Inheritance Tax Frequently Asked Questions

Inheritance Tax can be a difficult subject to think about, but it is an important part of later-life financial planning. With property values, pensions, investments and family circumstances all playing a role, more people are asking whether their estate could be affected.

Below, we answer some of the most common questions about Inheritance Tax and what families may need to consider in 2026.

What is Inheritance Tax?

Inheritance Tax, often shortened to IHT, is a tax that may be payable on the estate of someone who has died.

An estate can include property, money, savings, investments, possessions, business interests and other assets. Before any tax is calculated, debts and certain allowable expenses are usually deducted.

Not every estate pays Inheritance Tax. Whether IHT is due depends on the value of the estate, available allowances, exemptions, reliefs and who the estate is being left to.

What is the Inheritance Tax threshold in 2026?

The standard Inheritance Tax nil-rate band is currently £325,000. This means that, in broad terms, the first £325,000 of an estate can usually be passed on without IHT being payable.

There is also a residence nil-rate band of up to £175,000, which may be available when a qualifying home is passed to direct descendants, such as children or grandchildren.

Where the full nil-rate band and residence nil-rate band are available, an individual may be able to pass on up to £500,000 without an IHT liability. For married couples and civil partners, unused allowances can often be transferred to the surviving spouse or civil partner, meaning a qualifying estate may be able to pass on up to £1 million before IHT becomes payable.

The rules can be more complex where an estate is worth more than £2 million, where property is not being passed to direct descendants, or where previous gifts, trusts or reliefs are involved.

What rate is Inheritance Tax charged at?

Inheritance Tax is usually charged at 40% on the value of an estate above the available thresholds, after any exemptions and reliefs have been applied.

In some cases, a reduced rate of 36% may apply if at least 10% of the net estate is left to charity. This is a specialist area, so it is important to take advice before making decisions based on charitable giving and estate planning.

What is an excepted estate?

An excepted estate is an estate where full Inheritance Tax details do not usually need to be sent to HM Revenue and Customs.

An estate may be excepted if, for example:

• its value is below the current Inheritance Tax threshold
• the estate is worth £650,000 or less and unused threshold is being transferred from a spouse or civil partner
• the estate is worth less than £3 million and everything has been left to a surviving UK spouse or civil partner, or to a qualifying charity
• the person who died was living permanently outside the UK and their UK assets are worth £150,000 or less

Even where an estate is excepted, its estimated value may still need to be reported when applying for probate. Full details may still be required in certain situations, including where there were significant gifts, trusts, foreign assets or other complicating factors.

Do I need to report an estate to HMRC?

You may need to send full details of the estate to HMRC if Inheritance Tax is due, or if the estate is not classed as an excepted estate.

Full details may also be required even where no tax is payable. This can apply where the person who died gave away significant assets before death, had trusts, had foreign assets over certain limits, or left an estate worth more than £3 million.

The reporting rules can be detailed, so it is sensible to check carefully before applying for probate or distributing assets.

Why are more people thinking about Inheritance Tax in 2026?

Inheritance Tax planning has become more relevant for many families because tax thresholds have remained frozen while property values and personal wealth have increased over time.

This can mean estates that may not previously have expected to pay IHT are now closer to the threshold. For some families, the main asset is the family home. For others, pensions, investments, business assets or inherited wealth may also form part of the wider planning picture.

There are also rule changes to consider. From 6 April 2027, most unused pension funds and pension death benefits are expected to be brought into the value of a person’s estate for Inheritance Tax purposes. This could make pension and estate planning more important for some families.

Can gifts reduce Inheritance Tax?

Gifting can form part of Inheritance Tax planning, but the rules need to be understood properly.

Some gifts may be immediately exempt, such as gifts between spouses or civil partners, gifts to qualifying charities, and gifts within the annual exemption. Other gifts may fall outside your estate if you survive for seven years after making them.

However, gifts are not always straightforward. If you give something away but continue to benefit from it, such as giving away a home but continuing to live in it rent-free, it may still be treated as part of your estate for IHT purposes.

Before making significant gifts, it is important to consider affordability, future care needs, tax consequences and whether you may need access to the money later.

What about business or agricultural assets?

Business Relief and Agricultural Relief can reduce the value of qualifying assets for Inheritance Tax purposes. However, the rules are changing from 6 April 2026.

From that date, a new allowance is due to apply to the combined value of qualifying agricultural and business property receiving 100% relief, with a lower rate of relief applying above that level.

This is a specialist area and should be reviewed carefully if you own a business, shares in a trading company, farmland, farm buildings or other qualifying assets.

Does having a will help with Inheritance Tax planning?

A will is an important part of estate planning. It helps ensure your assets are distributed according to your wishes and can make the process clearer for your family.

A well-structured will may also help make use of available allowances and exemptions. However, will writing and tax planning should be handled carefully, particularly where there are blended families, unmarried partners, business interests, trusts or significant assets.

Financial advice, tax advice and legal advice often need to work together.

When should I review my Inheritance Tax position?

It is sensible to review your estate planning regularly, especially after major life events such as marriage, divorce, bereavement, selling a business, receiving an inheritance, buying property or retiring.

You should also review your position if your assets have increased significantly, your family circumstances have changed, or you are unsure whether your pension, investments or property could create an IHT liability in future.

How can financial advice help?

Inheritance Tax planning is not just about reducing tax. It is about understanding your wider financial position and making sure your plans are suitable for you and your family.

At Beach Financial Advisors, we can help you understand how your pensions, investments, savings and wider financial plans may interact with your estate planning goals. We can also help identify where specialist legal or tax advice may be needed.

The right approach will depend on your circumstances, objectives and the needs of those you want to support.

This article is for general information only and does not constitute personal financial, tax or legal advice. Tax treatment depends on individual circumstances and may be subject to change.

The value of investments can go down as well as up, and you may not get back the full amount invested.

The Financial Conduct Authority does not regulate will writing, tax advice, trust advice and certain forms of estate planning.