Inheritance tax planning is the process of arranging your estate, using the allowances, exemptions and reliefs the law provides, so that less of what you leave passes to the taxman and more reaches the people and causes you choose.
For most families in England and Wales it combines four things: the tax-free thresholds, the exemption for transfers between spouses and civil partners, lifetime gifts made within the rules, and, in some cases, trusts, charitable giving or business and agricultural relief. This guide sets out the main strategies, the current figures, and the changes arriving in 2026 and 2027. Figures are current as at August 2026 and are subject to change. This is general information, not advice for any one person.
What is inheritance tax planning?
Inheritance tax is a tax on the estate of someone who has died. The standard rate is 40%, and it applies only to the value above the available tax-free thresholds (gov.uk, as at August 2026, subject to change). Planning means using the allowances and reliefs that already exist, in the right order and well ahead of time, so that the taxable part of an estate is smaller. It does not mean hiding assets or guaranteeing a nil bill, and no plan can promise a particular outcome because both the rules and personal circumstances change.
The starting point for most families is the same. Married couples and civil partners can usually pass assets to each other free of inheritance tax, and any unused threshold can transfer to the survivor. Everything after that builds on those two foundations.
The thresholds that shape every plan
Two tax-free bands sit at the centre of any calculation. The nil-rate band applies to every estate. The residence nil-rate band is an extra amount available where a home passes to direct descendants, such as children or grandchildren, and it is withdrawn for larger estates.
| Allowance or rate | Level (August 2026) |
|---|---|
| Nil-rate band (per person) | £325,000 |
| Residence nil-rate band (per person) | Up to £175,000 |
| Combined allowance, single person leaving a home to descendants | Up to £500,000 |
| Combined allowance, married couple or civil partners | Up to £1,000,000 |
| Standard rate | 40% |
| Reduced rate (10% or more of the net estate to charity) | 36% |
| Residence band taper threshold | £2,000,000 |
Source: gov.uk/inheritance-tax, as at August 2026, subject to change. The residence nil-rate band is reduced by £1 for every £2 by which an estate is worth more than £2,000,000, so it is lost entirely once an estate is large enough. The nil-rate band, residence nil-rate band and £2,000,000 taper threshold are frozen at these levels until 5 April 2031, a freeze extended by a further year at Budget 2025 (gov.uk, Budget 2025, 26 November 2025), subject to change.
Because these figures are frozen while many house and investment values keep rising, more estates are expected to cross the threshold over time. That fiscal drag is a large part of why some families choose to plan earlier rather than later.
Core inheritance tax planning strategies
Most planning draws on a familiar toolkit. The table below summarises the main options and where each tends to apply. None of them suits every estate, and several interact, so the right combination depends on the assets and family involved.
| Strategy | What it does |
|---|---|
| Spouse and civil partner exemption | Transfers between spouses and civil partners are generally free of inheritance tax, and unused nil-rate bands pass to the survivor. |
| Residence nil-rate band | Leaving a home to children or grandchildren can add up to £175,000 per person to the tax-free amount, subject to the £2,000,000 taper. |
| Annual and small gift exemptions | Gifts within the yearly limits leave the estate immediately, with no seven-year wait. |
| Larger lifetime gifts (potentially exempt transfers) | Outright gifts fall out of the estate after seven years, with taper relief on the tax in between. |
| Normal expenditure out of surplus income | Regular gifts from income, not capital, that do not affect your standard of living can be immediately exempt. |
| Charitable giving | Gifts to charity are exempt, and leaving 10% or more of the net estate cuts the rate on the rest from 40% to 36%. |
| Trusts | Allow assets to be set aside for beneficiaries with control over timing, though they carry their own tax rules. |
| Business and agricultural relief | Can give 100% or 50% relief on qualifying business or farm assets, reformed from 6 April 2026. |
Source: gov.uk/inheritance-tax and gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
Lifetime gifts and the seven-year rule
Gifting is often the simplest lever. Several exemptions let assets leave an estate straight away, while larger gifts rely on surviving seven years. There is no inheritance tax on a gift if the giver lives for seven years after making it, unless the gift is into certain trusts (gov.uk, as at August 2026, subject to change).
| Exemption | Amount and rule |
|---|---|
| Annual exemption | £3,000 of gifts each tax year, and any unused amount can be carried forward one year. |
| Small gifts | £250 per person per tax year, to as many people as you like, if no other exemption is used on them. |
| Wedding or civil partnership gifts | £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else. |
| Normal expenditure out of income | Regular gifts from surplus income that do not reduce your usual standard of living. |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
For larger gifts made between three and seven years before death, taper relief can reduce the tax charged on the gift. Taper relief reduces the tax on the gift, not the value of the gift itself, and it only helps once a gift already exceeds the available nil-rate band.
| Years between gift and death | Rate of tax charged on the gift |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | 0% |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
Charitable giving, trusts and business relief
Beyond gifts, three further routes can reduce a bill for the right estate. Leaving money to charity is exempt, and where 10% or more of the net estate goes to charity, the rate on the remaining taxable estate drops from 40% to 36% (gov.uk, as at August 2026, subject to change).
Trusts let trustees hold assets for beneficiaries, which can help with timing, vulnerable relatives or a second marriage. They bring their own reporting and tax charges, so they tend to be used where control matters rather than as a simple tax cut. Our related guide on how the parts of an estate plan fit together explains where trusts sit within a wider plan.
