The standard Inheritance Tax threshold in the UK is £325,000. That is the nil-rate band, and it applies to each person’s estate. Above it, tax is normally charged at 40%. If you leave your home to your children or grandchildren, an extra £175,000 can apply, so the tax-free amount can reach £500,000 for one person and £1 million for a married couple or civil partners. GOV.UK sets out the £325,000 threshold and the 40% rate, and the rest of this guide shows how the pieces fit together, with worked numbers you can adapt to your own situation.
TL;DR
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The nil-rate band is £325,000 per person. Anything above it is normally taxed at 40%.
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The residence nil-rate band adds up to £175,000 when a main home passes to direct descendants, giving up to £500,000 each.
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Unused bands can pass to a surviving spouse or civil partner, so a couple can pass on up to £1 million tax-free.
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The home allowance shrinks once the estate is worth more than £2 million, and gifts made in the last seven years can count towards the estate.
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You can owe a report to HMRC even when no tax is due, so do not assume a small estate needs no paperwork.
The thresholds at a glance
“Threshold” sounds like one number. In practice it is a combination of allowances, and which ones apply depends on what you own and who inherits it.
| Allowance | Amount | What it covers |
|---|---|---|
| Nil-rate band (NRB) | £325,000 | Any estate, any beneficiaries |
| Residence nil-rate band (RNRB) | Up to £175,000 | A main home left to children, grandchildren or other direct descendants |
| Combined, one person | Up to £500,000 | NRB plus RNRB |
| Combined, couple | Up to £1 million | Both bands from both partners, if the first estate left them unused |
| Standard tax rate | 40% | The part of the estate above the available bands |
| Reduced rate | 36% | Where at least 10% of the net estate goes to charity |
The £325,000 band has been fixed since April 2009 and GOV.UK’s threshold table shows it holding until 5 April 2031. The government’s thresholds note covers the residence band, and it is worth checking there for the end date of its freeze, as that is the kind of detail that gets extended in Budgets.
Because the figures do not rise with prices or property values, more estates drift over the line each year. A home bought decades ago for a modest sum may now be worth several times that.
How the nil-rate band works
Inheritance Tax is a tax on the estate of someone who has died: the property, money and possessions they leave behind. The first £325,000 is taxed at 0%. Only the slice above it is taxed at 40%. You are never taxed on the whole estate just because it crosses the line.
There is normally no Inheritance Tax to pay if the estate is below the threshold, or if you leave everything to a spouse, civil partner, charity or community amateur sports club. GOV.UK lists these conditions on its Inheritance Tax overview.
Example: an estate over the line
Someone dies leaving £500,000 in total and nothing qualifies for the home allowance. The taxable amount is £500,000 minus £325,000, which is £175,000. At 40%, the bill is £70,000. This is the same sum GOV.UK uses to illustrate the calculation.
The residence nil-rate band
The residence nil-rate band is an extra allowance of up to £175,000. It applies when you leave a home you lived in to your children, grandchildren or other direct descendants. Step-children, adopted children and foster children count too.
Some points readers often miss:
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It only covers a property the person lived in at some point, not a buy-to-let.
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The band is capped at the value of the home (or the share of it) that passes to descendants. A £120,000 flat left to a child gives £120,000 of RNRB, not £175,000.
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Leaving the home to a niece, a friend or a sibling does not qualify.
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It is added to the nil-rate band. It does not replace it.
Example: a home left to children
An estate is worth £600,000, including a £300,000 home left to two children. The available bands are £325,000 plus £175,000, which is £500,000. The taxable amount is £100,000, and the tax is £40,000. Without the home allowance the taxable amount would have been £275,000, and the tax £110,000.
The £2 million taper
The home allowance is reduced for larger estates. It falls by £1 for every £2 the net estate is worth over £2 million.
For a single person with an estate of £2.2 million, the excess is £200,000, so the RNRB drops by £100,000 to £75,000. At £2.35 million, the single allowance of £175,000 is gone completely. Unused allowances inherited from a late partner extend how far the taper reaches, but the principle is the same. This is one of the main causes of unexpected bills for people who assumed the full £500,000 would always apply.
Couples and civil partners: up to £1 million
Gifts and legacies between spouses and civil partners are generally exempt. That means the first person to die often uses little or none of their own allowances. Whatever is unused can be claimed by the surviving partner’s estate.
GOV.UK explains that unused threshold can be transferred to a surviving partner, so a couple can pass on as much as £1 million between them, provided both the nil-rate band and the residence nil-rate band were unused at the first death and the home goes to descendants.
Example: a widow’s estate
Mr and Mrs Patel (an invented couple for illustration) own a £700,000 home and £250,000 in savings. Mr Patel dies first and leaves everything to his wife, using none of his allowances. When Mrs Patel dies, her estate is £950,000 and passes to their two children. Her estate can use her own £500,000 and his unused £500,000, a total of £1 million. The estate is below that, so there is no tax to pay.
If the first partner left part of the estate to someone else, only the unused percentage transfers. Keep records of the first death, because the executor of the second estate will need them to make the claim.
Gifts, the seven-year rule and things people forget
What you give away in life can still be counted. Executors often overlook lifetime gifts when they estimate an estate.
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Gifts above the £3,000 annual exemption made in the seven years before death can be brought back into the calculation. GOV.UK’s guidance on estimating an estate’s value covers gifts and what to include.
