--- title: "What Are the Inheritance Tax Rates and Allowances? | UK 2026/27" description: Navigating the UK Inheritance Tax (IHT) landscape requires careful attention to statutory thresholds, lifetime giving rules, and major recent legislative shifts. The 2026/27 tax year introduces pivotal reforms to business and agricultural reliefs, while retaining heavily frozen core allowances. If… url: "https://www.accountingfirms.co.uk/knowledge-bank/what-are-the-inheritance-tax-rates-and-allowances-uk/" updated: "2026-08-11" category: The tax basics --- # What Are the Inheritance Tax Rates and Allowances? | UK 2026/27 Navigating the UK Inheritance Tax (IHT) landscape requires careful attention to statutory thresholds, lifetime giving rules, and major recent legislative shifts. The 2026/27 tax year introduces pivotal reforms to business and agricultural reliefs, while retaining heavily frozen core allowances. If you are evaluating estate planning strategies and asking, "what are the Inheritance Tax rates and allowances?", below is an exhaustive technical breakdown of the operative IHT framework for the 2026/27 tax year. ## Standard and Reduced Inheritance Tax Rates The standard rate of [Inheritance Tax](https://www.accountingfirms.co.uk/blog/its-that-time-again-year-end-tax-planning/) on the net value of an estate exceeding the available nil-rate bands is 40%. However, a statutory relief exists to encourage testamentary philanthropy. Under Schedule 1A of the Inheritance Tax Act 1984 (IHTA 1984), estates benefit from a reduced IHT rate of 36% if the deceased leaves at least 10% of the "baseline amount" of their estate to a qualifying charity.  As established in the *David Marks* case, the baseline amount is carefully computed under Paragraph 5 of Schedule 1A before the 36% rate applies to the entire relevant component of the estate. ## The Core Allowances: Nil-Rate Bands The government has legislatively frozen the primary IHT allowances until April 2030, increasing fiscal drag on estates. **1. The Nil-Rate Band (NRB):** The standard NRB remains strictly fixed at £325,000.  Every individual is entitled to this allowance, which they can apply against all asset types on death or against lifetime chargeable transfers (such as transferring assets into a relevant property trust). **2. The Residence Nil-Rate Band (RNRB):** Section 8D of the IHTA 1984 grants an additional £175,000 allowance when an individual passes a qualifying residence to their direct descendants on death.  However, section 8D(5) dictates a severe "taper threshold" set at £2 million.  If the net value of the estate exceeds £2 million, the RNRB withdraws at a rate of £1 for every £2 over the threshold. *Arithmetic Example:* If a client's estate is valued at £2.2 million, the excess over the threshold is £200,000. The RNRB is reduced by £100,000 (£200,000 / 2). The available RNRB therefore drops from £175,000 to £75,000. **3. Transferable Allowances:** Under Section 8A of the IHTA 1984, any unused proportion of the NRB (and identically for the RNRB under Section 8G) can transfer to a surviving spouse or civil partner upon the first death.  Consequently, a married couple can shelter up to £1 million from IHT (£650,000 combined NRB plus £350,000 combined RNRB). ## Lifetime Giving Exemptions Clients can mitigate their IHT exposure using statutory lifetime gift allowances: - **Annual Exemption:** Section 19 of the IHTA 1984 exempts up to £3,000 of value transferred per tax year.  If the client falls short of £3,000 in one year, they may carry the unused balance forward, but only for one subsequent [tax year](https://www.accountingfirms.co.uk/blog/good-timing-can-save-a-lot-of-tax/). - **Small Gifts Exemption:** Section 20 of the IHTA 1984 completely exempts outright gifts of up to £250 per person, per tax year. > "Transfers of value made by a transferor in any one year by outright gifts to any one person are exempt if the values transferred by them... do not exceed £250." ### **The 7-Year Rule and Taper Relief** Gifts exceeding these allowances are classified as Potentially Exempt Transfers (PETs). If the donor survives seven years, the gift escapes IHT entirely.  If the donor dies within seven years, the PET fails. However, Section 7(4) of the IHTA 1984 applies "taper relief" to the *[tax charge](https://www.accountingfirms.co.uk/blog/tax-implications-of-awarding-shares-to-nonemployees/)* on gifts made between three and seven years before death: - 3 to 4 years before death: Tax charged at 80% of the full rate (effectively 32%). - 4 to 5 years before death: Tax charged at 60% of the full rate (effectively 24%). - 5 to 6 years before death: Tax charged at 40% of the full rate (effectively 16%). - 6 to 7 years before death: Tax charged at 20% of the full rate (effectively 8%). ## April 2026 Reforms: APR and BPR For the 2026/27 tax year, the government has fundamentally altered Agricultural Property Relief (APR) and [Business Property Relief](https://www.accountingfirms.co.uk/blog/all-change-furnished-holiday-lettings/) (BPR). Taking effect on 6 April 2026, the sweeping 100% relief previously available on all qualifying business and agricultural assets is severely capped. Estates now benefit from a combined £2.5 million allowance that secures 100% relief across qualifying APR and BPR property.  Any qualifying asset value exceeding this £2.5 million threshold receives a heavily reduced 50% rate of relief (effectively taxing the excess at 20%). Furthermore, shares designated as "unlisted" but traded on recognised stock exchanges (such as the AIM market) no longer qualify for the £2.5 million allowance; they are strictly capped at a 50% [relief rate](https://www.accountingfirms.co.uk/blog/how-to-buy-shares-in-a-company/) in all circumstances. ## Pension Death Benefits (The 2027 Horizon) Historically, unused [pension funds](https://www.accountingfirms.co.uk/blog/tax-deductions-for-businesses-is-the-remuneration-excessive/) fell outside the IHT estate. The government has confirmed legislation pulling unused pension funds and pension death benefits into the IHT net, even where scheme administrators hold discretionary distribution powers.  Critically, this measure takes effect from **6 April 2027**.  For deaths occurring within the current [2026/27 tax year](https://www.accountingfirms.co.uk/knowledge-bank/6-benefits-of-a-contractor-accountant/), discretionary pension pots generally remain insulated from the 40% IHT charge. ## Summary Table: IHT Rates and Allowances (2026/27) | Element / Allowance | 2026/27 Amount / Rate | Statutory Authority | | --- | --- | --- | | **Standard IHT Rate** | 40% | s. 7 IHTA 1984 | | **Charity IHT Rate** | 36% (if 10% baseline donated) | Sch. 1A IHTA 1984 | | **Nil-Rate Band (NRB)** | £325,000 (frozen to 2030) | Gov Notice / Budget 2025 | | **Residence NRB (RNRB)** | £175,000 | s. 8D(5) IHTA 1984 | | **RNRB Taper Threshold** | £2,000,000 | s. 8D(5) IHTA 1984 | | **Annual Gift Exemption** | £3,000 | s. 19 IHTA 1984 | | **Small Gifts Exemption** | £250 (per recipient) | s. 20 IHTA 1984 | | **Failed PET Taper Relief** | 80% / 60% / 40% / 20% of tax | s. 7(4) IHTA 1984 | | **APR / BPR Allowance** | £2.5m at 100% relief (50% thereafter) | FA 2026 (April 2026 reforms) | | **Unlisted/AIM Shares (BPR)** | 50% relief rate (no 100% allowance) | FA 2026 (April 2026 reforms) | *For completeness, advisors must urgently review business succession strategies to assess the liquidity required to fund the new 20% effective tax rate on agricultural and business assets exceeding £2.5 million, and ensure wills are correctly drafted to maximise the transferable allowances.*