The threshold below which an estate pays no inheritance tax, with a flat rate charged above it. It has been frozen for long enough that ordinary estates, particularly ones containing a house in the south, now pass it.
The Ledger 6 of 6
Pass on
Inheritance, gifts, and what survives a handover.
5 sourced figuresnext checked 1 March 20271 piece
Plenty of family money never makes it to the next generation, and the reasons are often paperwork and timing as much as tax. Tax at least has published rules: nil-rate bands, gifts that fall out of the estate, taper relief on lifetime transfers. Those are the parts we can describe from the statute and the registered figures.
What this is not
Estate planning is regulated and family-specific. Treat this as background before speaking to someone qualified.
What this subject contains
9 ways the rules work here
An additional threshold where a home passes to direct descendants. It is itself withdrawn above a large estate value, so it is worth least to the estates that owe most.
Where a spouse or civil partner dies without using their threshold, the unused part can be added to the survivor's. Together with the residence band this is the source of the widely quoted figure for a couple, which requires a home passing to children to reach.
An amount that can be given away each tax year and leaves the estate immediately, with no seven-year wait. Unused exemption carries forward, but only into the following year.
Separate exemptions for modest gifts to any number of people, and for gifts on a marriage or civil partnership, at amounts that depend on the relationship.
Regular gifts out of surplus income can leave the estate immediately with no seven-year clock and no cap. HMRC expects a pattern of payments, not a one-off, which is why it is powerful but rarely used.
A gift outside the exemptions falls out of the estate after seven years. Taper relief reduces the tax on gifts made between three and seven years before death, and it reduces the tax, not the value of the gift, which is why it helps less than most people expect.
An estate leaving a defined share of its net value to charity pays inheritance tax at a reduced rate on some assets. The charitable gift itself is also exempt, so both effects run together.
Unused pension funds and death benefits will count in the estate for inheritance tax from a fixed future date. If you have been planning around pensions passing outside the estate, the maths changes from that point.
These are the ones that belong to this subject. The whole map, across all six, is on every key way to build wealth.
The figures underneath
What this subject rests on
The inheritance tax nil-rate band, and the rates above it.
£325,000, then 40%, or 36% where at least 10% of the net estate goes to charity
GOV.UK · 2026 to 2027 tax year · checked again by 2027-03-01
The additional allowance when a home passes to direct descendants.
Up to £175,000
GOV.UK · Unchanged since the 2020 to 2021 tax year · checked again by 2027-03-01
Reduced by £1 for every £2 an estate is worth above the £2 million taper threshold.
Gifts you can make each year that leave your estate immediately.
£3,000 a year, and one unused year can be carried forward
GOV.UK, Inheritance Tax gifts · Current rules · checked again by 2027-03-01
Small gift and wedding gift exemptions.
£250 per person per year; weddings £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else
GOV.UK, Inheritance Tax gifts · Current rules · checked again by 2027-03-01
The £250 cannot be combined with another allowance for the same person.
How tax on a gift falls away over seven years.
Within 3 years 40%, 3 to 4 years 32%, 4 to 5 years 24%, 5 to 6 years 16%, 6 to 7 years 8%, then nothing
GOV.UK, Inheritance Tax gifts · Current rules · checked again by 2027-03-01
Taper relief only applies where gifts made in the seven years before death exceed the £325,000 threshold. It reduces tax on the gift, not the value of the gift.
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