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A gift with reservation stays in the estate. If someone gave away their home but carried on living there rent-free, they still benefited from it, and its value remains part of the taxable estate.
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Life insurance that is not written in trust, jointly owned assets and money held abroad all need a place on the list.
If you want a sense of how a gift might be treated, speak to a regulated financial adviser or a solicitor before you act, not afterwards. The rules on exemptions and the order in which gifts use up the nil-rate band can be technical.
Pensions: a change coming in April 2027
For years, unused pension pots have mostly sat outside the estate. From 6 April 2027, most unused pension funds and death benefits will be counted in the estate for Inheritance Tax. Death in service benefits paid from a registered scheme are excluded, and the existing spouse and civil partner exemptions still apply.
If you have a sizeable pension and a home, your estate could look quite different under the new rules. The people who will report and pay any tax on those funds are the personal representatives, so it helps if your executors can see all your pensions in one place. A financial adviser can model the effect on your own plan.
Reducing the rate: the charity rule
If you leave at least 10% of the net value of your estate to a qualifying charity, the rate on the rest of the taxable estate falls from 40% to 36%. The charity share itself is exempt. The rule is described on GOV.UK.
For some estates, the combined effect means the beneficiaries receive roughly the same amount even though a slice goes to charity. It does need to be written into the will correctly, and the 10% is calculated on a specific measure of the estate, so it is worth checking the wording with a solicitor if your estate is close to the margin.
Do you need to report an estate below the threshold?
Possibly. Many people think reporting is only required above the threshold, but an executor may still need to tell HMRC the value of the estate in some circumstances, for example when claiming a transferred allowance from a late spouse. Check the GOV.UK page on Inheritance Tax to see whether your situation needs a report or form.
Getting this right depends on an accurate estimate of the estate’s value, which means having a full list of assets and debts to hand.
How to estimate your own Inheritance Tax
A rough estimate takes about half an hour if you have your information close by.
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List what you own. Property, bank and savings accounts, investments, pensions, life insurance, business interests, vehicles, valuables and digital assets.
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List what you owe. Mortgages, loans, credit cards and funeral costs reduce the estate.
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Add gifts from the last seven years that were above the £3,000 annual exemption.
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Subtract any exempt amounts, such as anything going to a spouse, civil partner or charity.
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Apply your allowances. Start with £325,000, add up to £175,000 if the home goes to descendants, and add any unused bands from a late partner.
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Work out the tax. Take the amount above your total allowance and multiply by 40% (or 36% if the charity rule applies).
Treat the result as a guide, not a final figure. Calculators from financial firms usually say that they leave out reliefs, exemptions and recent gifts, so they can understate or overstate the true result. Property values change too, so it is worth repeating the exercise every year or after a major event such as a house move.
Our view: the threshold is the easy part
At WillFull, we find that the numbers themselves are rarely what trips people up. The nil-rate band is simple to look up. The hard part is knowing what is in the estate at all.
Families often discover assets late: an old pension, a small business holding, a share account, a savings book in a drawer. Each one pushes the real figure upwards, and a forgotten asset can mean money that is never claimed. That is why we built the platform around keeping a live record rather than a one-off calculation.
We would suggest three habits:
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Write the will first. The structure of a will decides who gets the home, whether a charity gift is included and how a spouse’s bands are used.
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Keep the asset list current. An estimate from three years ago is not an estimate of today’s estate.
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Tell your executors where to look. Hunting through paperwork is stressful and slow at a difficult time.
We are not a tax adviser, and we do not claim that any tool replaces advice for a complex estate. For trusts, business interests, significant gifts or estates near the £2 million taper, we recommend talking to a regulated professional.
— the WillFull team
Putting it into practice with WillFull
You can write a legally valid will with WillFull through plain-English guided questions, free of charge. If you want to keep your assets, property, pensions, accounts, insurance, business interests and logins in one place, with a live Inheritance Tax estimate, the Will + Connected estate plan is £9.99 per month after a 30-day free trial. Property and company details can be looked up automatically from HM Land Registry and Companies House, which saves typing and reduces mistakes.
If you are an executor and the person did not have an active plan, executors can get access to the estate details for a one-off fee of £200. If your estate is complex, you can also find a financial adviser or solicitor to work with on your plan.
Common questions
How much can I inherit without paying tax in the UK?
Beneficiaries do not pay Inheritance Tax themselves in the usual case. It is paid out of the estate by the executors before assets are shared out. The estate can pass on £325,000 tax-free, or more if the home allowance and a late partner’s unused bands apply. Anything you receive from an estate that is under the threshold, or left by a spouse, comes to you without a tax charge from the estate.
Can I give my daughter £20,000?
Yes, you can give it, but how it is treated depends on your other gifts. Each year you can give away £3,000 without it counting towards your estate. A gift above that is generally brought back into the estate calculation if you die within seven years. If you want to make larger gifts, a solicitor or financial adviser can explain which exemptions might apply.
Is the Inheritance Tax threshold going up?
The nil-rate band is shown on GOV.UK as £325,000 until 5 April 2031. Because it is frozen, the real value falls as prices and property values increase. Rules can change in a Budget, so check GOV.UK before you rely on any figure.
How can I reduce a 40% Inheritance Tax bill?
Leaving at least 10% of your net estate to charity reduces the rate on the rest to 36%. Making use of the annual gift exemption and using your home allowance correctly also help. For anything more involved, such as trusts or business assets, speak to a regulated adviser, because mistakes can be costly to fix.