Inheritance Tax Planning: A Practical UK Guide for 2026

A couple in their late sixties own a home worth £750,000 and have £700,000 in savings and investments. Their combined estate is worth £1.45 million. If the full transferable nil-rate band and residence nil-rate band are available, and the home passes to direct descendants, up to £1 million could potentially pass free of inheritance tax. That would leave £450,000 taxable at 40%, producing a potential bill of £180,000 before considering any other exemptions or reliefs.

This is why inheritance tax planning matters even for families who do not consider themselves exceptionally wealthy. HMRC’s latest annual receipts data shows that inheritance tax receipts rose from £3.5 billion in 2006/07 to £8.5 billion in 2025/26. Frozen thresholds, rising asset values and changing rules mean more families need to understand their potential exposure before a death occurs.

Key Takeaways

• The nil-rate band is £325,000 and the residence nil-rate band is £175,000. Both are frozen through the 2030/31 tax year.
• A qualifying married couple or civil partnership may be able to pass on up to £1 million free of inheritance tax if unused allowances transfer and a qualifying home passes to direct descendants.
• From 6 April 2026, the 100% Agricultural Property Relief and Business Property Relief allowance is £2.5 million across qualifying agricultural and business property. Qualifying value above the allowance generally receives 50% relief.
• From 6 April 2027, most unused pension funds and pension death benefits will be brought into the estate for inheritance tax purposes, subject to specific exclusions.
• Under the 7-year gift rule, outright gifts to individuals can become fully exempt if the donor survives for seven years. Taper relief can reduce tax on certain gifts made more than three years before death.

What is inheritance tax and when does it apply?

Inheritance tax, or IHT, is generally charged at 40% on the taxable value of an estate above the available tax-free thresholds. An estate can include property, cash, investments, business interests and life insurance owned personally. Life insurance placed into an appropriate trust may be treated differently, so the ownership and trust terms need to be considered carefully.

Under the current inheritance tax rules, the standard nil-rate band is £325,000. Amounts left to a spouse or civil partner are generally exempt. However, special rules can apply where one spouse is a long-term UK resident and the other is not, making HMRC’s long-term UK residence guidance relevant for some cross-border families.

Gifts to qualifying charities are also exempt. Where at least 10% of the relevant net estate is left to charity, the IHT rate applying to the qualifying part of the estate can fall from 40% to 36%.

How much is the inheritance tax threshold in 2026?

The nil-rate band has been fixed at £325,000 since the 2009/10 tax year. The current IHT threshold rules keep the nil-rate band, residence nil-rate band and £2 million residence nil-rate band taper threshold at their present levels through 2030/31.

Threshold	Amount	Current position
Nil-rate band (NRB)	£325,000	Frozen through 2030/31
Residence nil-rate band (RNRB)	£175,000	Frozen through 2030/31
Potential combined allowance for a qualifying couple	Up to £1,000,000	Subject to transfer and RNRB conditions

For a single person with an estate worth £600,000, no qualifying residence nil-rate band and no other reliefs, the simplified calculation would be:

Element	Amount
Estate value	£600,000
Nil-rate band	£325,000
Taxable amount	£275,000
IHT at 40%	£110,000

Actual calculations may differ where an estate includes lifetime gifts, trusts, debts, reliefs, jointly owned assets or overseas property.

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What is the residence nil-rate band and how does it work?

The residence nil-rate band can add up to £175,000 to an individual’s available threshold when a qualifying residence passes to direct descendants. HMRC’s residence nil-rate band guidance explains the qualifying conditions.

For one person, the nil-rate band and full residence nil-rate band can provide a potential total threshold of £500,000. Where unused allowances can be transferred between spouses or civil partners, the surviving person’s qualifying estate may have up to £650,000 of nil-rate band and £350,000 of residence nil-rate band, giving a possible combined total of £1 million.

The residence nil-rate band is tapered for estates worth more than £2 million. It falls by £1 for every £2 by which the estate exceeds that threshold. For an estate entitled only to one £175,000 RNRB, the allowance is fully tapered away at £2.35 million.

Estate value	Individual RNRB before other adjustments
Up to £2,000,000	£175,000
£2,100,000	£125,000
£2,200,000	£75,000
£2,350,000	£0

Where a full transferred RNRB is available, the amount being tapered may be higher. A transferable percentage can also potentially be claimed where the first spouse or civil partner died before the RNRB was introduced on 6 April 2017.

How does the 7-year gift rule reduce inheritance tax?

