£325k nil rate band, £175k residence nil rate band for property passing to children. Estate above £2m starts losing the residence allowance. Estate above the allowance is taxed 40%.
Assets and debts at the date of death. Pensions are excluded from the IHT estate today; the April 2027 rule change is flagged in the FAQ.
Marriage doubles the nil rate band on second death. Property passing to descendants unlocks the residence nil rate band.
3.6% effective on the net estate
Net estate minus allowance is taxed at 40%. Consider lifetime gifting (seven-year rule), life insurance written in trust to cover the IHT bill, qualifying business / AIM relief (often 100% after two years), and 10% to charity which cuts the 40% rate to 36%.
UK 2025/26 figures. Nil rate band £325,000, residence nil rate band £175,000 (only when property passes to direct descendants). Married couples can transfer unused allowance on second death. Estate above £2,000,000 loses £1 RNRB per £2 over. Pensions are currently outside the IHT estate; April 2027 may change this for defined contribution pensions. Simplified - consult an STEP-qualified solicitor for actual planning.
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Defined contribution pensions are currently outside the estate. The Autumn 2024 Budget announced that from April 2027, DC pensions may be included in the IHT estate. This is a major planning consideration for anyone using pensions as legacy vehicles - the model excludes pensions today but you can re-run it including pensions if you want to see the post-2027 picture.
Gifts more than seven years before death are outside the estate (tapered relief between three and seven). Annual gift allowance is £3,000 per donor. Gifts to charities are IHT-free; 10% to charity drops the headline rate from 40% to 36%. Business Relief on qualifying assets gives 50% or 100% relief after two years - AIM portfolios often qualify. Life insurance written in trust outside the estate can pay the IHT bill cleanly.
Above £2m of net estate, the residence nil rate band tapers by £1 per £2 over. The full £175k RNRB is gone at £2.35m for a single, or £2.7m for a married couple if both bands are doubled. Mass-affluent UK households with London property plus decent pensions routinely cross this without realising. Pre-emptive planning becomes important - the residence band is the most easily-lost allowance in the UK system.