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Property hub / Inheritance tax

What inheritance tax could your property estate pay?

Inheritance tax on an estate with a home and rental property, using both tax-free bands, a spouse's unused bands and gifts in the last seven years.

Checked against legislation and HMRC guidance2026/27, bands frozen to 5 April 2031Updated 3 October 2026

What the estate owns

Above the £3,000 yearly exemption.

How it is worked out

    Inheritance tax and property

    Inheritance tax is charged at 40% on an estate above the tax-free bands. Everyone has a £325,000 nil rate band, plus up to £175,000 more when a home passes to direct descendants. Unused bands pass to a surviving spouse or civil partner, so a couple can leave up to £1 million tax-free. Both bands are frozen until 5 April 2031.1

    Estates over £2 million

    The residence nil rate band is reduced by £1 for every £2 the estate is worth over £2 million.2

    Rental property and Business Property Relief

    Business Property Relief is not available for a business that consists wholly or mainly of making or holding investments, which includes letting property. This applies whether you hold the properties personally or through a company.3

    Gifts

    A gift to a person is a potentially exempt transfer: no inheritance tax if you live seven years. If you die within seven years it uses up the nil rate band first, and tax on the gift itself is reduced by taper relief after three years.4

    Pensions from April 2027

    Unused pension funds and death benefits will count towards the estate for deaths on or after 6 April 2027.5

    Common questions

    Does a buy-to-let portfolio get inheritance tax relief?

    Usually not. Letting is treated as holding investments, so Business Property Relief does not normally apply, even for a large portfolio run through a company.

    Does UK property owned by a non-resident pay inheritance tax?

    Yes. UK property is within the UK inheritance tax net wherever the owner lives, including UK homes held through overseas companies.

    Sources (5)
    1. Inheritance Tax Act 1984, Sch 1 and ss 8A, 8D and 8L; Finance Act 2021, s 86 as amended by Finance Act 2026, s 72.
    2. IHTA 1984, s 8D(5).
    3. IHTA 1984, s 105(3).
    4. IHTA 1984, ss 3A and 7(4).
    5. FA 2026, ss 66 to 71.
    Hold, sell or giftIncluding the CGT on a gift.Personal or companyBefore you buy the next one.

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