UK inheritance tax: rates, thresholds, and rules for expats and non-residents in 2026
UK inheritance tax is normally charged at 40% on the taxable value of an estate above its available allowances. In 2026/27, the basic nil rate band is £325,000, and qualifying estates passing a home to direct descendants can receive an additional residence nil rate band of up to £175,000.
UK inheritance tax is a tax on the estate of a deceased person, charged at a flat rate on the portion of the estate that exceeds the available nil rate band.
Inheritance tax United Kingdom rules generally apply to money, investments, property, business interests, valuable possessions, and certain lifetime gifts. The calculation starts with an estate valuation, then subtracts permitted liabilities, exemptions, reliefs, and available nil rate bands before the applicable rate is charged.
Since April 6, 2025, the scope of foreign property is based primarily on long-term UK residence, rather than domicile. A person who has been UK tax resident for at least 10 of the previous 20 tax years can fall within the UK IHT regime on foreign assets as well as UK assets.
Older inheritance tax rules in UK articles may still refer to domicile because that was the governing test for deaths and transfers before April 6, 2025. For background on the distinction, see TFX's guide to country of domicile versus residence.
For US-connected estates, the IRS estate-tax guidance for nonresident noncitizens also explains when US-situs assets can create a federal estate-tax filing requirement.
UK inheritance tax rate and thresholds explained
The UK inheritance tax rate is 40% on the taxable portion of an estate, but two separate nil rate bands can reduce or eliminate the bill. For 2026/27, the standard UK inheritance tax threshold is £325,000, with an additional residence nil rate band of up to £175,000 for qualifying homes passed to direct descendants.
For a qualifying individual estate, as much as £500,000 can potentially pass before IHT applies when the full £325,000 nil rate band and £175,000 residence nil rate band are available.
| 2026/27 rule | Amount or rate | Key condition |
|---|---|---|
| Standard nil rate band | £325,000 | Available against the taxable estate |
| Residence nil rate band | Up to £175,000 | Qualifying residence must pass to direct descendants |
| Standard IHT rate | 40% | Applies to taxable value above available allowances |
| Reduced charitable rate | 36% | Generally requires at least 10% of the relevant net estate component to pass to charity |
The £175,000 residence allowance begins to taper once the net estate exceeds £2 million, falling by £1 for every £2 above that level. The 36% rate can apply when the required charitable-giving test is met.
The current UK inheritance tax limit is therefore not a single number. The amount sheltered depends on the estate, previous gifts, residence nil rate band eligibility, transferred allowances from a spouse or civil partner, and other reliefs.
TFX's discussion of UK tax changes affecting former non-domiciled taxpayers provides additional background on the policy shift.
Nil rate band and residence nil rate band: how they work together
The nil rate band and residence nil rate band are the two core allowances that determine how much of a qualifying UK estate can pass at 0% IHT. In 2026/27, they are £325,000 and up to £175,000 respectively.
A qualifying married couple or civil partnership can potentially combine unused allowances so that up to £1 million passes free of IHT on the second death. That maximum assumes two full £325,000 nil rate bands and two full £175,000 residence nil rate bands remain available.
The residence nil rate band has narrower conditions than the normal UK inheritance tax threshold. It generally applies when a qualifying home passes to a direct descendant, and it is limited to the qualifying value of the residence.
Who pays UK inheritance tax? Residency, domicile, and non-residents
For deaths and transfers from April 6, 2025 onward, residence history rather than domicile is the main test determining whether non-UK assets enter the IHT net. A person is normally a long-term UK resident after being UK tax resident for at least 10 of the previous 20 tax years.
The current rules divide taxpayers into three practical groups:
- Long-term UK residents: Foreign assets can be within UK IHT as part of their worldwide assets.
- People who are not long-term UK residents: UK-situs property can remain taxable even when most foreign assets are outside UK IHT.
- People who recently left the UK: A former long-term resident can remain within the foreign-asset IHT rules for 3 to 10 tax years, depending on prior UK residence.
Domicile status remains relevant to older deaths and transfers, but it is no longer the principal statutory test for foreign-property exposure after April 5, 2025.
