What Is Inheritance Tax?
When someone dies, their assets (property, investments, savings, personal possessions, pensions) are aggregated into their “estate.” After subtracting debts, the taxable portion may be subject to IHT at a rate of 40%—but only on the value above established thresholds.
An important point: some parts of the estate may be exempt (e.g. gifts between spouses) or qualify for special reliefs. What remains after allowances is what faces tax.
Nil-Rate Band & Residence Nil-Rate Band
One of the first protections is the nil-rate band (NRB), currently set at £325,000 per person. Anything under that is taxed at 0%. Amounts above are taxed at 40%.
On top of that, if you leave your main residence to children or grandchildren, you may also claim the Residence Nil-Rate Band (RNRB)—an extra allowance of £175,000 per person (2025/26).
But beware: if your total estate is worth over £2 million, the RNRB begins to taper away. Also, both NRB and RNRB are frozen until at least April 2030.
Married couples and civil partners also benefit because unused allowances from the first to die can carry over to the survivor, effectively doubling the exempt amount.
Who Pays & When
The responsibility for paying IHT usually lies with the executor or administrator of the estate. The tax must be paid within 6 months after the end of the month in which the person died. If delayed, interest is applied.
In some cases—especially when property or business assets are involved—payments can be stretched over a period, subject to rules and interest.
Recent & Upcoming Changes You Need to Know
Changes to Business & Agricultural Reliefs
From 6 April 2026, reforms will cap Business Property Relief (BPR) and Agricultural Property Relief (APR) so that full 100% relief only applies to the first £1 million of qualifying assets. Any excess will be taxed at 50% relief (effectively a 20% IHT on that portion).
For shares in unlisted companies (e.g. AIM), the relief rate may also shift to 50%.
These changes are designed to limit the scale of reliefs claimed by very large estates, while still preserving protections for many smaller businesses and farms.
How to Take Control: Planning Strategies
- Gifts & the 7-Year Rule: Gifts you make over seven years before your death fall outside your estate for IHT, though taper relief applies if death occurs within 3–7 years.
- Trusts: Properly structured trusts can exclude assets from your estate.
- Use NRB and RNRB wisely: Especially with property, by ensuring it’s passed to direct descendants.
- Business & Agricultural planning: Move assets into qualifying structures ahead of the 2026 changes.
- Pension structuring: Some pensions are excluded from IHT, but rules are changing.
- Charitable giving: Gifts to charities effectively reduce your tax rate in many cases.
Want Support?
Every estate is unique. Want help reviewing your numbers, checking relief eligibility, or setting up gifting strategies?
Book a Discovery Call with Nuvo → Let’s build a plan that protects your legacy and gives your loved ones peace of mind.
Sources & Further Reading
