This article is for general information only and does not constitute tax, legal, estate-planning or regulated mortgage advice. Inheritance Tax depends on the value and structure of an estate, available exemptions, lifetime gifts and individual circumstances. Finance 4 Homes Limited is an Appointed Representative of Beneficial Ltd, which is authorised and regulated by the Financial Conduct Authority.
Last reviewed: September 2026.
Inheritance Tax, or IHT, is generally charged at 40% on the part of an estate above the tax-free allowances available to it. For 2026/27, the standard nil-rate band remains £325,000, while a qualifying estate can also receive a residence nil-rate band of up to £175,000.
Those figures do not mean every estate worth more than £325,000 will pay IHT. Property, lifetime gifts, exemptions, transferred allowances and who inherits can all affect the calculation. This inheritance tax information explains the main framework, but individual tax and estate-planning decisions should be checked with an appropriately qualified professional.
The main figures to know
The headline thresholds are straightforward, but determining which ones an estate can actually use is often less so.
| Inheritance Tax rule | 2026/27 amount |
| Standard nil-rate band | £325,000 |
| Residence nil-rate band | Up to £175,000 |
| Standard IHT rate | 40% |
| Residence nil-rate band taper starts | £2 million |
The government’s Inheritance Tax threshold guidance confirms the £325,000 nil-rate band, £175,000 residence nil-rate band and £2 million taper threshold for 2026/27.
The 40% rate applies to the taxable portion of the estate after relevant allowances, exemptions and reliefs have been taken into account.
Why £325,000 is not always the tax-free limit
The standard nil-rate band is £325,000, but the amount an estate can pass on without IHT can be higher in certain circumstances.
Where a qualifying home passes to direct descendants, such as children or grandchildren, the residence nil-rate band can add up to £175,000. That can potentially take an individual’s available threshold to £500,000.
Unused nil-rate bands can also sometimes transfer between spouses or civil partners. Where all the relevant conditions are met, a surviving spouse or civil partner’s estate can potentially benefit from allowances of up to £1 million.
That is not a standard tax-free allowance for every couple. The actual amount depends on factors including:
- how much of the first person’s allowances remained unused;
- whether a qualifying home passes to direct descendants;
- the value of the estate; and
- whether the residence nil-rate band is reduced by the £2 million taper.
The residence nil-rate band reduces by £1 for every £2 that the net estate exceeds £2 million.
What is included when an estate is valued?
Inheritance Tax can take account of considerably more than the family home.
Depending on the circumstances, an estate may include:
- houses, flats and land;
- money in bank and savings accounts;
- investments;
- vehicles;
- jewellery and other valuable possessions;
- business interests;
- certain jointly owned assets; and
- some gifts made before death.
Debts and liabilities must also be identified when the estate is valued. GOV.UK’s guidance on valuing an estate for Inheritance Tax specifically includes mortgages and loans among the debts that need to be considered.
Whether a particular liability can ultimately be deducted can depend on its purpose and the surrounding circumstances, so more complex estates may require professional tax or legal advice.
If you are reviewing an existing mortgage for reasons separate from tax planning, our mortgages and remortgages guidance explains the mortgage support we provide.
If borrowing or restructuring is being considered partly for tax reasons, obtain tax and legal advice before acting.
How gifts can affect Inheritance Tax
Lifetime gifts are one of the areas where IHT calculations can become more involved.
The government’s Inheritance Tax guidance on gifts explains the main exemptions and the seven-year rule.
The annual gift exemption is £3,000 per tax year. An unused annual exemption can normally be carried forward for one tax year.
Other exemptions may apply to certain:
- small gifts;
- wedding or civil partnership gifts;
- gifts between spouses or civil partners;
- charitable gifts; and
- regular gifts made from income where the relevant conditions are satisfied.
A gift to an individual will normally fall outside the estate for IHT if the person making the gift survives for seven years after giving it away.
The seven-year rule is more nuanced than saying anything given away within seven years is automatically taxed at 40%. Whether tax is payable can depend on the value and timing of gifts, available exemptions, previous transfers and how much of the nil-rate band has already been used.
Gifts where the person giving the asset continues to benefit from it can also be treated differently.
Business and agricultural assets follow additional rules
Estates containing farms or business assets need particular care because the relief rules changed from 6 April 2026.
A new £2.5 million combined allowance applies to qualifying agricultural and business property that would otherwise receive 100% Agricultural Relief or Business Relief. Qualifying value above the available allowance generally receives relief at 50%. Unused allowance can also potentially transfer to a surviving spouse or civil partner.
HMRC’s Agricultural and Business Relief guidance explains how the new allowance applies to estates, lifetime transfers and trusts.