This distinction changes how non-resident inheritance tax UK questions should be answered in 2026. A simple statement that a non-UK domiciliary pays IHT only on UK assets is no longer reliable for current deaths without first checking the person's 20-year residence history.
For the US side of the residency analysis, see TFX's explanation of resident and nonresident citizenship and tax status.
UK inheritance tax for US citizens and American expats
A US citizen can face both British IHT and US federal estate-tax rules because US citizens remain within the US transfer-tax system on worldwide assets. For deaths in 2026, the federal basic exclusion amount is $15 million, up from $13.99 million for 2025.
American expats owning UK property or other UK assets can therefore have reporting or tax exposure in both countries even when only one country ultimately collects tax on a particular transfer.
Four issues require separate review:
- UK liability: UK property and other assets within the UK IHT net are tested against UK allowances and reliefs.
- US estate tax: A US citizen's worldwide estate is considered under federal estate-tax rules.
- Treaty relief: The US–UK estate and gift tax treaty can modify situs rules and provide credits where the same property is exposed to death taxes in both countries.
- Form 706 reporting: A US estate may need Form 706 depending on the gross estate, adjusted taxable gifts, portability election, or treaty position.
The IRS's 2026 Form 706 instructions confirm that the United Kingdom is one of the countries with a US death-tax convention and that treaty situs rules can affect the foreign death-tax credit.
TFX explains the broader mechanisms for reducing double taxation for US taxpayers abroad. The IRS also maintains estate-tax guidance for nonresident noncitizens with US assets.
Situs rules: which UK assets are subject to inheritance tax?
Situs means the legal location of an asset, and it remains relevant in 2026 because UK-situs property can be taxable even when its owner is not a long-term UK resident. HMRC's current rules distinguish between UK property and assets that can qualify as excluded foreign property.
The main situs rules include:
- UK land and residential property are normally UK-situs assets.
- UK company shares are generally UK-situs property.
- The situs of bank account for UK inheritance tax purposes depends on the legal characteristics and location of the debt or account.
- Foreign assets can remain outside UK IHT when the owner is not a long-term UK resident, subject to specific exclusions and anti-avoidance provisions.
Americans holding property on both sides of the Atlantic can also review TFX's overview of federal estate-tax considerations for foreigners investing in US assets.
How to calculate UK inheritance tax: step-by-step
Calculating IHT starts with the gross estate and ends by applying 40% to the taxable balance after available exemptions, reliefs, and nil rate bands. A qualifying estate leaving at least the required charitable proportion may instead benefit from the 36% reduced rate.
The calculation uses these 6 steps:
- Value the gross estate. Add property, cash, investments, business interests, valuable possessions, and assets otherwise within the IHT net.
- Deduct allowable liabilities. Deduct qualifying debts and permitted estate expenses.
- Apply exemptions and reliefs. This can include spouse or civil partner exemption, charity exemption, Agricultural Relief, or Business Relief.
- Apply the £325,000 nil rate band.
- Apply up to £175,000 of residence nil rate band if a qualifying home passes to direct descendants.
- Apply the tax rate. The normal death rate is 40%; qualifying charitable estates can receive the 36% rate.
Based on a common TFX client scenario: A US citizen dies in 2026 owning a £700,000 UK home and £100,000 of other taxable property, with no debts or lifetime gifts. If the full £325,000 nil rate band and £175,000 residence nil rate band apply, £300,000 remains taxable. At 40%, the illustrative IHT is £120,000 before considering other reliefs or treaty issues.
That example answers how much the inheritance tax is in the UK only for those facts. Prior gifts, spouse transfers, estate size, residence history, and business or agricultural assets can change the result substantially.
UK inheritance tax exemptions and reliefs
UK IHT includes several reliefs that can reduce taxable value below the £325,000 nil rate band or remove particular transfers entirely. Spouse relief, charity relief, Business Relief, Agricultural Relief, and lifetime gift exemptions each operate under different conditions.
