balance.
Executors can pay the tax personally and reclaim it from the estate once probate is granted.
If you're still alive and planning your estate, here are legitimate ways to reduce IHT:
Give away £3,000 per year. Over 10 years, that's £30,000 out of your estate tax-free.
Set up regular payments from your income (not capital) that don't affect your living standards. Potentially unlimited tax relief.
Completely tax-free, and if you leave 10%+ to charity, the tax rate on the rest drops to 36%.
Take out life insurance written in trust. The payout goes directly to beneficiaries outside your estate, so no IHT is charged on it.
You can't be taxed on money you've already spent. Enjoy your wealth while you can.
Business assets and qualifying shares can qualify for 100% relief from IHT—but this is complex and requires professional advice.
Farms and agricultural land may qualify for up to 100% relief, though recent changes (2026) have tightened this significantly.
Warning: Tax planning should never be your only reason for financial decisions. Make sure any planning serves your life goals first, tax efficiency second.
If you're an executor dealing with someone's estate, calculating and paying inheritance tax is one of the most complex parts of the probate process.
You'll need to:
Farra helps with the entire probate process, including IHT calculations. We guide you through valuing the estate, help you understand which forms you need, and provide templates for contacting banks and HMRC.
How to complete IHT400 Inheritance Tax form: step-by-step guide, schedules needed, common mistakes, IHT400 vs IHT205, deadlines, submitting to HMRC.
Complete UK inheritance tax guide 2026/27. Nil-rate band £325K, RNRB £175K, 40% rate. 7-year gifting rule, exemptions, and how to calculate IHT.
Find out if you need probate in the UK. Property always needs probate. Small estates under £5K-£50K may not (depends on bank). Joint assets exempt.
Ultimate step-by-step probate guide: 10-stage process, realistic timelines (6-18 months), complete costs (DIY vs solicitor), IHT forms, executor duties, common problems & solutions.
The IHT nil-rate band has been frozen at £325,000 since 2009. Learn how fiscal drag affects estates and what it means for families.
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