The headline numbers first. Inheritance tax is charged at 40% on the value of an estate above the available nil-rate band. The Nil Rate Band (NRB) is £325,000 per individual; the Residence Nil Rate Band (RNRB) is £175,000 per individual where the home passes to direct descendants. Both are frozen until 5 April 2031. Unused portions transfer to a surviving spouse on first death, so a married couple has up to £1,000,000 combined where the full allowances stack. A 36% reduced rate applies where at least 10% of the components of the estate pass to qualifying charity under IHTA 1984 Sch 1A.

This page is the brief orientation. The picture, the numbers, the property-specific applications, and where to read next. For the property-specific comprehensive deep, see our inheritance tax rental property UK guide. For the planning-route menu, see IHT property investors decision framework 2026 onwards.

The framework

The Inheritance Tax Act 1984 is the consolidating statute, amended in every substantive Finance Act since. The key sections:

  • IHTA 1984 s.4: on death, the deceased is treated as making a transfer of value immediately before death of the value of the estate at that moment.
  • IHTA 1984 s.3A: lifetime gifts to individuals are potentially exempt transfers (PETs). Exempt at seven-year survival; otherwise tapered.
  • IHTA 1984 s.18: transfers between spouses and civil partners are exempt where both are UK long-term resident.
  • Chargeable Lifetime Transfers (CLTs) into discretionary trusts attract a 20% lifetime rate above NRB; brought back at 40% with credit for the 20% lifetime charge if death occurs within seven years.

The nil rate band stack

Per estate:

  • NRB £325,000.
  • RNRB £175,000 (where qualifying conditions met: home in estate, deceased used the residence at some point, passes to direct lineal descendant).
  • Both frozen to 5 April 2031.
  • RNRB tapers at £1 per £2 of net estate above £2,000,000; fully extinguished at £2,350,000 single or £2,700,000 with full transferable RNRB.

For a married couple where both die without using allowances, the combined available stack is £1,000,000 (£325k × 2 + £175k × 2) before IHT bites. The transferable portions are claimed by personal representatives on IHT402 (NRB) and IHT436 (RNRB) within two years of the second death.

The seven-year rule and taper

Lifetime gifts to individuals are PETs under s.3A. The clock runs seven years from gift date.

  • Donor survives seven years: gift fully exempt.
  • Donor dies within seven years: gift comes back into IHT calculation. Taper relief applies under IHTA 1984 s.7(4) and Schedule 2.

Taper bands (rate on the failed PET as a percentage of the full 40%):

  • 3-4 years 80% of full rate (32% effective).
  • 4-5 years 60% (24% effective).
  • 5-6 years 40% (16% effective).
  • 6-7 years 20% (8% effective).

Taper applies only where the gift exceeds the NRB; gifts within the NRB get no taper because there is no tax to taper.

Annual exemption: £3,000 per donor per tax year with one-year carry-back. Small gifts exemption: £250 per recipient per year (cannot combine with the £3,000 against the same recipient). Wedding gifts: £5,000 (parent), £2,500 (grandparent or party), £1,000 (other).

Gift with reservation of benefit

Per FA 1986 s.102, if the donor reserves any benefit in the gifted property, the gift fails to leave the estate for IHT. The classic case: parent "gives" the family home to children but continues to live there rent-free. The property is still treated as the donor's at death; IHT applies on the death value.

Three statutory exit routes for family-home gifts (all narrow): donor pays full market rent for ongoing occupation; donor ceases occupation entirely; donor uses the s.102B(4) shared-occupation undivided-share route in genuine multi-generational living arrangements.

See our separate gift with reservation of benefit page for the entry-tier orientation deep.

Property-specific reliefs

Two reliefs reduce the chargeable value of qualifying property:

  • Agricultural Property Relief (APR), IHTA 1984 ss.115-124C. 100% relief below the new £2.5m combined cap (IHTA 1984 s.124D as inserted by FA 2026 Sch 12 para 4); 50% above. Effective 6 April 2026.
  • Business Property Relief (BPR), IHTA 1984 ss.103-114. 100% relief below the £2.5m combined cap; 50% above (plus a separate 50% AIM sub-tier outside the cap). Effective 6 April 2026.