Business and agricultural relief was reformed from 6 April 2026. From that date, agricultural property relief and business property relief give 100% relief on the first £2,500,000 of combined qualifying agricultural and business property per person, and 50% relief on the value above that. The £2,500,000 allowance can be transferred between spouses and civil partners, allowing up to £5,000,000 per couple before the reduced rate applies (gov.uk, announced 23 December 2025, as at August 2026, subject to change). Families who own a working farm or trading business may find this reform changes how they plan, and our note on how inheritance tax works gives the wider context.
Two changes worth planning around
Two announced reforms will affect a large number of estates, and both have a set start date. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the estate for inheritance tax, a shift announced at Autumn Budget 2024 (gov.uk, as at August 2026, subject to change). Pensions have long sat outside the estate for many people, so this change alone may push some families above the threshold for the first time.
The second is the freeze itself. The nil-rate band, residence nil-rate band and taper threshold stay fixed until 5 April 2031 (gov.uk, Budget 2025, as at August 2026, subject to change). Frozen thresholds against rising asset values mean the effective reach of the tax grows each year without any headline rate changing.
How planning fits with wills, powers of attorney and care
Inheritance tax planning rarely stands alone. A valid will directs who inherits and is needed for the residence nil-rate band to apply where a home passes to descendants, so a plan often starts with reviewing the will itself. A lasting power of attorney matters too, because gifting and other steps usually require mental capacity, and an attorney's power to make gifts is limited. Registering a lasting power of attorney costs £92 per document with the Office of the Public Guardian (gov.uk, as at August 2026, subject to change).
Later-life care is the other common pressure. Money spent on care reduces an estate, and steps taken mainly to avoid care fees can be challenged, so any work on planning for, limiting or mitigating the impact of care fees sits alongside inheritance tax rather than in competition with it. A coherent plan weighs both together.
When should you start inheritance tax planning?
There is no single right moment, but because the most valuable tools rely on time, starting earlier tends to widen the options. The seven-year rule, regular gifting out of income, and reviewing a will after a major life event all reward planning ahead of need rather than in a hurry.
- Marriage, civil partnership, separation or divorce
- The birth of children or grandchildren
- Buying a home or a significant rise in property value
- Receiving or expecting an inheritance
- Approaching or entering retirement, or a change in health
Because the sums and the rules can be involved, many people discuss inheritance tax planning with a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can look at the whole position before anything is put in place.
Scotland and Northern Ireland. Inheritance tax is a UK-wide tax, so the thresholds and reliefs above apply across the United Kingdom. However, the surrounding succession law differs. Scotland has its own rules, including legal rights that can give a spouse and children a fixed share of an estate, and it uses confirmation rather than a grant of probate. Northern Ireland runs a separate but broadly similar system to England and Wales. Where an estate crosses more than one jurisdiction, it can be worth taking advice in each.
Frequently asked questions
What is inheritance tax planning?
Inheritance tax planning is arranging an estate to make full use of the allowances, exemptions and reliefs that already exist, so that less of it is taxed at 40%. In England and Wales it commonly combines the nil-rate bands, the spouse exemption, lifetime gifts, and sometimes trusts, charitable giving or business and agricultural relief. It cannot guarantee a nil bill because the rules and personal circumstances change (gov.uk, as at August 2026, subject to change).
How much can be passed on before inheritance tax is due?
Each person has a nil-rate band of £325,000, plus a residence nil-rate band of up to £175,000 where a home passes to direct descendants. A single person can therefore pass on up to £500,000, and a married couple or civil partners up to £1,000,000 in combined allowances, before the residence band starts to taper above a £2,000,000 estate (gov.uk, as at August 2026, subject to change).
How does gifting reduce inheritance tax?
Some gifts leave the estate immediately, including up to £3,000 a year under the annual exemption, £250 per person in small gifts, and regular gifts out of surplus income. Larger gifts fall out of the estate after seven years, with taper relief reducing the tax on gifts made between three and seven years before death (gov.uk/inheritance-tax/gifts, as at August 2026, subject to change).
Will pensions be subject to inheritance tax?
From 6 April 2027, most unused pension funds and pension death benefits are due to be brought within the value of the estate for inheritance tax, a change announced at Autumn Budget 2024. Many pensions currently sit outside the estate, so this reform may bring some families within the tax for the first time (gov.uk, as at August 2026, subject to change).
What are the business and agricultural relief changes for 2026?
From 6 April 2026, agricultural property relief and business property relief give 100% relief on the first £2,500,000 of combined qualifying agricultural and business property per person, and 50% relief above that. The £2,500,000 allowance can be transferred between spouses and civil partners, giving up to £5,000,000 per couple (gov.uk, announced 23 December 2025, as at August 2026, subject to change).
Does leaving money to charity cut the rate?
Yes. Gifts to charity are exempt from inheritance tax, and where 10% or more of the net estate passes to charity, the rate on the rest of the taxable estate falls from 40% to 36% (gov.uk, as at August 2026, subject to change). Whether that produces a net saving depends on the size of the estate and the charitable gift.
Do you need a solicitor for inheritance tax planning?
Not always, though the more valuable or complex an estate, the more input tends to help. Straightforward gifting and updating a will can be done without one, while trusts, business assets and larger estates often involve a solicitor, a STEP practitioner or an FCA-authorised financial adviser. Many people take professional advice where the stakes are high rather than rely on a template.