Wills · 10 min read · Published · Updated
Inheritance Tax Thresholds 2026/27: How Much Can You Leave Tax-Free?
The inheritance tax thresholds for 2026/27, how the nil-rate band and residence nil-rate band work, and practical ways to reduce the bill.
By Aaron Johnson, Consultant Solicitor and TEP, a solicitor in Bridlington who writes every guide himself.
Guides · Wills · No. 10 of 18Reviewed · 10 minutes
Inheritance tax used to be a concern for the very wealthy. Not any more. The nil-rate band has been frozen since 2009 and house prices have risen, so more ordinary families are caught.
If you own a home and have savings, a pension or a life policy, your estate may face inheritance tax. With some planning, many families can reduce or remove the bill. This guide explains the thresholds, the rules and the practical steps.
What Inheritance Tax Is
The estate pays the tax, not the people who inherit. Your executors (the people your will names to deal with your estate) must work out and pay any tax before they can distribute the assets. A large bill can delay the administration and reduce what your family receives.
The tax applies to everything you own at death: your home, savings, investments, possessions and, in some cases, gifts made in the years before you died. The first question is simple: is the estate worth more than the available bands?
Current Thresholds for 2026/27
Two bands decide how much of your estate passes tax-free. Understanding how they work together is the starting point for any planning.
A single person can pass up to £500,000 tax-free (£325,000 plus £175,000) if they leave their home to children or grandchildren. A married couple or civil partners can pass up to £1,000,000 by combining both sets of allowances. Anything above is taxed at 40%.
How the Nil-Rate Band Works
The nil-rate band is the basic threshold. Everyone has one of £325,000. That much of your estate passes free of inheritance tax. The part above it is taxed at 40%.
For married couples and civil partners the nil-rate band can be transferred. Anything left to a spouse or civil partner is exempt from inheritance tax. So if the first to die leaves everything to the survivor, none of their band is used, and the unused part passes to the survivor's estate. The survivor's estate can then have a combined band of up to £650,000.
The transfer is not automatic. Your executors must claim it when the second spouse dies. That is one reason a properly drafted will and good records matter.
IHT Thresholds: Single Person vs Married Couple
| Single Person | Married Couple or Civil Partners | |
|---|---|---|
| Nil rate band: £325,000 | Combined nil rate band: up to £650,000 | |
| Residence nil rate band: £175,000 | Combined residence nil rate band: up to £350,000 | |
| Maximum tax-free: £500,000 | Maximum tax-free: £1,000,000 | |
| No unused allowance to transfer | Unused allowances pass to the survivor | |
| Tax at 40% on everything above £500,000 | Gifts between spouses are exempt |
The Residence Nil-Rate Band
The residence nil-rate band was introduced in April 2017 so families could pass on the family home with less tax. It adds up to £175,000 on top of the nil-rate band, but only if the conditions are met.
You must leave a home you have lived in to direct descendants. That means children (including adopted, step and foster children), grandchildren, and their spouses or civil partners. It does not include nephews, nieces, brothers, sisters or friends. Leave the home to anyone else and the band is lost.
If you have downsized or sold your home, you may still claim the band under the downsizing rules, provided you leave assets of equivalent value to direct descendants. Ask a solicitor or tax adviser whether this applies to you.
Seven Ways to Reduce the Bill
There are well-established, legal ways to reduce inheritance tax. Start early: many of them need time to work.
Practical Steps to Reduce IHT
- Use your gift allowancesYou can give away £3,000 each tax year free of inheritance tax (the annual exemption). If you did not use last year's, you can carry it forward one year, giving £6,000. You can also make any number of small gifts of up to £250 per person, wedding gifts of up to £5,000 to a child (£2,500 to a grandchild, £1,000 to anyone else), and gifts to charities or political parties. These are exempt at once; you do not need to survive seven years.
- Make gifts out of surplus incomeGifts made regularly out of your income (not capital) that leave your standard of living unchanged are exempt at once, with no upper limit. This suits people with a good pension income who can afford to give to family regularly. Keep clear records, because your executors will have to prove the pattern.
- Set up a trustPutting assets into a trust can take them out of your estate for inheritance tax, subject to detailed rules. Trusts also let you protect assets for future generations, provide for a vulnerable beneficiary or keep some control over how money is used. The rules are detailed, so take advice.
