What is Inheritance Tax (IHT)?
Inheritance tax (IHT) is the 40% tax on the part of a deceased person's estate above the tax-free thresholds — £325,000, plus up to £175,000 extra when a home passes to children, with anything left to a spouse exempt.
How inheritance tax works
Everyone has a £325,000 nil-rate band (frozen since 2009 and now frozen until 2030/31). Passing your home to children or grandchildren adds up to a £175,000 residence nil-rate band. Anything left to a spouse or civil partner is entirely exempt, and unused bands transfer to them — so a married couple can typically pass on up to £1 million tax-free. Above the thresholds the rate is 40% (36% if 10%+ of the estate goes to charity). Gifts made more than seven years before death escape entirely; within seven years they may be taxed on a sliding scale.
Who actually pays it
Despite being regularly polled as Britain's most hated tax, only around 1 in 20 estates pays any IHT at all. But the net is widening fast: house prices have grown into frozen thresholds, pension pots are brought into estates from April 2027, and farm and business reliefs are capped from April 2026 (100% relief only on the first £1 million — the change behind the farmers' protests). The OBR expects receipts to climb steeply toward £14 billion+ by 2030.
Why it matters now
IHT sits at the centre of the wealth-taxation argument. Reform UK has proposed abolishing it for estates under £2 million (with a lower 20% rate above); parts of the Conservative party push for outright abolition; while the Greens would go the other way, taxing large fortunes annually rather than waiting for death. How Britain taxes inherited wealth — the least-earned money there is, or a family's already-taxed savings, depending on your view — is one of the sharpest philosophical divides on offer.
Plain-English guide for general information only — not financial, legal or tax advice. Rates are 2025/26 unless stated. Last reviewed 5 July 2026.
Frequently asked questions
How much can I inherit tax-free in the UK?
There's no tax on receiving an inheritance itself — IHT is charged on the estate. A single person's estate is tax-free up to £325,000 (plus £175,000 if a home passes to children); married couples can combine bands to pass on up to £1 million tax-free.
What is the 7-year rule for gifts?
Gifts you make more than seven years before you die are free of inheritance tax. Die within seven years and the gift uses up your nil-rate band, with tax on large gifts tapering down between years three and seven.
Are pensions subject to inheritance tax?
Historically no — pension pots passed outside the estate. From April 2027 unused pension funds are brought into the estate for IHT, one of the biggest changes to retirement planning in a generation.
Which parties would change inheritance tax?
Reform UK has proposed abolishing IHT below £2 million with 20% above; some Conservatives push abolition; Labour has instead broadened the base (pensions from 2027, capped farm/business reliefs from 2026); the Greens favour taxing wealth annually instead.