Inheritance tax planning starts with understanding what you own, who you want to inherit it and which tax rules apply. A useful first step is to organise your records and check the available allowances before considering gifts or changes to your arrangements.
This guide covers UK inheritance tax rules checked on 30 September 2026. It provides general information rather than an assessment of your estate.
Check which inheritance tax allowances could apply
The standard inheritance tax allowance, known as the nil-rate band, is £325,000. The usual tax rate is 40% on the taxable amount above the available allowances, after relevant exemptions and reliefs.
An additional residence nil-rate band of up to £175,000 can apply when a qualifying home passes to direct descendants, such as children or grandchildren. It is limited by the value inherited and reduces by £1 for every £2 that the estate exceeds £2 million.
Married couples and civil partners can also benefit from rules allowing unused allowances to transfer to the surviving partner. The amount available depends on the circumstances, so avoid assuming every couple has the same threshold.
Gather your financial records
Prepare a list of your property, savings, investments, valuable possessions, business interests and outstanding debts. For jointly owned assets, record your share and how ownership is held.
Keep pension and life insurance details alongside this list so their treatment can be checked separately. Do not assume every policy or pension forms part of the estate, or that all are excluded.
It is also useful to collect:
- Your current will and any trust documents.
- Records of gifts, including dates, recipients and values.
- Income and spending records where you make regular gifts.
- Contact details for the people or firms holding important documents.
Let the person expected to deal with your estate know where these records are kept.
Understand the conditions attached to gifts
The annual inheritance tax exemption covers £3,000 of gifts in total each tax year, not £3,000 per recipient. Unused exemption can be carried forward for one tax year.
The separate small-gifts exemption covers up to £250 per recipient per tax year. It cannot be combined with another gift exemption for the same recipient.
Regular gifts from income can qualify under the normal expenditure out of income exemption. They must form part of your normal spending, come from income and leave enough income to maintain your usual standard of living. Keep evidence of all three conditions.
Before making gifts, consider your own living costs, debts and future needs. An available tax exemption is not a reason to give away money you need.
Know the limits of the seven-year rule
Outright gifts to individuals generally become exempt if you survive for seven years. Gifts made sooner can use up the nil-rate band.
Where tax is payable on a gift, taper relief can reduce that tax after three years. It does not reduce the gift’s value or the allowance it uses.
Different rules apply to some trust transfers and gifts you continue to benefit from. Giving away your home while continuing to live there rent-free can leave it within your estate for inheritance tax.
Other taxes also matter. Giving away shares or a second property can create a capital gains tax liability, even without a cash payment. The outcome depends on the asset and available reliefs.
Review your will and pension arrangements
Check whether your will still reflects your wishes, particularly after changes to your family or finances. Review pension beneficiary nominations too, and ask each provider how benefits would be dealt with on death.
From 6 April 2027, most unused pension funds and pension death benefits will be included in the estate for inheritance tax purposes. This change has been legislated in the Finance Act 2026.
Ask how the change affects your particular arrangements before making decisions about withdrawals or gifts. The inheritance tax position is only one consideration alongside retirement income and other taxes.
Understand what an advice service provides
Questions involving trusts, business ownership, overseas assets or a history of living abroad can require advice tailored to the circumstances.
Price Bailey advertises expert advice on inheritance tax through its commercial tax planning service. The linked page describes the service and provides ways to enquire; it does not show a fee schedule.
Before commissioning work, ask who will advise you, what relevant qualifications and experience they have, what the work includes and how fees are calculated. Request a written explanation of any proposed changes, including their costs, tax implications and effect on your access to money.
