Inheritance tax on death

WAE.08 — Inheritance Tax on Death

The charge. IHT bites on the value transferred on death — the deceased is treated as making a transfer of value of their whole estate immediately before death (IHTA 1984 s.4). Tax the estate, then deal with reliefs and exemptions.

Core figures (2026/27)

• Nil-rate band (NRB): £325,000, taxed at 0%.
• Residence nil-rate band (RNRB): £175,000 — only where a qualifying residential interest is closely inherited (passed to lineal descendants: children, grandchildren, step/adopted/foster children). Tapered away £1 for every £2 the estate exceeds £2,000,000 (so fully lost around a £2.35m estate; the taper uses estate value before reliefs/exemptions).
• Death rate 40% on value above the available bands; 36% if ≥10% of the net estate passes to charity.

Key exemptions and transferability

• Spouse/civil partner exemption (s.18): gifts between them are exempt (capped if the recipient is non-UK-domiciled/non-long-term-resident).
• Charity exemption (s.23): charitable gifts are exempt and do NOT use the NRB — a classic trap.
• Transferable NRB (ss.8A–8C): unused percentage transfers to the surviving spouse, giving up to £650,000 NRB on the second death.
• Transferable (brought-forward) RNRB (s.8G — not s.8A): unused percentage of a predeceased spouse's RNRB is claimed on the second death, giving up to £350,000 RNRB. Mind the citation: the standard-NRB transfer is s.8A, the residence-band brought-forward allowance is s.8G — a favourite distractor.

BPR / APR — the 2026 reform (test point)

From 6 April 2026, 100% Business and Agricultural Property Relief is capped at a £2,500,000 allowance; value above attracts 50% relief. The £2.5m allowance is transferable between spouses (up to £5m per couple where the first death predated 6 April 2026). It is not £1m — reject that figure.

Common traps

• RNRB needs lineal descendants — a gift to siblings/nephews does not qualify; a gift via certain trusts may fail too.
• Charity gifts don't consume the NRB (leaves more band for the rest).
• The 36% rate needs ≥10% of the net (post-NRB) estate, not the gross.
• Lifetime PETs become chargeable if death within 7 years (taper relief reduces tax, not value); cumulation eats the NRB first.
• RNRB taper threshold is fixed at £2m regardless of reliefs claimed.
• Don't conflate the two transfer provisions: NRB transfer = s.8A; RNRB brought-forward allowance = s.8G.