Inheritance tax

How much does it raise?

It raised more than the year before, but the other taxes grew faster, so its share of the total fell.

How does it work?

Most people call it the death tax. It is charged on what you leave, above a threshold called the nil-rate band, and at a single rate of 40% on the excess.

There are two allowances. The nil-rate band applies to any estate. The residence nil-rate band adds more on top, but only if you leave your home to direct descendants, and it tapers away on estates above £2m. Together they can shelter a substantial amount.

Anything left to a spouse or civil partner is exempt, and an unused allowance transfers to them. This is why a couple can pass on twice the individual allowance: the first death uses none of it, and the survivor gets both.

The thresholds and rates for 2026-27:

Rates: GOV.UK, Inheritance Tax. Checked by hand 22 September 2026.

Gifts made more than seven years before death usually fall out of the estate entirely. Gifts within seven years may be taxed on a sliding scale. This is the single largest avoidance route and it is entirely legal and intended.

The reliefs are where the real arguments are. Business and agricultural property relief have historically taken qualifying farms and trading businesses out of the tax altogether, on the argument that heirs should not have to break up a going concern to pay a bill. Changes announced in the 2024 Budget cap that relief, and from April 2026 unused pension pots also count as part of the estate.

A £700,000 estate including a home left to children

That is 11.4% of the estate, not 40%. And if the deceased had a spouse who left everything to them, the unused allowances transfer and this estate would pay nothing.

How has it changed?

How it got here, and why each change was made:

• 1694Probate duty, the first tax on passing on wealth, is introduced to pay for war with France.
• 1894Estate duty replaces a patchwork of death duties and becomes the first progressive tax on estates. Rates eventually reach 80%.
• 1975Capital Transfer Tax replaces estate duty and taxes lifetime gifts as well, to close the obvious gap.
• 1986Inheritance tax replaces it, and lifetime gifts made more than seven years before death become exempt again.
• 2007Unused nil-rate bands become transferable between spouses, effectively doubling the allowance for couples.
• 2017The residence nil-rate band is phased in for homes left to descendants.
• 2009The nil-rate band reaches £325,000, where it has stayed ever since. Frozen until April 2031, it will have been unchanged for 22 years.
• 2026Unused pension pots begin to count towards the estate, and agricultural and business property relief is capped.

Where does the money go?

Nowhere in particular. Inheritance tax is not earmarked. It goes into the Consolidated Fund with almost every other tax and is spent on whatever the government of the day decides. Anyone who tells you a particular tax "pays for" a particular service is describing an illustration, not a rule.

Because it is not earmarked, the only honest way to show what it pays for is by proportion. If inheritance tax receipts of £8.5bn were spent in the same proportions as all public spending in 2025-26, they would break down like this. It is an illustration of scale, not a statement about where those particular pounds went.

See for every £100 of tax for the full picture.

Does it change what people do?

Inheritance tax raises comparatively little for the political heat it generates, and that is partly because it is avoidable by those with the most to lose: gifting early, using trusts and holding qualifying business assets all work. The result is a tax that falls hardest on estates too large to escape it and too small to plan around it, which is a common criticism from both directions.

When a tax rise stops raising money looks at the cases where the effect has been large enough to move the revenue.

How does that compare with other countries?

In 2024 the UK raised 0.3% of GDP this way: fourth of the 12 countries compared here.

Most developed countries tax inheritance in some form, but the UK’s flat 40% above a threshold is unusual. Several countries instead tax the recipient, at rates that depend on how closely related they are and how much they personally receive, which spreads the burden differently.

What are the arguments?

Both columns are set out as their strongest case, not as a preferred answer and a strawman. See how this site handles contested questions.