Inheritance Tax 2026/27 — Nil Rate Band, Residence NRB & 40% Rate

Inheritance Tax (IHT) is generally charged at 40% on the value above the available allowances when a person dies, and can also apply to certain lifetime transfers. For deaths in the 2026/27 tax year, the nil rate band is £325,000 and the residence nil rate band (RNRB) is up to £175,000 where the qualifying residence is inherited by direct descendants. A qualifying individual may therefore pass on up to £500,000 without IHT; a surviving spouse or civil partner may have transferred unused bands, subject to the detailed rules. Estimate your estate's liability with the IHT Calculator→.

The freeze has been in place for years, so more estates are being dragged into the charge as property prices rise. Planning — gifting, the residence band, charitable legacies and the spouse exemption — can remove most estates from IHT entirely, but the rules are precise and the deadlines short.

The Nil Rate Band

Every individual has a £325,000 nil rate band — the portion of the estate that passes free of IHT. The figure has been frozen since 2009 and remains frozen for 2026/27, which matters because inflation and house price growth push more estates over the threshold every year without any change in the law. The band applies to the combined value of your estate: property, cash, investments, pensions outside trust and personal possessions, minus debts.

The Residence Nil Rate Band

The residence nil rate band (RNRB) adds up to £175,000 when a qualifying residence is inherited by direct descendants. Direct descendants can include children, grandchildren, stepchildren, adopted or foster children, and certain spouses or civil partners of descendants. The available amount is limited by the value of the qualifying residence inherited and tapers by £1 for every £2 that the estate exceeds £2 million. It therefore disappears at £2.35 million where the full £175,000 band would otherwise be available:

Because the taper counts your whole estate, a large pension pot or investment portfolio can remove the residence band even though it is meant for family homes. Gifting or restructuring before death can protect it, but only if the planning is done early enough.

Allowances for Married Couples and Civil Partners

The transferable nil rate band (TNRB) means an unused percentage of the first person's allowance may be claimed by the surviving spouse's or civil partner's estate. The same principle can apply to the RNRB, giving a qualifying couple a possible combined total of £1 million. The transfer is not simply automatic: personal representatives normally claim it using the first death's records and the relevant IHT forms. The actual amount depends on the percentage unused, the bands available at each death and whether the RNRB conditions are met.

IHT Rates

If you leave at least 10% of your net estate to charity, the rate on the taxable portion drops from 40% to 36%. The charity must be a qualifying UK charity, and the 10% is measured against the net estate after other reliefs — a modest legacy can therefore cut the tax bill meaningfully while supporting a cause.

Real Example: A Couple's Estate

John and Mary own their home worth £500,000, with £200,000 of savings. John dies first, leaving everything to Mary — the spouse exemption means no IHT at all, and his full £325,000 nil rate band plus £175,000 residence band are preserved for transfer. When Mary dies, leaving the £700,000 estate to their daughter:

A single person with the same £700,000 estate and no children inheriting the home would pay 40% on £375,000 — £150,000 of tax. The structure of ownership and beneficiaries changes the bill more than the size of the estate.

Gifts in the Seven Years Before Death

Gifts made in the seven years before death are added back into the estate for IHT purposes, using the nil rate band before the remaining estate. This is why lifetime giving is so powerful: gifts survive the seven-year period become exempt entirely, taking both the gift and its growth out of the estate. In the meantime, the £3,000 annual exemption, £250 small gifts, wedding gifts and gifts from surplus income all fall outside the seven-year aggregation. The interaction between gifting and the residence band needs care — gifting the family home away can forfeit the £175,000 residence band, so cash, shares and investment assets are usually the better candidates for early giving.

Paying IHT

IHT is due by the end of the sixth month after the person died — for a death in July 2026, that means payment by 31 January 2027. Interest runs from the due date on any late payment. Some assets may qualify for instalment arrangements, which eases cash flow but does not reduce the total tax. Most estates that owe IHT need to make a payment before the grant of representation, but the account and probate route depend on whether the estate qualifies as an excepted estate and on the assets involved; do not assume every estate must file IHT400.

