INHERITANCE TAX

Inheritance tax is paid if a person's estate is worth more than £325,000 when they die. This threshold (the "nil-rate band") has been frozen at this level since 2009 and, following the November 2025 Budget, is confirmed to remain frozen until April 2031.

An estate is exempt from IHT if the deceased left everything to their husband, wife or civil partner. Married couples and civil partners can give any value of gifts to each other during their lifetime without IHT being due on them. If someone's estate is less than the IHT threshold of £325,000, the remaining threshold can be transferred to their husband, wife or civil partner's estate when they die. This means the surviving partner's estate can be worth up to £650,000 before any IHT is due. IHT may also be payable on gifts made in an individual's lifetime but within 7 years of death. Transfers of assets into trust made in an individual's lifetime may be subject to an immediate charge at lifetime rates.

Residence nil-rate band — Since April 2020, an additional allowance of £175,000 per person has applied where a main residence is left to direct descendants (children, grandchildren, and certain others), on top of the standard nil-rate band. Like the main threshold, this is frozen until April 2031. Combined with the transferable nil-rate band, a married couple or civil partners can together shelter up to £1 million from IHT where a family home passes to direct descendants. This additional allowance is gradually withdrawn for estates worth more than £2 million, reducing by £1 for every £2 over that threshold.

Upcoming changes worth planning ahead for:

• From 6 April 2026, Business Property Relief and Agricultural Property Relief will be capped at 100% relief on the first £1 million of combined qualifying assets (transferable between spouses), with only 50% relief available above that.
• From 6 April 2027, most unused pension funds and death benefits will, for the first time, be included in the value of an estate for IHT purposes. Pensions left to a surviving spouse or civil partner will remain exempt, as with other assets.

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