Inheritance Tax Planning Before April 2027

Two tax-free bands do most of the work, and both are frozen, which is why more estates are gradually being caught.

The nil-rate band is £325,000 per person. Everything in an estate above the available nil-rate band, after exemptions and reliefs, is generally taxed at 40 per cent. This band has been £325,000 since 2009 and is now frozen until April 2031.

The residence nil-rate band adds a further £175,000 per person, but only where a home (or the proceeds of one) is left to direct descendants — meaning children, grandchildren, and their families. It too is frozen until April 2031. It also tapers away for larger estates: it reduces by £1 for every £2 by which the estate exceeds £2 million.

Put together, an individual leaving their home to their children can often pass on up to £500,000 before inheritance tax, and because both bands can transfer between spouses and civil partners, a married couple or civil partnership can frequently pass on up to £1 million between them. Whether the residence band is available depends on who inherits the home, so it is worth checking your will actually achieves it.

The largest single relief is the simplest. Anything left to a surviving spouse or civil partner is generally exempt from inheritance tax without limit, provided the relevant long-term UK residence conditions are met (these residence rules replaced the older domicile test for inheritance tax from 6 April 2025). Nothing is usually payable on the first death in a married couple where everything passes to the survivor.

This pairs with the transfer of allowances. When the first spouse or civil partner dies without using all of their nil-rate band and residence nil-rate band, the unused proportion passes to the survivor, which is how a couple reaches the combined figures above.

The catch worth knowing is that an unmarried couple does not get this exemption or the transfer of allowances, however long they have been together. Our guide for unmarried partners explains where cohabitants stand more widely.

Gifts made during your lifetime are one of the main ways people reduce what will eventually be taxed, but the rules reward planning ahead, because most gifts only fall fully outside the estate if you survive them by seven years.

Gifts that are exempt straight away

Some gifts are exempt immediately:

• The annual exemption. You can give away £3,000 in total each tax year free of inheritance tax. If you did not use last year's, you can carry it forward for one year only — so a couple who used neither could give £12,000 between them in one go.
• Small gifts. You can give up to £250 to any number of different people each tax year, as long as they have not also received your annual exemption.
• Wedding gifts. You can give a tax-free wedding or civil partnership gift of up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else.
• Normal expenditure out of income. Regular gifts made from your surplus income — not your capital — can be exempt without limit if they are part of a settled pattern and leave you able to maintain your usual standard of living. This is a valuable and underused exemption, but it depends on keeping clear records of your income, your outgoings, and the gifts.

The seven-year rule and taper relief

Gifts that are not covered by an exemption are usually "potentially exempt transfers". They fall outside your estate entirely if you live for seven years after making them. If you die within those seven years, the gift is brought back into the calculation and can use up your nil-rate band.

Taper relief is widely misunderstood. It reduces the tax payable on a gift, on a sliding scale, only where the gift is large enough to exceed the nil-rate band and you die between three and seven years after making it. It does not reduce the value of the gift, and it does not help with gifts that sit within the nil-rate band. The honest summary is that surviving seven years, not taper relief, is what removes most gifts from the estate.

The traps to avoid

Gifting has genuine pitfalls:

• Giving something away but still benefiting from it. If you give an asset away but keep using it — for example giving your house to your children but continuing to live in it rent-free — the "gift with reservation of benefit" rules generally keep it inside your estate. Giving away your home also has risks around care fees and losing control of the asset, so it is an area to take advice on before doing anything.
• Giving away money you may need. Gifts are irreversible, and giving away capital you later need for living costs or care fees can cause real hardship. Never gift more than you can comfortably do without.
• Deliberate deprivation for care fees. Giving assets away mainly to avoid future care charges can be challenged by a local authority as deliberate deprivation. Planning has to be for genuine reasons.

Gifts to qualifying charities are exempt from inheritance tax, and there is an added incentive built into the rules. If you leave at least 10 per cent of your net estate to charity, the rate of inheritance tax on the rest of the estate that would otherwise be taxed falls from 40 per cent to 36 per cent. For someone who already intends to leave something to charity, structuring the gift to reach the 10 per cent threshold can mean the estate pays less tax overall.

If your estate includes a business, a farm, or certain shares, the reliefs for those assets changed from April 2026 and are worth factoring into any planning. In short, a combined £2.5 million allowance now covers assets qualifying for 100 per cent business or agricultural property relief, with relief at 50 per cent above that. The detail and the planning options sit in our guide on what happens to a business when the owner dies. If a business or farm is a significant part of your estate, this is firmly a take-advice area.

The headline change on the horizon is that, from 6 April 2027, most unused pension funds and certain death benefits will be included in a person's estate for inheritance tax, where today many sit outside it. For families who had treated a pension as a tax-efficient way to pass on wealth, this is a meaningful shift.

This is a substantial topic in its own right, and the detail of what is included, who is affected, and what the options are is covered in our dedicated guide on pensions and inheritance tax from 2027. The reason to mention it here is timing: the period before April 2027 is the natural moment to review your overall position, including how your pension fits alongside the rest of your estate.

Pulling this together, a sensible review before the 2027 change might cover:

• Your will. Check it still reflects your wishes and is structured to use the allowances you are entitled to, particularly the residence nil-rate band. If you do not have a will, that is the first step. See making a will.
• Your estate's likely value, including your pension. Add up what you own, and from April 2027 factor in unused pension funds, to see whether an inheritance tax charge is realistically in prospect at all.
• Whether you are using the gift exemptions. The annual exemption and, where it fits, normal expenditure out of income, are simple and immediate. Using them each year, with records kept, adds up over time.
• Your marital and family situation. The spouse exemption and transferable allowances are the largest reliefs, and an unmarried couple or a blended family may want advice on how to protect the survivor.
• Business, farm, or significant assets. If these feature, get specialist advice in light of the April 2026 relief changes.
• Whether you want professional advice. For anything beyond a simple estate, a solicitor or a qualified financial adviser who specialises in estate planning can model the position and flag options you might not have considered. Our estate planning checklist is a useful place to start gathering the information they will need.

Inheritance tax is a UK-wide tax. The thresholds, exemptions, reliefs, and the 2026 and 2027 changes apply the same way in England, Wales, Scotland, and Northern Ireland, so the figures in this guide are the same wherever you live in the UK. The main devolved difference sits not in the tax but in succession law.