The detailed rules differ according to the type of asset, transfer and ownership arrangement. Estates containing farms, family businesses, company shares or relevant trust property should therefore be considered using current HMRC guidance and, where necessary, specialist tax advice.
A significant pension change arrives in April 2027
Another major IHT change takes effect shortly after the 2026/27 tax year ends.
From 6 April 2027, most unused pension funds and pension death benefits will be brought within a deceased person’s estate for Inheritance Tax purposes.
HMRC’s Inheritance Tax on pensions guidance explains that the change applies to deaths on or after 6 April 2027, while certain benefits remain outside the new rules.
Older estate-planning guidance may therefore be out of date if it assumes unused pensions will remain outside the estate.
Anyone whose estate planning relies materially on pension treatment should make sure the advice being used reflects the rules applying at the relevant date.
Where protection can fit alongside estate planning
Life assurance does not reduce the value of an estate or remove an Inheritance Tax liability by itself.
What it can do is provide a lump sum after death, depending on the type of cover and how the policy is arranged.
Our mortgage protection guidance covers life assurance and other forms of financial protection. Finance 4 Homes’ current protection page specifically states that whole-of-life cover can provide a lump sum on death and that the money may be used towards an Inheritance Tax liability.
Where protection forms part of wider mortgage planning, we can discuss the financial commitments involved and protection options available for consideration.
That is separate from tax and estate planning. We do not determine IHT liabilities, draft wills or advise on how an estate should be structured.
Policy ownership, beneficiaries and any trust arrangement can affect how proceeds are handled, so individual tax or legal advice may be appropriate.
Property can make the calculation more complex
For many homeowners, property value is the figure most likely to push an estate towards or above the IHT thresholds.
The residence nil-rate band may help where a qualifying home passes to direct descendants, but simply owning a home does not guarantee the additional £175,000 allowance.
The amount available can be affected by:
- who inherits the property;
- the value of the qualifying residential interest;
- the overall estate value;
- whether transferred allowances are available; and
- whether the £2 million taper applies.
Joint ownership, trusts and substantial borrowing can add further complexity to the valuation.
Life assurance and Inheritance Tax planning serve different purposes
An insurance policy can provide money following death. That may help beneficiaries meet financial commitments, repay certain debts or contribute towards an IHT liability.
A protection policy should not be assumed to reduce an IHT liability. Its purpose and tax treatment depend on how the arrangement is structured.
That distinction is important because buying cover on the assumption that it changes the estate’s tax bill could lead to decisions being made on an incorrect basis.
Where the purpose of a policy is specifically connected with estate planning or an expected IHT liability, appropriate protection, tax and legal advice may all be relevant.
When specialist advice becomes particularly important
The headline rules become less reliable as a guide once an estate includes more complex assets or arrangements.
Professional tax or legal advice may be appropriate where there are:
- substantial lifetime gifts;
- trusts;
- overseas assets;
- business or agricultural property;
- complex property ownership;
- estates above the £2 million residence nil-rate band taper;
- questions about transferable allowances; or
- pension benefits affected by the April 2027 reforms.
Advice can also be valuable before making significant changes to property ownership, borrowing, wills or lifetime gifting arrangements.
Where the wider situation also involves a mortgage or protection requirement, you can talk to us about the mortgage and protection side. We can discuss those areas while leaving tax, legal, probate and estate-planning decisions with the relevant specialists. Finance 4 Homes’ contact page specifically lists mortgage and protection enquiries among the services available.
Understanding what the headline figures really mean
For 2026/27, the main IHT figures are £325,000 for the standard nil-rate band, up to £175,000 for the residence nil-rate band, and a standard rate of 40% on the taxable portion of the estate.
The thresholds tell you where the calculation starts, not what a particular estate will ultimately owe.
Property, debts, lifetime gifts, exemptions, transferred allowances and available reliefs can all affect the outcome. The 2026 agricultural and business relief reforms and the April 2027 pension changes also mean older inheritance-planning information may no longer reflect the current position.
You may be charged a fee for mortgage advice which could be up to 1% of the loan. The precise amount will depend on your circumstances, but we estimate it to be 0.75% of the loan amount. These are illustrative estimates. Your actual fee may differ depending on your circumstances, complexity, credit history and lender requirements.
Finance 4 Homes Limited is an Appointed Representative of Beneficial Ltd, which is authorised and regulated by the Financial Conduct Authority. The information on this website is intended for guidance purposes only and does not constitute tax, legal or estate-planning advice.
Mortgage and protection availability depends on individual circumstances and applicable provider or lender criteria.
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