# Inheritance Tax: the thresholds, gifts and the seven-year rule explained > Inheritance Tax is charged on an estate after death and on some earlier gifts. This guide explains the thresholds, the 36% rate, how gifts and the… - URL: https://centiview.com/uk-money/inheritance-tax-thresholds-gifts-and-the-seven-year-rule - Published: 2026-10-19T12:40:00.000Z - Figures checked: 2026-10-19 - Edited by David A - Topic: Tax (UK) - Publisher: Centiview (Persie Ltd, London) - General information only, not financial advice Inheritance Tax is charged on an estate after death and on some earlier gifts. This guide explains the thresholds, the 36% rate, how gifts and the seven-year rule work, and when the bill is due. > **Key numbers** Threshold £325,000; standard rate 40%; reduced rate 36%; home allowance up to £175,000 (£500,000 combined); gifts exempt up to £3,000 a year; seven years for gifts; thresholds maintained to April 2031 (checked 19 October 2026). > **Who this affects** Estates above the threshold and people who have made large gifts. It does not apply to estates under the threshold, or to assets left to a spouse, civil partner or charity. ## What Inheritance Tax is and how the threshold works Inheritance Tax, often shortened to IHT, is charged by HMRC on the value of what someone leaves when they die. That value is called the estate: the property, money and possessions of the person who has died, less their debts. GOV.UK describes the standard rate as 40%, but it applies only to the part of the estate above a tax-free threshold, which GOV.UK gives as £325,000. An estate below that figure owes nothing. The threshold is often called the nil-rate band, meaning the slice of an estate taxed at 0%. The tax is not paid by the person who died: funds from the estate are used to pay HMRC, so the beneficiaries receive what is left after any bill. There are several ways an estate can owe less. GOV.UK says there is normally no Inheritance Tax to pay if everything above the threshold is left to a spouse, civil partner, a charity or a community amateur sports club. Any unused part of the threshold can be added to a surviving partner's threshold when they die, so couples can often pass on more between them. A reduced rate of 36% applies to some assets if 10% or more of the net value of the estate (the total value minus debts) is left to charity in the will. ## The home allowance, and how long the figures are fixed GOV.UK explains that the threshold can increase to £500,000 if a home is left to children (including adopted, foster or stepchildren) or grandchildren. The extra amount is the residence nil-rate band, which the GOV.UK guidance gives as a maximum of £175,000, and £325,000 plus £175,000 is £500,000. It tapers away for large estates: it reduces by £1 for every £2 the estate is worth over £2 million. On that rule, a maximum £175,000 band disappears completely once an estate reaches £2,350,000, because £175,000 multiplied by two is £350,000 above £2,000,000. The guidance defines direct descendants as children, grandchildren and other lineal descendants, so nieces, nephews and siblings are not covered. It also explains that the band can be transferred between spouses and civil partners if it was not fully used on the first death. The Budget 2025 document published on GOV.UK says the government will maintain Inheritance Tax thresholds for a further year, to April 2031. Because the figures are fixed rather than rising with prices, a growing number of estates can drift over them over time. The same document says the government will reform agricultural property relief and business property relief from 6 April 2026, and that from 6 April 2027 unspent pension pots are brought into the scope of Inheritance Tax. Those reliefs and pension rules are detailed and are not covered in full here. The GOV.UK pages used for this guide do not give different thresholds for England, Scotland, Wales or Northern Ireland. ## Gifts and the seven-year rule Giving money or assets away during your life can reduce an estate, but the rules are specific. GOV.UK says no tax is due on a gift if the giver lives for seven years after making it. Some gifts are exempt from the start: a total of £3,000 each tax year, which can be carried forward for one tax year if unused; any number of gifts of up to £250 per person, provided no other allowance has been used on that person; and wedding or civil partnership gifts of up to £5,000 to a child, £2,500 to a grandchild or great-grandchild and £1,000 to anyone else. Regular gifts made from income are also exempt if they are affordable after usual living costs, with no set limit. Larger gifts that are not exempt may be taxed if the giver dies within seven years. GOV.UK states that gifts in the three years before death are taxed at 40%, and then taper relief reduces the rate: 32% for 3 to 4 years, 24% for 4 to 5 years, 16% for 5 to 6 years, 8% for 6 to 7 years and 0% at 7 years or more. A point that surprises people is that taper relief only matters when the total gifts in the seven years before death exceed the £325,000 threshold, and it reduces the tax on the gift, not the value of the gift. GOV.UK also notes that gifts into a trust follow different rules, so the seven-year statement does not apply to them. ## A worked example These figures are illustrative only. First, suppose a single person dies leaving an estate of £450,000 after debts, with no gifts and nothing left to descendants or charity. The amount above the threshold is £450,000 minus £325,000, which is £125,000, and 40% of £125,000 is £50,000. Second, suppose the same £450,000 estate includes a home left to the person's children. The threshold can then be up to £500,000, which is more than the estate, so no Inheritance Tax would be due. Third, suppose a person gives £400,000 to a relative and dies five and a half years later with no other gifts. The first £325,000 of the gift is covered by the threshold, leaving £75,000 above it. The 5 to 6 year rate is 16%, so the tax on the gift is £75,000 multiplied by 0.16, which is £12,000. Without taper relief, 40% of £75,000 would have been £30,000. Real calculations also consider other gifts, the estate itself and available reliefs. ## Paying the bill and common mistakes GOV.UK says Inheritance Tax must be paid by the end of the sixth month after the death, so if someone died in January the deadline is 31 July. HMRC charges interest if payment is missed. GOV.UK says the person paying can use the deceased's bank, savings or investment accounts, or their own money and reclaim it from the estate after probate. Common mistakes include forgetting to count a home or pension, assuming a gift is exempt when it only partly is, and not keeping records of gifts. The GOV.UK pages linked below set out how to report and pay, and they are worth checking for the current process. ## Check before you act Rates, thresholds and reliefs change, so confirm the figures on the official GOV.UK pages linked below before relying on them. This guide is general information about 2026/27 and is not personal advice. ### Sources - [GOV.UK, Inheritance Tax](https://www.gov.uk/inheritance-tax) - [GOV.UK, Inheritance Tax: gifts](https://www.gov.uk/inheritance-tax/gifts) - [GOV.UK, Passing on a home](https://www.gov.uk/inheritance-tax/passing-on-home) - [GOV.UK, Residence nil rate band guidance](https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band) - [GOV.UK, Paying Inheritance Tax](https://www.gov.uk/paying-inheritance-tax) - [HM Treasury, Budget 2025](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html)