Spouse and civil partner transfers can be fully exempt, but the exemption can be restricted when a long-term UK resident transfers property to a spouse who is not a long-term UK resident. From April 6, 2025, HMRC applies the long-term residence rules to this limitation rather than the old domicile test.
| Exemption or relief | 2026 treatment | Key condition |
|---|---|---|
| Spousal exemption | Potentially unlimited | Special limit can apply when recipient spouse is not long-term UK resident |
| Charity exemption | Potentially 100% | Must meet qualifying charity rules |
| Business Relief | Up to 100% | From April 6, 2026, combined 100% APR/BPR allowance is £2.5 million |
| Agricultural Relief | Up to 100% | Shares the £2.5 million combined allowance from April 6, 2026 |
| Annual gift exemption | £3,000 per tax year | Unused amount can be carried forward 1 tax year |
The inheritance tax exemption UK rules therefore need to be applied asset by asset. The 2026 APR/BPR reform is especially important because qualifying value above the £2.5 million 100% relief allowance normally receives 50% relief, rather than unlimited 100% relief.
The seven-year rule, potentially exempt transfers, and taper relief
The seven-year rule allows many outright lifetime gifts to fall outside the donor's estate if the donor survives for 7 years after making them. Gifts to individuals are commonly potentially exempt transfers, while transfers into trusts can follow different rules.
If the donor dies within 7 years, prior gifts are considered when calculating the available nil rate band. Taper relief can reduce tax attributable to certain gifts made more than 3 years before death, but it does not simply reduce the value of the gift.
The current taper rates are 40% within 3 years, 32% between years 3 and 4, 24% between years 4 and 5, 16% between years 5 and 6, and 8% between years 6 and 7. Taper relief applies only where the relevant seven-year gifts exceed the available £325,000 threshold.
Annual gift exemptions and small gift allowances
HMRC's annual gift rules allow several categories of lifetime transfer to be immediately exempt without waiting 7 years. For 2026/27, the main annual exemption remains £3,000 per donor.
The principal allowances are:
- Annual exemption: £3,000 per tax year, with 1 year's unused exemption potentially carried forward.
- Small gifts: Up to £250 per recipient, provided another allowance is not used for the same recipient.
- Wedding or civil partnership gifts: Up to £5,000 for a child, £2,500 for a grandchild or great-grandchild, and £1,000 for another person.
- Normal expenditure out of income: Regular gifts can be exempt without a fixed monetary ceiling when HMRC's conditions are met and the donor can still meet normal living costs from income.
The £3,000 allowance is per donor rather than per recipient.
UK inheritance tax on property: real estate considerations
Inheritance tax on property in UK estates can apply even when the deceased lived abroad because UK land remains within the UK tax net. In 2026/27, a qualifying main residence passing to direct descendants may also receive up to £175,000 of residence nil rate band.
UK residential property can remain subject to inheritance tax when owned by a person who is not a long-term UK resident because the property's UK situs creates a separate connection to the IHT regime.
Four property rules matter most:
- UK real estate is normally valued at open-market value at death.
- The residence nil rate band applies only where its statutory inheritance conditions are met.
- Estates worth more than £2 million can lose the residence nil rate band through taper.
- A later sale by the beneficiary can create capital gains tax on appreciation after the relevant acquisition value.
A house inheritance tax UK calculation should therefore be separated from the beneficiary's later capital-gains calculation.
For US tax treatment of inherited real estate, see TFX's guide to capital gains tax on inherited property.
Capital gains tax on inherited UK property: what beneficiaries owe
When a beneficiary later sells inherited UK property, UK capital gains tax is normally measured using the relevant probate or date-of-death value rather than the deceased's original purchase cost. The taxable gain therefore focuses on appreciation occurring after death.
This distinction matters because capital gains tax on inherited property in UK cases is separate from the inheritance tax charged to the estate. A £500,000 probate value followed by a sale at £560,000 does not create a £560,000 gain – the starting point for the beneficiary's gain is generally the inherited value, subject to applicable rules and costs.
TFX's guide to capital gains tax for Americans living abroad explains the US-side rules.
UK farm inheritance tax: Agricultural Property Relief changes
UK farm inheritance tax changed materially on April 6, 2026. The final reform gives an individual a £2.5 million combined allowance for qualifying agricultural and business property receiving 100% Agricultural Relief or Business Relief.