Note: the GOV.UK announcement-stage summary page still cites the £1m headline figure announced 30 October 2024; the enacted FA 2026 figure verified against legislation.gov.uk is £2.5 million. The £2.5m cap is combined across APR and BPR; a mixed estate cannot stack £2.5m APR on top of £2.5m BPR.

The Pawson investment line: standard BTL does NOT qualify for BPR. Pawson v HMRC [2013] UKUT 050 (TCC) confirmed that passive rent collection from residential lettings is "mainly investment" and fails BPR. HMOs also fail. Property developers with genuine trading activity qualify on the trading element. Serviced-accommodation may qualify where active services are substantial; the bar is high.

The 6 April 2027 pensions-in-IHT reform

From 6 April 2027, unused defined-contribution pension funds and unused defined-benefit lump-sum death benefits will be brought into the deceased's estate for IHT. Personal representatives (not pension scheme administrators) will report and pay. Death-in-service benefits are excluded from the estate IHT charge.

For middle-income landlords with a £100k-£500k DC pension pot, this is the most material 2027 reform impact. Pension assets historically outside IHT will now sit alongside property and other assets in the estate calculation. See our pension IHT April 2027 landlord estate planning page for the operational mechanics.

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Non-residents and UK property

UK-situs property (including UK real estate) is always within UK IHT regardless of the owner's residence or LTR status. The post-FA-2025 architecture (from 6 April 2025) means:

  • Non-LTR individuals are within UK IHT only on UK-situs property.
  • LTR individuals are within UK IHT on worldwide assets.
  • Schedule A1 IHTA 1984 continues to bring UK residential property held via offshore structures into UK IHT (enveloped-residential look-through).

For the operational mechanics, see our IHT non-resident UK property April 2025 residence test page.

Mini-illustration: a £950k landlord estate

Persona: Holloway-family. Mr Holloway, widowed, age 74. Estate: family home £450k passing to two adult daughters; BTL flat £220k passing to elder daughter; ISAs and savings £180k; pension £100k DC pot (currently outside IHT; would be included from 6 April 2027 if death occurs later). Wife predeceased 2024 with full NRB and RNRB unused (100% transferable).

Death in 2026 (before pensions reform):

  • Available allowances: NRB £325k + transferable NRB £325k + RNRB £175k + transferable RNRB £175k = £1,000,000.
  • Net estate (pension still outside): £950,000.
  • Net estate below combined allowances; no IHT due.

Same death in 2028 (after 6 April 2027 pensions reform):

  • Net estate including pension: £1,050,000.
  • Above combined allowances by £50,000.
  • IHT due: 40% × £50,000 = £20,000.

The pensions reform moves this middle-income property owner from no IHT to £20,000 IHT. For larger estates the absolute reform impact scales proportionately. Estate-planning conversations from 2026 onwards should run through both the 2026 BPR/APR cap and the 2027 pensions reform for any pension pot above £100k.

The bigger picture

Inheritance tax is one tax with three reform fronts active in the 2024-2027 window: the £2.5m APR/BPR cap from 6 April 2026 (IHTA 1984 s.124D); the pensions-in-IHT reform from 6 April 2027; the LTR test replacing domicile from 6 April 2025. Each reform changes one piece of the architecture without changing the overall framework. The headline rate stays at 40%; the NRB stays at £325k; the RNRB stays at £175k; the seven-year PET rule survives; the spouse exemption survives.

For most property owners reading this page, the practical implications come down to four questions. What is my net estate today, including any pension pot expected to be subject to the 2027 reform? Are my allowances fully used, fully transferable, or partially wasted by structure? Does my estate include any agricultural or business property that engages the £2.5m cap from April 2026? Is the family home passing to direct descendants in a way that engages the full RNRB?

The deeper questions sit in the operational pages cross-linked above. This page is the orientation; the deeps are where the planning happens.