Do You Pay Tax On Inheritance In The UK? (2026 Guide)

Who actually pays Inheritance Tax in the UK?

The most common UK misunderstanding is that beneficiaries pay Inheritance Tax. In almost all cases, IHT is paid by the estate — the executor settles the bill with HMRC before the remaining assets are distributed. By the time money reaches you as a beneficiary, any IHT has typically already been paid.

For the broader picture, see do you pay tax on inheritance UK and Inheritance Tax explained.

IHT thresholds in 2026

The thresholds have been frozen in recent UK Budgets and remain unchanged for 2026:

• Nil-rate band: £325,000 per person.
• Residence nil-rate band: up to £175,000 where a qualifying home passes to direct descendants.
• Standard IHT rate: 40% above the combined threshold.
• Reduced rate: 36% where at least 10% of the net estate is left to charity.
• Taper: the residence nil-rate band tapers away £1 for every £2 above a £2 million estate.

The nil-rate band (£325,000)

Every UK individual has a standard nil-rate band of £325,000. No Inheritance Tax is due on the first £325,000 of an estate. Any unused portion can usually be transferred to a surviving spouse or civil partner — meaning a couple can have up to £650,000 of standard nil-rate band between them.

The residence nil-rate band (up to £175,000)

Where a qualifying home is passed to direct descendants — children, grandchildren, step-children or adopted children — an additional residence nil-rate band of up to £175,000 per person is available. Combined with the standard nil-rate band and a transferred spousal allowance, this is what allows many UK couples to pass on up to £1 million tax-free.

The residence nil-rate band is reduced by £1 for every £2 the estate exceeds £2 million, so very large estates lose this benefit gradually.

What you DON'T pay tax on

Several common UK situations carry no Inheritance Tax at all:

• Anything left to a UK-domiciled spouse or civil partner — fully exempt, no upper limit.
• Anything left to a registered UK charity — fully exempt.
• Estates below the combined threshold — no IHT due, though a return may still be required.
• The £3,000 annual gift exemption — gifts within this each tax year fall outside IHT.
• Small gifts of up to £250 — to any number of different recipients per tax year.
• Wedding or civil partnership gifts — £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
• Gifts from surplus income — exempt where they are regular and don't affect the donor's standard of living.
• Gifts that have survived 7 years — fully outside the donor's estate (Potentially Exempt Transfers).

For the full picture on lifetime gifts, see UK gifting rules and the 7-year rule.

Common misunderstandings

• "I'll pay 40% tax on whatever I inherit."
  Almost never true. IHT is charged on the estate above the threshold — not on the amount each beneficiary receives.
• "Any gift I received counts against me."
  Only gifts in the 7 years before the donor's death are potentially in scope, and many fall under specific exemptions.
• "My ISA dies with the person."
  A surviving spouse can usually inherit ISA tax-wrapper benefits via an Additional Permitted Subscription.
• "I have to pay tax on the cash that lands in my account."
  The cash itself is not taxable. Income, dividends or gains it produces afterwards are.
• "Pensions are always tax-free to inherit."
  Defined contribution pensions are usually tax-free if the holder dies before 75, but taxable at the recipient's marginal rate after 75.
• "You can avoid IHT by gifting on your deathbed."
  The 7-year rule is designed to prevent exactly this — and gifts with reservation of benefit are caught even sooner.

What you may still owe as a beneficiary

Even when no IHT lands on you personally, the inheritance can still create UK tax obligations once you receive it:

• Income Tax on rental income, savings interest or pension income from the date of inheritance.
• Dividend Tax on inherited shares held outside an ISA (£500 allowance in 2024/25).
• Capital Gains Tax on growth between the date of death and the date you sell (annual exempt amount £3,000).
• Stamp Duty Land Tax if you later buy out a co-beneficiary's share of an inherited property.

For the full context, see our complete guide: what to do with an inheritanceand how to reduce IHT legally.

Published January 2025 · Last reviewed September 2026