The Executor's Responsibilities

The executor's job is to value the estate, complete the IHT account, pay the tax and obtain probate. Valuation must be at the date of death — property usually needs a professional valuation, and shares are valued at the date-of-death price. The IHT400 form asks for every asset and gift made in the previous seven years, and the executor must claim the transferable nil rate band from the first death, which requires the first spouse's IHT records. Interest on late payment starts at the six-month point, and HMRC can raise penalties for incorrect accounts, so executors should start the process early and keep every valuation and bank statement. Most estates below the allowances still need the account filed, even where no tax is due.

Common IHT Mistakes

• Assuming the residence band is automatic — it only applies to direct descendants and tapers over £2 million.
• Forgetting the transferable band — the executor must claim the first spouse's unused allowance.
• Ignoring pension timing — for deaths before 6 April 2027, current pension treatment generally applies; for deaths on or after 6 April 2027, most unused pension funds and pension death benefits are brought into the IHT estate under the legislated reform, subject to exclusions and detailed rules.
• Leaving the estate to the wrong order — a gift to a sibling rather than a child can lose the residence band.
• Missing the six-month payment deadline — interest starts immediately and is not negotiable.

Action Plan for 2026/27

Frequently Asked Questions

How the headline allowances can fail to apply

The £325,000 nil rate band and the possible £175,000 residence nil rate band are not a universal “tax-free estate” promise. The residence band depends on the residence, the beneficiary and the value inherited. A property left to a sibling, friend or discretionary trust may not meet the direct-descendant condition. An estate above the taper threshold can lose some or all of the residence band, and a property worth less than the available band cannot create a larger deduction.

The transferable bands also require evidence. The surviving spouse's personal representatives normally need records from the first death, including the value of the first estate and the proportion of each band used. The fact that the first estate paid no IHT does not by itself prove that every allowance was unused. Keep the will, estate account, grant, IHT return and spouse details together.

Pensions require a date-sensitive review. The income-tax treatment of a pension death benefit, the IHT treatment of unused funds, and the beneficiary's own tax position are different questions. Do not describe the post-April 2027 reform as applying to every pension without checking the legislated exclusions and implementation guidance. Revisit the estate plan when a pension nomination, trust, residence or death date changes.

What an executor should collect before filing

An executor should build the estate file from independent records rather than relying on a beneficiary's estimate. Obtain date-of-death statements for bank and investment accounts, property and contents valuations, details of debts, funeral costs, insurance, jointly owned assets, trusts and pension arrangements. Keep the valuation date consistent: a later sale price may be useful evidence, but it is not automatically the date-of-death market value.

The seven-year gift review needs its own schedule. Search bank records, solicitor files, share transfers, property documents and regular standing orders. For each transfer, record the date, recipient, value, exemption considered and whether the donor retained a benefit. A missing gift can change the nil-rate-band calculation and the tax due, while an unsupported exemption can create a compliance problem later.

The executor should also separate tax from probate administration. A probate application, an IHT account and an income-tax return for the deceased are related but different tasks. Some assets may need tax paid before the grant, and some qualifying assets may use instalments. Confirm the current HMRC process, keep payment references, and document any professional valuation or advice. A calculator is useful for a first estimate, but it is not a substitute for the estate account.

Official sources

• Inheritance Tax: thresholds, rates and allowances
• Inheritance Tax: reporting and paying
• HMRC Inheritance Tax manual

Model your estate with the IHT Calculator→, then read the Inheritance Gifts guide for the seven-year rule and the Probate UK guide for what happens after a death.

Official sources

• HMRC: Inheritance Tax thresholds and interest rates
• HMRC: Residence nil rate band
• HMRC: Transfer unused residence nil rate band
• HMRC: Work out Inheritance Tax due on gifts
• HMRC: Pay your Inheritance Tax bill
• HMRC: Inheritance Tax on pensions technical note
• HMRC: Inheritance Tax overview
• HMRC: Reporting and paying Inheritance Tax

These HMRC pages are the official references for thresholds, residence relief, gifts, pensions, payment and reporting. Check the estate, gift history and current legislation before relying on an estimate.