Most outright lifetime gifts to individuals are potentially exempt transfers. Under HMRC’s inheritance tax rules for gifts, a gift can become fully exempt if the donor survives for seven years after making it.

If the donor dies within seven years, the gift can become chargeable and may use some or all of the available nil-rate band. Taper relief can reduce the tax charged on a taxable gift, rather than reducing the value of the gift itself, where more than three years have passed.

Time between gift and death	Effective rate on taxable gift where taper applies
Less than 3 years	40%
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 years or more	0%

Taper relief generally becomes relevant only where chargeable gifts exceed the available nil-rate band.

Several exemptions can also support inheritance tax planning:

• Annual exemption: up to £3,000 per tax year, with an unused amount potentially carried forward for one tax year.
• Small gifts: up to £250 per person per tax year, subject to HMRC’s conditions.
• Wedding or civil partnership gifts: up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to another person.
• Normal expenditure out of income: qualifying regular gifts can be exempt where they are made from income and leave the donor able to maintain their normal standard of living.
• Gifts between spouses or civil partners: generally exempt, subject to relevant residence-based rules.

A gift with reservation of benefit is different. If you give an asset away but continue to benefit from it, HMRC may still treat it as part of your estate. Giving a home to children while continuing to live there rent-free is a common example.

What changed for Business Property Relief and Agricultural Property Relief in April 2026?

From 6 April 2026, the inheritance tax treatment of qualifying agricultural and business property changed. Under the current Agricultural Property Relief and Business Property Relief rules, the combined allowance for 100% relief is £2.5 million.

Under the new rules:

• The first £2.5 million of qualifying agricultural and business property can receive 100% relief.
• Qualifying value above the allowance generally receives 50% relief.
• An unused allowance can be transferred between spouses or civil partners, potentially increasing the survivor’s 100% relief allowance to as much as £5 million.
• Business property must still satisfy the underlying qualifying conditions. The business or relevant asset generally needs to have been owned for at least two years, and investment businesses may not qualify.

For example, if a qualifying trading business is worth £4 million and an individual has the full £2.5 million allowance, the remaining £1.5 million receives 50% relief. This leaves £750,000 within the chargeable estate before the ordinary nil-rate band or other available reliefs are considered. At 40%, that represents a maximum IHT exposure of £300,000 on the excess before those further allowances are applied.

Business owners should therefore review ownership, succession plans, qualifying status and liquidity rather than assume that historic 100% relief will continue to cover the entire business.

How will pensions be taxed under the new inheritance tax rules from April 2027?

From 6 April 2027, most unused pension funds and pension death benefits will be included in a deceased person’s estate for inheritance tax purposes. HMRC’s August 2026 technical update on IHT and pensions confirms that the reform was legislated for in Finance Act 2026 and applies to deaths on or after 6 April 2027.

This does not mean every pension death benefit will automatically face IHT. Specific exclusions remain, including registered pension death-in-service benefits and certain dependant scheme pensions. Income tax rules applying to pension benefits also remain a separate consideration.

For families that have deliberately preserved pension wealth to pass to the next generation, the reform is significant. Pension arrangements should therefore be considered alongside the rest of the estate rather than as a separate planning exercise.

What are the most effective inheritance tax planning strategies?

Effective inheritance tax planning normally combines several methods depending on the family’s finances, objectives and wider tax position.

1. Use lifetime gift exemptions.
Annual, small gift and wedding or civil partnership exemptions can gradually reduce an estate without subjecting the exempt amount to the seven-year rule.

2. Make larger gifts early enough for the seven-year period to run.
Larger outright gifts can be useful, but affordability, capital gains tax, control of the asset and the consequences of dying within seven years all need to be considered.

3. Consider normal expenditure out of income.
For people with regular surplus income, this can be particularly valuable because qualifying gifts do not have a seven-year waiting period. Keeping evidence of income, expenditure and the gifting pattern is important.

4. Review qualifying business assets.
Family business owners should confirm whether assets meet Business Property Relief conditions, how the £2.5 million allowance applies and whether an unused allowance from a spouse or civil partner is available.

5. Review pension planning before April 2027.
Drawing pension funds purely to reduce IHT can create income tax and investment consequences. Any change should therefore be considered as part of the wider retirement and estate plan.

6. Consider appropriately structured life insurance.
Where a policy is properly written in trust, it may provide funds outside the estate to help beneficiaries meet an IHT liability without forcing the sale of other assets.

7. Use trusts only where they fit the wider objective.
Trusts can provide control and asset protection, but transfers into trust can themselves create inheritance tax charges. Relevant property trusts can also face periodic and exit charges, so they are not a simple way to remove IHT.