- Leave at least 10% to charityIf you leave at least 10% of your 'baseline amount' (broadly, the taxable part of your estate) to charity, the rate on the rest drops from 40% to 36%. On a large estate the saving is real, and the charity benefits.
- Use business reliefIf you own a qualifying business or shares in an unlisted company, business relief can reduce their value for inheritance tax by 50% or 100%. You must have owned the business or asset for at least two years. For deaths from 6 April 2026, 100% relief on business and agricultural property combined is capped at £2.5 million, with 50% relief above that. Business owners should review their planning.
- Consider agricultural reliefFarming families in East Yorkshire should know about agricultural relief, which can reduce the inheritance tax value of qualifying land and buildings by 50% or 100%. It shares the £2.5 million cap on 100% relief with business relief for deaths from 6 April 2026. If you own farmland, review your succession plan.
- Take out a whole-of-life insurance policy written in trustA whole-of-life policy does not reduce the tax, but it pays a lump sum to cover the bill. The policy must be written in trust. If it is not, the payout is part of your estate and taxed too. A policy in trust pays your beneficiaries directly, so they can settle the tax without selling the family home.
The Frozen Threshold Problem
The main reason more families pay inheritance tax is fiscal drag: thresholds stay fixed while asset values rise. The nil-rate band has been £325,000 since April 2009, and the government has frozen it until April 2031.
House prices have risen a great deal over that period. Many families who would never call themselves wealthy now have estates over the threshold. A home worth £300,000, a modest pension, some savings and a life policy can push an estate over the line.
Property values in East Yorkshire have risen too. A family home in Bridlington, savings, a pension and a life policy can together exceed £325,000 for a single person, or approach the combined bands for a couple.
Common Mistakes
These are the mistakes families make most often with inheritance tax planning, or the lack of it.
- Assuming your estate is too small: Many people underestimate what they own. Add up the home, savings, investments, pension death benefits, life insurance payouts and possessions, and the figure is often higher than expected.
- Forgetting to update your will: If your will no longer matches your circumstances (you have remarried, had grandchildren or acquired new assets), it may miss available reliefs. For example, if it does not leave your home to direct descendants, you lose the residence nil-rate band.
- Giving your home away but living in it: If you give your house to your children and carry on living there rent-free, HMRC treats it as a 'gift with reservation of benefit'. The house stays in your estate for inheritance tax. To make the gift work you would have to pay a full market rent, which rarely makes sense.
- Not using both spouses' bands: Some older wills leave everything to the surviving spouse with no thought for tax. Gifts between spouses are exempt, but it is worth checking whether a trust or another structure would make better use of both sets of allowances, particularly the residence nil-rate band.
- Not keeping records of gifts: If you die within seven years of making a gift, your executors must account for it. Without a record of what you gave, to whom and when, they may struggle to show the gift was exempt, and the tax bill may be higher.
When to Get Advice
Inheritance tax planning need not be complicated, but it must be done properly. The rules are detailed, they change, and mistakes are expensive. If your estate is anywhere near the threshold, or you own a business, farmland or overseas assets, get advice.
Aaron helps families across Bridlington and East Yorkshire understand their inheritance tax position and put a plan in place. He explains the options in plain English. His planning fees are fixed. An inheritance tax check and will structure, planning with your advisers, and a will with a discretionary trust in it are each priced on their own. Every fee, with VAT, is on the fees page.
IHT Planning in Bridlington and East Yorkshire
Inheritance tax is not confined to London. In Bridlington and across East Yorkshire, a family home plus savings and a pension can push an estate over the threshold.
Farming families in the area are affected by the changes to agricultural relief that took effect on 6 April 2026. If you own agricultural land, succession planning matters more than ever.
Business owners face the same cap on business relief. Whether you run a small shop or a larger company, reviewing your exposure now gives you time to plan.
Even a modest estate benefits from getting the basics right: a properly drafted will, using the gift allowances and understanding how the bands work. Aaron can help with all of it, from a simple will to trust and tax planning.
Even a modest estate with a family home in East Yorkshire can go over the inheritance tax threshold. Straightforward planning can make a real difference.
Written by Aaron Johnson, Consultant Solicitor and TEP · Law of England and Wales as at 11 June 2026 · Ends