Inheritance tax on what you leave your children in the UK is no longer just a rich person’s problem. The nil rate band has stayed at £325,000 since 2009, and it will stay there until April 2031. Meanwhile, house prices keep climbing, so more families get pulled into the tax every year.
The good news is that you can do a lot about it. Here is the full picture, including the changes already in place and the big one coming in 2027.
Inheritance Tax Thresholds for Children in the UK Right Now
The standard nil rate band is £325,000. Anything above it is usually taxed at 40%.
On top of that, the residence nil rate band adds up to £175,000 when you leave your main home to direct descendants. That takes the potential tax free amount to £500,000 per person. Direct descendants include children, stepchildren, adopted children and grandchildren.
Married Couples and Civil Partners
Married couples and civil partners can pass unused allowances to each other. As a result, a couple can potentially leave up to £1 million tax free when they use both nil rate bands and both residence nil rate bands. Executors claim the unused allowance on the second death.
Unmarried Couples
If you are not married or in a civil partnership, none of this transfers. For unmarried couples with children, that is a strong reason to either marry or plan your estate carefully.
How Many UK Families Pay Inheritance Tax on What Children Inherit?
More than you might think. The UK collected about £8.25 billion in inheritance tax in the 2024 to 2025 tax year, and forecasts suggest it could pass £9 billion by 2026 to 2027.
In other words, frozen thresholds are quietly widening the tax without anyone voting for a higher rate.
The Seven Year Rule: Your Best Tool for Inheritance Tax and Children in the UK
One of the best ways to cut the tax your children face is to give money away while you are alive. Gifts you make more than seven years before you die fall completely outside your estate.
For gifts within seven years, taper relief can reduce the tax as you get closer to the seven year mark. You can read the full GOV.UK rules on gifts.
Annual Gift Allowances
You do not need to wait seven years to give tax free. Every person can give away £3,000 each tax year with no inheritance tax at all. If you did not use last year’s allowance, you can carry it forward and give £6,000 in one year.
In addition, small gifts of up to £250 per person per year are exempt, and so are wedding gifts up to certain limits.
Gifts From Surplus Income
There is also a very useful exemption for surplus income. If you have regular income you do not need for everyday living, you can give it away free of inheritance tax with no upper limit.
However, the gifts must form a regular pattern and must not reduce your standard of living. So keep good records.
What Changed From April 2026?
Two big changes took effect on 6 April 2026.
Business and Agricultural Property Relief
First, the government overhauled Business Property Relief and Agricultural Property Relief. Now, the first £2.5 million of combined business and farm property gets 100% relief. Above that, qualifying property gets 50% relief, which means an effective tax rate of 20% on the excess.
For family businesses and farms, that is a major change to how much you can pass on tax free.
AIM Shares
Second, the government cut the relief on AIM shares. Before, qualifying AIM shares held for two years could pass on completely free of inheritance tax. From April 2026, the relief fell to 50%, so the strategy is far less attractive than it was.
The Big One in 2027: Inheritance Tax on Pensions Left to Children in the UK
This change will catch the most people out. Arguably, it also matters most for inheritance tax planning for children in the UK right now.
From 6 April 2027, most unused pension funds and pension death benefits will count as part of your estate for inheritance tax. Today, pension pots sit outside your estate.
Because of that, many retirees leave their pensions untouched and spend their ISAs and other savings first. From 2027, that strategy loses much of its appeal.
The Double Tax Risk
If you die after age 75, your beneficiaries also pay income tax at their own rate on money they draw from your pension. In the worst cases, the combined tax on inherited pension wealth could reach around 64% to 67%.
The government estimates that around 10,500 more estates a year will pay inheritance tax because of this change. So if you have a large pension and planned to pass it to your children, review your plans with a qualified financial adviser before April 2027.
One practical step: consider naming your spouse as the main beneficiary of your pension. Assets passing between spouses stay exempt from inheritance tax, even under the new rules.
Other Ways to Cut Inheritance Tax for Your Children in the UK
Write a Will
Most UK adults still do not have a will. If you die without a will, the intestacy rules decide who gets what, and they may not match your wishes.
In addition, a will lets you make full use of the residence nil rate band by leaving your home directly to your children or grandchildren.
Consider a Trust
A trust can help you pass assets to children while keeping some control over when they get them. However, trust rules are complex, so get specialist advice first.
Leave 10% to Charity
If you leave at least 10% of the taxable part of your estate to charity, the rate on the rest drops from 40% to 36%. For larger estates, the saving can even exceed the gift itself.
Review Your Pension Nominations
Finally, with the 2027 changes coming, check who you have nominated for your pension. Make sure it fits your wider estate plan.
Inheritance Tax and Children in the UK: Don’t Leave It Too Late
Inheritance tax on money you leave your children in the UK affects far more families in 2026. Frozen thresholds, rising house prices and the 2027 pension changes mean the net widens every year.
Fortunately, the tools are all there: lifetime gifts, annual exemptions, pension nominations, a proper will and, where it fits, a trust. None of this needs complex schemes. It just needs you to start while there is still time.
Content on IceburgWealth.com is for general information only and is not financial advice. I am not a regulated financial adviser, and tax rules and figures can change. Always do your own research and consider speaking to a qualified adviser before making any financial decision.
This article is part of our UK Tax Guide, where you will find every related article in one place.