Inheritance tax (IHT) is one of the taxes that keeps many entrepreneurs and property owners up at night. Before paying for advanced tax planning, you need to get the basics in place. If your house isn’t in order, more sophisticated planning won’t hit the same way. This article covers how inheritance tax is calculated, which allowances apply, how those allowances can disappear, the recent changes affecting businesses and pensions, and the planning options available.
What Is Inheritance Tax? The 40% Tax Rate
Inheritance tax (IHT) is currently charged at 40% on the value of an estate above the available allowances. It’s a nasty rate, which is exactly why understanding how the calculation works matters so much.
How to Calculate Inheritance Tax
The calculation starts with your gross assets, then deducts debts to give your total estate. Reliefs are then taken off. Assuming the April 2027 changes are in place, gross assets include:
- Your house
- Your ISAs and savings
- Investments, including property and shares
- Business assets — now brought more firmly into the picture from April 2026
- Pensions — due to be included from April 2027, which is described as disastrous unless you plan for it
In short: gross assets − debts = total estate, then reliefs come off to leave the amount subject to tax.
Nil Rate Band and Residential Nil Rate Band Explained
Two main reliefs are available to most families:
| Relief | Per Person | Married Couple (×2) | Who Gets It |
|---|---|---|---|
| Nil Rate Band (NRB) | £325,000 | £650,000 | Everyone in the UK |
| Residential Nil Rate Band (RNRB) | £175,000 | £350,000 | Homeowners — specific to your main home |
The residential nil rate band was introduced under the Cameron government. Rather than giving the relief to everyone, it was made specific to your house. It’s also the more fragile of the two: apart from the £325,000 nil rate band, the rest is affected by the value of your estate.
Losing the RNRB: What Happens Over £2 Million
The residential nil rate band disappears as your estate grows beyond £2 million. For every £2 your estate is above £2 million, you lose £1 of this relief. That means large estates can eventually lose it entirely:
| Situation | Estate Value at Which the RNRB Is Fully Lost |
|---|---|
| Couple | Over £2.7 million |
| Single person | Over £2.35 million |
This is why owning assets above £2 million is a real problem — and why people with larger estates worry about losing the relief altogether.
IHT Planning: Gifting and Trusts
Because owning assets above the £2 million level is such a problem, this is where the planning opportunities lie. Common approaches include gifting assets, giving away certain amounts during your lifetime, and putting money into trusts. The key to any of this is using all the reliefs available to you.
Business Property Relief Changes
One of the most significant recent changes for entrepreneurs involves Business Property Relief (BPR), also called business relief. Trading businesses used to receive full relief. From April 2026, this has been restricted to £2.5 million per person. This is one of the worst changes for entrepreneurs, and it’s also the reason farmers are so upset, as they are affected too.
Trading vs Investment Business: Why It Matters
The relief applies to trading businesses, not investment businesses. If you have a property investment business, anything earning rent is considered an investment business, so it’s excluded from this relief and your shares form part of your main estate. This is why people are now learning the different concepts, taking good advice, and structuring their affairs to take advantage of as much relief as possible.
The IHT and CGT Double Whammy
If you don’t plan, your beneficiaries could end up paying 40%. In many cases, that leads to the assets being liquidated to pay the bill. If those assets have gone up in value since they were inherited, the heirs can also be hit with Capital Gains Tax (CGT) of up to 24% on the sale, a rate that may also rise in the October 2026 budget.
| Tax | Rate | When It Hits |
|---|---|---|
| Inheritance Tax | 40% | On the estate above allowances |
| Capital Gains Tax | Up to 24% | If inherited assets are sold at a gain |
This is the “double whammy”: pay inheritance tax first, then pay Capital Gains Tax when you sell to raise the cash. The aim of good planning is to mitigate your inheritance tax exposure and pass assets to the people you want, while you still have some of it left, in the smartest way possible and without affecting you now.
Protect Your Legacy with GoldHouse Accounting
Getting the basics of inheritance tax right is the foundation of every successful wealth plan. At GoldHouse Accounting, our tax advisors and wealth management consultants help families and business owners make full use of their reliefs, plan around the April 2026 and April 2027 changes, and structure their assets so more of their wealth reaches the people they want it to. Get in touch to find out where you stand.
This article reflects the presenter’s personal views and analysis as stated at the time of recording, and is intended as a basic introduction to inheritance tax. Rules, rates, and thresholds may change, including in the upcoming budget. This is not personalised tax or estate planning advice — speak to a qualified tax advisor about your specific circumstances.
