Inheritance Tax Thresholds 2025-26: £325,000 NRB and Reliefs
Inheritance Tax (IHT) is charged at 40% on the value of an estate above the £325,000 nil-rate band. Adding the Residence Nil-Rate Band, individuals can pass up to £500,000 free of IHT — and married couples up to £1,000,000.
IHT Rate and Nil-Rate Bands
Inheritance Tax is charged at 40% on the value of an estate that exceeds the deceased's available nil-rate bands. A reduced rate of 36% applies if at least 10% of the net estate is left to a qualifying charity.
| Allowance | 2025-26 Amount | Frozen Until |
|---|---|---|
| Nil-Rate Band (NRB) | £325,000 | April 2030 |
| Residence Nil-Rate Band (RNRB) | £175,000 | April 2030 |
| Maximum for single individual | £500,000 | — |
| Maximum for married couple/civil partnership | £1,000,000 | — |
Both thresholds have been frozen at these levels since 2021 and are set to remain frozen until at least April 2030. With rising property values, this freeze means more estates are being brought into the IHT net each year.
The Residence Nil-Rate Band (RNRB)
The Residence Nil-Rate Band (RNRB) of £175,000 applies in addition to the standard NRB when your main home passes to direct descendants — children, grandchildren, stepchildren, or adopted children. It does not apply to nieces, nephews, or other relatives unless they are also direct descendants.
The RNRB is subject to a taper: for every £2 by which the total estate exceeds £2,000,000, the RNRB reduces by £1. The RNRB is fully withdrawn when the estate reaches £2,350,000.
Spousal and Civil Partner Exemption
Transfers between spouses or civil partners are entirely exempt from IHT, provided the receiving spouse is UK domiciled. There is no limit on the amount that can be passed between spouses free of tax.
Importantly, any unused NRB and RNRB can be transferred to the surviving spouse on the first death. This means a surviving spouse can potentially claim up to two full NRBs (£650,000) and two full RNRBs (£350,000) on the second death — a combined threshold of £1,000,000.
Annual Gift Exemptions
| Gift Type | Annual Exempt Amount | Notes |
|---|---|---|
| Annual gift exemption | £3,000 per donor | Unused allowance can be carried forward one year |
| Small gifts | £250 per recipient | Any number of recipients, cannot be combined with annual exemption for same person |
| Wedding gift — parent | £5,000 | Per child getting married |
| Wedding gift — grandparent | £2,500 | Per grandchild getting married |
| Wedding gift — other | £1,000 | Per couple |
| Normal expenditure out of income | Unlimited | Must come from regular surplus income, not capital |
The 7-Year Rule and Potentially Exempt Transfers
Gifts above the annual exemptions are Potentially Exempt Transfers (PETs). They become fully exempt from IHT if the donor survives 7 years after making the gift. If the donor dies within 7 years, taper relief applies:
| Years Between Gift and Death | IHT Charge on Gift |
|---|---|
| Less than 3 years | 40% (full rate) |
| 3 to 4 years | 32% (80% of full rate) |
| 4 to 5 years | 24% (60% of full rate) |
| 5 to 6 years | 16% (40% of full rate) |
| 6 to 7 years | 8% (20% of full rate) |
| 7 years or more | 0% — fully exempt |
Taper relief only applies to the gift itself once the nil-rate band has been used up. The NRB is applied to chargeable transfers in chronological order (oldest first).
Business Property Relief and Agricultural Property Relief
Business Property Relief (BPR) provides relief from IHT on qualifying business assets at either 50% or 100%. A 100% relief applies to interests in unlisted businesses and shares in unquoted trading companies. A 50% relief applies to shares in quoted companies where the deceased had a controlling interest, and to business assets owned personally but used by a partnership or company.
Agricultural Property Relief (APR) operates similarly for qualifying agricultural land and farmhouses, at 100% or 50% depending on whether the land is owner-occupied or let. Note that the Budget 2024 announced reforms to both BPR and APR, introducing a £1,000,000 cap before the reduced 50% rate applies — these changes are proposed to take effect from April 2026.
Pensions and IHT — 2027 Changes
Under current rules for 2025-26, defined contribution pension pots are generally outside the estate for IHT purposes. Pensions do not form part of the deceased's estate and pass free of IHT to named beneficiaries. This makes pension pots a commonly used estate planning tool.
The Autumn Budget 2024 announced that pension pots will be brought within the IHT regime from April 2027. This change is still subject to consultation, but if enacted it will mean that unspent pension funds will be added to the estate for IHT calculation purposes. Specialist advice should be sought before 2027 by anyone relying on pensions for estate planning.
Frequently Asked Questions
Do I need to pay Inheritance Tax?
IHT is only due when an estate exceeds the available nil-rate bands. For a single person with no Residence NRB (for example, if no main home is involved), the threshold is £325,000. With the RNRB for a home passing to children, it rises to £500,000. Married couples can combine unused allowances for a potential threshold of £1,000,000 on the second death.
What is the 7-year rule?
Lifetime gifts above the annual exemptions are Potentially Exempt Transfers. If the donor lives for 7 or more years after making the gift, it is completely outside the estate. Gifts made within 7 years may still attract IHT, but taper relief reduces the charge on a sliding scale starting at 3 years.
Can I reduce IHT with gifts?
Yes. The £3,000 annual gift exemption (plus one year's carry-forward) and small gift exemptions (£250 per person) can be used every year free of IHT. Larger gifts become exempt after 7 years. Charitable donations reduce the estate and can also reduce the IHT rate from 40% to 36%.
Use our Inheritance Tax calculator to estimate the IHT on an estate.