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Inheritance Tax Threshold: Rates, Your Home and Gift Rules

The Inheritance Tax threshold is 325,000 pounds, and there's normally no tax to pay if an estate is below it, or if everything above it goes to a spouse, civil partner, charity or community amateur sports club. As of Nov 2026, GOV.UK says the threshold can rise to 500,000 pounds when a home goes to children or grandchildren.

Most families never pay Inheritance Tax, but the rules around the threshold, the family home and lifetime gifts decide who does. This guide sets out what GOV.UK says about when the tax is due, the rates, passing on a home and the gift allowances, in plain English. It isn't personal tax advice, and GOV.UK itself says you can get professional advice from a solicitor or a tax adviser on what you can give away tax free.

When Inheritance Tax is charged

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who's died. GOV.UK says there's normally nothing to pay if the estate is worth less than the 325,000 pounds threshold, or if everything above the threshold is left to a spouse, civil partner, charity or community amateur sports club. You may still need to report the estate's value even if it's below the threshold.

The standard rate is 40%, and it's only charged on the part of the estate above the threshold. GOV.UK's own example: an estate worth 500,000 pounds with a 325,000 pounds threshold is charged 40% on 175,000 pounds. If you're married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner's threshold when you die.

RuleWhat GOV.UK says, as of Nov 2026
Standard threshold325,000 pounds
Threshold when a home goes to children or grandchildrenCan increase to 500,000 pounds, if the estate is worth less than 2 million pounds
Standard rate40%, on the part above the threshold
Reduced rate36% on some assets if 10% or more of the net value is left to charity in the will
Spouse or civil partnerNo Inheritance Tax on what passes to them, and unused threshold can transfer
Gifts in the 3 years before deathTaxed at 40% where tax is due

Leaving or giving away the family home

You can pass a home to your husband, wife or civil partner when you die and there's no Inheritance Tax to pay. If you leave it to someone else in your will, it counts towards the value of the estate. If you own your home, or a share in it, GOV.UK says your tax-free threshold can rise to 500,000 pounds if you leave it to your children (including adopted, foster or stepchildren) or grandchildren and your estate is worth less than 2 million pounds.

Giving the home away before you die has its own rules. There's normally no Inheritance Tax to pay if you move out and live for another 7 years. If you want to stay in the property after giving it away, you'll need to pay rent to the new owner at the going rate for similar local homes and pay your share of the bills. Otherwise it counts as a gift with reservation and is added to the value of your estate when you die. You don't have to pay rent if you only give away part of the property and the new owners also live there.

If you die within 7 years of giving away all or part of the property, the home is treated as a gift and the 7 year rule applies. GOV.UK points out that the 7 year rule doesn't apply to gifts with reservation, and that the Inheritance Tax helpline can answer questions but can't give advice on how to pay less tax.

Allowances for tax-free gifts each tax year

Some gifts are exempt outright. There's no Inheritance Tax on gifts between spouses or civil partners who live in the UK permanently and are legally married or in a civil partnership with you, and none on gifts to charities or political parties. On top of that, GOV.UK lists these allowances for each tax year, which runs from 6 April to 5 April the following year:

AllowanceHow much
Annual exemption3,000 pounds in total, to one person or split between several, and any unused amount carries forward for one tax year only
Small gift allowanceGifts of up to 250 pounds per person, as many as you like, if you haven't used another allowance on the same person
Wedding or civil partnership gift to a childUp to 5,000 pounds
Wedding gift to a grandchild or great-grandchildUp to 2,500 pounds
Wedding gift to anyone elseUp to 1,000 pounds
Regular payments from incomeNo limit, if you can afford them after your usual living costs and pay from regular monthly income

Birthday or Christmas gifts you give from your regular income are exempt too. You can combine a wedding gift or regular payments with other allowances for the same person, except the small gift allowance. GOV.UK's example is a regular payment of 60 pounds a month (a total of 720 pounds a year) alongside the 3,000 pounds annual exemption in the same tax year.

Taper relief only applies above the threshold

Here's the detail most people get wrong. No tax is due on gifts if you live for 7 years after giving them, unless the gift is part of a trust. Gifts made 3 to 7 years before death are taxed on a sliding scale called taper relief, but GOV.UK says taper relief only applies if the total value of gifts made in the 7 years before death is over the 325,000 pounds threshold. Below that, there's no tax on the gifts to taper.

Years between gift and deathRate of tax on the gift
Under 3 years40%
3 to 4 years32%
4 to 5 years24%
5 to 6 years16%
6 to 7 years8%
7 or more0%

GOV.UK walks through an example. Sally, who wasn't married, gave 50,000 pounds to her brother 9 years before she died, 325,000 pounds to her sister 4 years and 2 months before, and 100,000 pounds to a friend 3 years before. The gift to her brother is outside the 7 years, and the gift to her sister falls within the threshold, so neither is taxed. Her friend pays Inheritance Tax at 32% on the 100,000 pounds gift, which GOV.UK puts at 32,000 pounds, and her remaining estate of 400,000 pounds pays 40%, which GOV.UK puts at 160,000 pounds.

What counts as a gift, and who pays

Gifts include money, household and personal goods such as furniture, jewellery or antiques, a house, land or buildings, shares listed on the London Stock Exchange and unlisted shares held for less than 2 years before death. Selling something for less than it's worth counts too: if you sell your house to your child below market value, the difference is a gift. Anything left in a will isn't a gift; it's part of the estate.

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Inheritance Tax is paid to HM Revenue and Customs (HMRC) from the estate by the person dealing with it, called the executor if there's a will. Beneficiaries don't normally pay tax on what they inherit, though they may have related taxes, such as on rental income from a house left to them. People who received gifts only pay if more than 325,000 pounds was given away in the 7 years before death. Other reliefs, such as Business Relief and Agricultural Relief, let some assets pass free of Inheritance Tax or with a reduced bill.

Plain advice on the Inheritance Tax threshold

Keep a simple record of every gift you make, what it was, who received it and its value at the time, because GOV.UK says the person dealing with your estate will need to work out what you gave in the 7 years before death. Read GOV.UK's How Inheritance Tax works guide alongside your will, and take advice from a solicitor or tax adviser before giving away a home or large sums.

If you haven't written a will yet, these online will makers are a low-stress place to start. It's also worth reading the outlook for defined contribution pensions and these money-saving tips while you're planning.

Frequently asked questions

What is the Inheritance Tax threshold?

As of Nov 2026, GOV.UK puts the threshold at 325,000 pounds. It can increase to 500,000 pounds if you leave your home to your children or grandchildren and the estate is worth less than 2 million pounds.

What rate is Inheritance Tax charged at?

The standard rate is 40%, charged only on the part of the estate above the threshold. A reduced rate of 36% can apply on some assets if 10% or more of the net value is left to charity.

Can my spouse use my unused threshold?

Yes. If you're married or in a civil partnership and your estate is worth less than your threshold, the unused part can be added to your partner's threshold when you die.

How much can I give away tax free each year?

Your annual exemption is 3,000 pounds each tax year, and you can also give gifts of up to 250 pounds per person, wedding gifts and regular payments from income under GOV.UK's rules.

What is the 7 year rule?

No tax is due on gifts if you live for 7 years after giving them, unless the gift is part of a trust. Gifts made 3 to 7 years before death may get taper relief.

Do beneficiaries pay Inheritance Tax?

Not normally. The tax is paid from the estate by the person dealing with it, though people who got gifts may pay if more than 325,000 pounds was given away in the 7 years before death.

Published and maintained by the Lilach Bullock team, covering marketing, AI and business growth.
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