Qualifying value above the available £2.5 million allowance normally receives 50% relief, creating a maximum effective IHT rate of 20% on that excess rather than the standard 40%.
This differs from the original £1 million proposal announced at Autumn Budget 2024. The government increased the allowance to £2.5 million in December 2025, and the revised rules took effect in April 2026.
Unused allowance can also transfer to a surviving spouse or civil partner, potentially providing up to £5 million of combined 100% APR/BPR allowance on the survivor's estate. This relief sits on top of the ordinary nil rate bands where their conditions are satisfied.
Pension pots and UK inheritance tax: 2027 rule changes
From April 6, 2027, most unused pension funds and pension death benefits are scheduled to enter the deceased person's estate for UK IHT purposes. Personal representatives will be responsible for reporting and paying IHT attributable to pension amounts within the new regime.
Not every pension benefit is included. HMRC's legislation excludes specified benefits such as registered-scheme death-in-service benefits and certain dependant scheme pensions from defined benefit or collective money purchase arrangements.
The inheritance tax on pensions UK change removes an estate-planning advantage that previously allowed many unused defined contribution pots to pass outside the taxable estate.
Non-domicile status and UK inheritance tax: the new residence-based rules
The most important structural change to UK IHT took effect on April 6, 2025, when the foreign-asset test moved from domicile to long-term UK residence. A taxpayer normally becomes a long-term UK resident after residence in at least 10 of the prior 20 UK tax years.
A foreign national who satisfies the long-term residence test can have worldwide assets exposed to UK inheritance tax regardless of their traditional common-law domicile.
This makes the phrases non UK domicile inheritance tax and UK non dom inheritance tax potentially misleading when applied to a 2026 death without further explanation. Domicile remains relevant for earlier events and specific transitional provisions, but current exposure to non-UK assets is primarily residence-based.
After a long-term UK resident leaves Britain, foreign assets can remain within IHT for a 3-to-10-year tail period. The period depends on how many of the previous 20 tax years the person spent as a UK resident.
For comparison with US residency classifications, see TFX's guide to US tax rules for resident and nonresident aliens.
UK inheritance tax on foreign assets and overseas property
Foreign property enters the UK IHT calculation for a long-term UK resident even when an asset is physically outside Britain. A 2026 estate could therefore include a French home, Spanish investment property, and US brokerage account if the deceased satisfies the applicable long-term residence test.
The principal rules are:
- A long-term UK resident can be exposed to IHT on worldwide assets.
- Someone who is not a long-term UK resident is normally outside IHT on qualifying non-UK assets, although UK-situs assets remain relevant.
- Trust assets have separate excluded-property and settlor-residence rules.
- Double taxation relief can apply when the same property is subject to death taxes in another treaty country.
The overseas inheritance tax UK analysis therefore begins with the deceased's residence history, not simply the beneficiary's location.
A UK tax on foreign inheritance received by a beneficiary is also different from IHT on the deceased's estate. The beneficiary's own country may impose reporting or tax rules even when the UK recipient-side tax is zero.
For later sales of overseas real estate, TFX explains US capital gains tax on foreign property.
UK trusts and inheritance tax planning
UK trusts can face IHT at entry, every 10 years, and when relevant property leaves the trust. For relevant-property trusts, the periodic charge can reach 6%, and exit charges can also apply.
Placing assets into a UK discretionary trust does not automatically remove them from the inheritance tax net – relevant-property trusts can face periodic charges at each 10-year anniversary.
The tax treatment differs between discretionary trusts, bare trusts, interest-in-possession arrangements, and special statutory trusts. Trust planning strategies therefore need to identify the trust type before calculating IHT.
The post-April 2025 residence regime also affects excluded property. Non-UK trust assets can move into or out of the IHT regime depending on the settlor's long-term residence status, subject to transitional and anti-avoidance rules.
TFX explains limited IRS relief for Forms 3520 and 3520-A for certain tax-favored foreign trusts.