What happens if you get inheritance tax planning wrong?

Poor planning can create unexpected tax liabilities, cash-flow problems and disputes. For a qualifying couple with a £1.5 million estate and a full £1 million combined threshold, the simplified IHT bill on the remaining £500,000 would be £200,000 before other reliefs or adjustments.

Common risks include:

• Gifts with reservation: an asset may remain in the taxable estate where the donor continues to benefit from it.
• Failed seven-year planning: gifts made less than seven years before death can use the nil-rate band and, where sufficiently large, may create a tax liability for the recipient.
• Missed reliefs: Business Property Relief and Agricultural Property Relief must be properly claimed and supported.
• Late payment: HMRC’s inheritance tax payment rules generally require IHT to be paid by the end of the sixth month after death. Interest can run after the due date, although instalment arrangements are available for certain assets.
• Incorrect valuations or returns: penalties depend on the behaviour that produced the inaccuracy. Under HMRC’s penalty framework, deliberate and concealed inaccuracies can attract penalties of up to 100% of the potential lost revenue, while careless mistakes are treated differently.

The 2026 Court of Appeal decision in Elborne & Ors v HMRC [2026] EWCA Civ 894 demonstrates how complex inheritance tax arrangements can become. The Court dismissed HMRC’s appeal and held that the historic home-loan scheme used in that particular case worked under the legislation applicable to the arrangements.

The judgment should not be read as a general endorsement of similar schemes today. It instead illustrates how highly technical arrangements can lead to years of litigation, making accurate implementation and professional advice important even where a planning structure appears effective.

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Frequently Asked Questions

Do I need an accountant for inheritance tax planning?

Professional advice can be particularly valuable where an estate is near or above the available IHT thresholds or includes a business, trusts, overseas assets, significant lifetime gifts or a large pension. A tax adviser can calculate potential exposure and identify relevant exemptions and reliefs. Legal advice may also be required for wills, trusts and property transfers.

How much does inheritance tax planning cost?

There is no reliable one-size-fits-all price. Costs depend on the value and complexity of the estate, the work required and whether legal or specialist valuation advice is needed. Apex Accountants scopes the required work and pricing based on the client’s circumstances rather than applying a generic estimate.

What happens if I do not plan for inheritance tax?

Your estate may pay 40% on the taxable amount above the available thresholds after exemptions and reliefs are considered. In many cases, some inheritance tax must be paid before a grant of representation can be obtained, which can create liquidity problems where an estate contains valuable property or business assets but limited cash.

Can I give my house to my children and still live in it?

You can transfer ownership, but continuing to live in the property without paying a full market rent can create a gift with reservation of benefit. The property may therefore remain within your estate for IHT purposes.

There is no simple trust workaround. A property transfer can also have capital gains tax, stamp duty, care-fee and wider legal consequences, so specialist advice should be taken before ownership is transferred.

When should I start inheritance tax planning?

Earlier planning usually creates more options. The 7-year gift rule needs time to run, Business Property Relief depends on qualifying conditions and ownership periods, and the pension IHT changes take effect from 6 April 2027.

An estate plan should also be reviewed after major changes such as marriage, divorce, receiving an inheritance, selling a business or experiencing a significant increase in asset values.

Is inheritance tax planning the same as tax avoidance?

No. Sensible inheritance tax planning uses statutory exemptions, allowances and reliefs in the way the law permits. Artificial arrangements designed primarily to exploit technical gaps may attract HMRC scrutiny and can fail if the relevant legal conditions are not satisfied.

Apex Accountants’ View

Apex Accountants has supported UK individuals, families and business owners with tax and estate planning since 2006. Our ACCA and ICAEW-qualified team considers the estate as a whole, including property, savings, investments, business interests, pensions, life insurance, lifetime gifts and existing estate-planning arrangements.

The April 2026 changes to Business Property Relief and Agricultural Property Relief, followed by the pension reforms from April 2027, mean plans prepared several years ago may no longer produce the same outcome.

Our estate planning services cover inheritance tax calculations, gifting strategies, trusts, business succession and probate support, while our personal tax services can help where estate planning interacts with an individual’s wider tax position.

The aim is not to force every estate into the same structure. A family business owner, a retiree with investment property and a household with a large pension pot can face very different IHT risks and planning priorities.

If you want to understand your current exposure before making gifts, changing pension arrangements or restructuring business ownership, contact our team for an initial assessment of the options available.