The Inheritance Tax Act 1984 (often shortened to IHTA 1984) is the principal Act of Parliament that governs inheritance tax across the United Kingdom. It sets out what is taxed when someone dies or makes certain gifts, the rate of tax, and the exemptions and reliefs that reduce it.
The Act received Royal Assent on 31 July 1984 and was originally titled the Capital Transfer Tax Act 1984 before being renamed by section 100 of the Finance Act 1986 (legislation.gov.uk, as at August 2026, subject to change). It remains the backbone of the tax today, though many of the figures people care about, such as the tax-free thresholds, are updated through later Finance Acts and Budgets rather than the 1984 text itself. This guide is general information for England and Wales and is current as at August 2026.
What is the Inheritance Tax Act 1984?
The Inheritance Tax Act 1984 is a consolidating statute. Its full long title describes it as an Act to consolidate provisions of Part III of the Finance Act 1975 and other enactments relating to inheritance tax (legislation.gov.uk, as at August 2026, subject to change). In plain terms, it gathered the rules on the tax that applies to estates and certain lifetime gifts into a single Act.
Capital transfer tax, introduced in 1975, taxed most lifetime gifts as well as transfers on death. From 1986 the system moved back towards taxing mainly the estate at death plus gifts made in the years shortly before it, and the Act was renamed to reflect that. The 1984 Act still provides the definitions and the framework, and HMRC administers the tax under it.
What does the Act cover?
The Act works around the idea of a transfer of value, meaning a disposal that reduces the value of a person's estate. The main building blocks it defines include:
- The estate on death. The value of everything a person owns, less debts and liabilities, is brought into account when they die.
- Chargeable lifetime transfers and potentially exempt transfers. Gifts made in a person's lifetime may fall out of account if the person survives seven years, under the well-known seven-year rule (gov.uk, as at August 2026, subject to change).
- The nil-rate band. A tax-free threshold below which no inheritance tax is due.
- Exemptions and reliefs. Categories of transfer, such as gifts between spouses or qualifying business and agricultural property, that are exempt or attract relief.
- Trusts and settled property. Rules for property held in trust, including periodic and exit charges.
Later legislation has bolted new features onto this framework. The residence nil-rate band, for example, was added by the Finance (No. 2) Act 2015 and sits alongside the original nil-rate band.
Current thresholds and rates
The Act sets the structure, but the amounts are set and updated through Finance Acts and Budgets. The figures below are the current position for England and Wales. Inheritance tax is charged only on the part of an estate above the available tax-free thresholds.
| Allowance or rate | Level (August 2026) |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band | Up to £175,000 |
| Standard rate | 40% |
| Reduced rate (10%+ of net estate to charity) | 36% |
| Taper threshold for the residence band | £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 the estate exceeds £2,000,000 (gov.uk, as at August 2026, subject to change).
These thresholds are frozen until 5 April 2031, the end of the 2030 to 2031 tax year. The freeze was extended by a further year at the Budget on 26 November 2025 (gov.uk, Inheritance Tax: thresholds, published 26 November 2025, as at August 2026, subject to change). Because thresholds are fixed while many estate values rise, more estates may fall within the charge over time.
Exemptions and reliefs under the Act
A large part of the Act deals with what is not taxed. The main exemptions and reliefs that families come across are set out below.
| Exemption or relief | Summary |
|---|---|
| Spouse or civil partner exemption | Transfers between UK-domiciled spouses or civil partners are generally exempt, and unused nil-rate band can transfer to the survivor. |
| Annual gift exemption | Up to £3,000 of gifts each tax year, with one year's unused allowance able to carry forward. |
| Small gifts | Up to £250 per person per tax year to any number of people. |
| Wedding or civil partnership gifts | Up to £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else. |
| Normal expenditure out of income | Regular gifts made from surplus income that do not affect your standard of living. |
| Charity | Gifts to qualifying charities are exempt, and leaving 10% or more of the net estate can reduce the rate on the rest to 36%. |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
Where a gift is made within seven years of death and exceeds the available nil-rate band, taper relief may reduce the tax on that gift on a sliding scale for gifts made three to seven years before death. Taper relief reduces the tax on the gift, not the value of the gift itself (gov.uk, as at August 2026, subject to change).
Two further reliefs matter for business owners and farming families. Agricultural property relief and business property relief can reduce the value on which tax is charged. From 6 April 2026 these reliefs give 100% relief on the first £2,500,000 of combined qualifying agricultural and business property per person, and 50% relief above that amount. The £2,500,000 allowance can be transferred between spouses and civil partners, giving up to £5,000,000 for a couple (gov.uk, as at August 2026, subject to change).
Recent and upcoming changes
The framework in the 1984 Act is stable, but the rules attached to it change regularly. Three current developments are worth knowing about.
- Frozen thresholds to April 2031. The nil-rate band, residence nil-rate band and the £2,000,000 taper threshold are frozen until 5 April 2031 following the extension announced at the Budget on 26 November 2025 (gov.uk, Inheritance Tax: thresholds, published 26 November 2025, as at August 2026, subject to change).
- Agricultural and business property relief reform. From 6 April 2026 the combined 100% relief is capped at £2,500,000 per person, with 50% relief above that, as set out above (gov.uk, as at August 2026, subject to change).
- Pensions within the estate. From 6 April 2027, most unused pension funds and death benefits are expected to be brought within the value of the estate for inheritance tax. This was announced at the Autumn Budget 2024 (gov.uk, as at August 2026, subject to change).
Does the Act apply across the whole UK?
Inheritance tax under the 1984 Act is a UK-wide tax, so the same thresholds and rates apply in England, Wales, Scotland and Northern Ireland. What differs between the nations is succession law, meaning who inherits and how estates are administered, rather than the tax itself. Scotland has its own rules of succession, including legal rights for a spouse and children, and uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. If an estate spans more than one jurisdiction, it can be worth taking advice in each. You can see the areas we cover across England and Wales.