How to reduce or avoid UK inheritance tax: legal strategies
There is no single best way to avoid UK inheritance tax, but the 2026 rules provide several lawful reliefs and exemptions. The strongest results usually come from coordinating gifts, spouse exemptions, charitable transfers, qualifying business or agricultural property, and the 7-year rule.
The most effective way to reduce UK inheritance tax is to plan before a taxable event occurs because several reliefs depend on ownership periods, residence history, or years elapsed after a gift.
Six commonly used approaches are:
- Use the £3,000 annual gift exemption each tax year.
- Make potentially exempt transfers and, where applicable, survive the 7-year period.
- Leave at least 10% of the relevant net estate to qualifying charity where the 36% rate would be beneficial.
- Use Agricultural Relief or Business Relief for qualifying property, taking account of the £2.5 million combined 100% allowance effective April 6, 2026.
- Consider life insurance held under an appropriate trust structure when the objective is to provide liquidity for an IHT liability rather than remove the tax itself.
- Review pension and estate arrangements before April 6, 2027, when most unused pension funds and death benefits enter the IHT calculation.
How to reduce inheritance tax UK exposure depends on the asset mix. For example, giving away an investment portfolio and transferring a family business do not have the same relief, ownership, or seven-year consequences.
The probate process and executor responsibilities for UK estates
An executor handling a taxable UK estate is responsible for establishing the estate value, reporting the IHT position, and arranging payment. IHT on a death is generally due 6 months after the end of the month in which the death occurred.
The main executor responsibilities include:
- preparing an accurate estate valuation;
- identifying lifetime gifts and available exemptions;
- determining whether Form IHT400 and supplementary inheritance tax forms UK schedules are required;
- paying tax that must be settled before the grant;
- claiming applicable reliefs and transferred allowances; and
- considering the 10-year instalment option for qualifying property.
HMRC updated Form IHT400 on September 3, 2026 and requires it when IHT is payable or the estate does not qualify as an excepted estate.
Certain qualifying assets can use annual instalments over 10 years, although tax can become payable sooner if the asset is sold.
For US-connected estates, the IRS explains when nonresidents with US assets must file an estate-tax return.
For non-US citizens with US tax exposure, see TFX's guide to filing US taxes as a nonresident.
Frequently asked questions
The standard UK inheritance tax rate is 40% on taxable estate value remaining after applicable exemptions, reliefs, and nil rate bands. An estate can qualify for a reduced 36% rate on the relevant component when at least 10% of the required net amount passes to a qualifying charity.
The standard UK inheritance tax threshold is £325,000 for 2026/27. A qualifying residence passing to direct descendants can add a residence nil-rate band of up to £175,000, creating a potential £500,000 combined allowance for one qualifying estate.
Nonresidents can still be subject to UK IHT on UK-situs property. For deaths from April 6, 2025, foreign-asset exposure depends primarily on long-term UK residence: a person normally enters the worldwide-asset regime after residence in at least 10 of the prior 20 tax years.
Transfers between spouses and civil partners are normally exempt without a value limit. A restriction can apply from April 6, 2025 when the transferor is a long-term UK resident but the recipient spouse or civil partner is not; an election can sometimes change the result.
Most qualifying outright gifts to individuals fall outside IHT if the donor survives 7 years. When death occurs sooner, the gift is brought back into the IHT calculation, and taper relief can reduce tax on qualifying gifts made between 3 and 7 years before death.
Foreign assets can be subject to UK IHT when the deceased is a long-term UK resident. Since April 6, 2025, the core test is normally 10 UK-resident tax years out of the previous 20, replacing domicile as the principal connection for foreign property.
US citizens can face both UK IHT and US federal estate-tax rules because the US estate-tax system can reach worldwide assets of citizens. For a death in 2026, the US basic exclusion amount is $15 million, while treaty provisions and foreign death-tax credits can help address overlap.
TFX's guide to claiming the Foreign Tax Credit on Form 1116 explains the separate income-tax credit rules. Estate-tax treaty credits are handled under different provisions and should not be confused with Form 1116.
The pension IHT reforms are scheduled to take effect on April 6, 2027. Most unused pension funds and pension death benefits will then be included within the estate for IHT, although specified death-in-service and dependant benefits are excluded.
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