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Inheritance Tax
Inheritance Tax, in the figures HMRC publishes
The two thresholds, what the rate is actually charged on, and the conditions attached to each one. From HMRC's own table, with the date it was read.
- The thresholds
- What is actually taxed
- Married, and not married
- The reduced rate
- The estates that lose the extra threshold
- Giving things away
The thresholds
Most estates pay no Inheritance Tax at all. The first threshold is £325,000. There is a second one worth up to £175,000 on top of it, and it applies only to a home left to children or grandchildren.
The nil rate band
£325,000, the threshold below which there is normally no Inheritance TaxThree hundred and twenty five thousand pounds. The threshold has not moved since April 2009 and HMRC's own table now runs it to April 2031, so by the time it changes it will have stood still for twenty two years. Everything above it is normally taxed. Everything below it normally is not.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
That figure has run from 6 April 2009 to 5 April 2031 without moving. House prices did not stand still over that period, which is the whole of why more estates are inside the tax than used to be. Nothing was announced to do it.
The residence nil rate band, on top
£175,000 more, if you leave your home to your children or grandchildrenThere is a second threshold on top, worth up to £175,000, and it only applies if you own a home and leave it to your children, stepchildren, adopted or foster children or grandchildren. Leave it to a sibling, a niece or a friend and it does not apply at all.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
The two together
£500,000 in total, where a home passes to children or grandchildrenHalf a million, for a homeowner leaving the home to their own children or grandchildren, on an estate under two million. Every one of those conditions is doing work, and a couple who each qualify can end up with twice this between them.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
Every condition in that sentence is doing work. £500,000 is not a general allowance. It is what a homeowner leaving their own home to their own children or grandchildren can reach, on an estate under the taper line. Leave the house to a sibling, a niece or a friend and the second threshold does not apply at all.
What is actually taxed, which is not the estate
The standard rate
40% on the part of the estate above the thresholdForty per cent, and only on the slice above the threshold. An estate of £500,000 with a £325,000 threshold is not a £200,000 tax bill. It is 40% of £175,000. Anybody who tells you the whole estate is taxed is either guessing or selling you something.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
40% is charged on the slice above the threshold and not on the whole estate. That is the single most useful sentence on this page, because the arithmetic people do in their heads is nearly always the other one, and it produces a number several times too big. An estate a little over the threshold owes tax on the little, not on the over.
Married and civil partnered, and not
Anything unused passes to the survivor
Anything you do not use passes to your husband, wife or civil partnerMarried couples and civil partners do not lose the unused part of a threshold. It passes to the survivor. Unmarried couples, however long together, do not get this, and that is the single most expensive thing most people do not know about Inheritance Tax.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
A couple who were never married do not get this, however long they were together and whatever they owned between them. It is not a loophole anybody has to be clever about and it is not something a will can fix on its own. It is simply the rule, and it is the single most expensive thing about this tax that people do not know.
The reduced rate
The rate drops if enough goes to charity
36% instead of 40%, if you leave at least 10% of the net estate to charityLeave a tenth of the net estate to charity and the rate on what is taxed drops from 40% to 36%. It is not a trick and it is not free money: a charity is genuinely getting the tenth. It does mean the charity costs the family less than the headline suggests.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
How much has to go
10% or more of the net value of the estateTen per cent of the net estate, which is the estate after debts, not before them.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
Net means after debts, not before them. This is real and it is in the legislation, and it is also not free money: a charity genuinely receives the tenth. What it does mean is that the charity costs the rest of the family a good deal less than the headline figure suggests, which is worth knowing before anybody decides it is unaffordable.
The estates that lose the extra threshold
Where the taper starts
£2 million, above which the extra threshold starts to disappearAbove two million the extra home threshold starts to vanish, and the two million is measured before reliefs and before anything passing to a spouse. An estate with no tax to pay can still be over the line.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
How fast it goes
£1 of the extra threshold lost for every £2 the estate is over £2 millionA pound of the extra threshold for every two pounds the estate is over two million. It is a slope, not a cliff, and it runs out well before most people expect.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
The two million is measured before reliefs and before anything passing to a husband, wife or civil partner, so an estate with no tax to pay at the end of it can still be over that line for this purpose. It is a slope rather than a cliff, and it runs out well before most people expect it to.
Giving things away while you are alive
The seven year rule
7 years between the gift and the deathGive something away and live seven more years and it is normally out of the estate. Die inside seven years and it may be pulled back in. The house you signed over to the children is the case that catches families, especially if you carried on living in it.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
The house you gave away and stayed in
A home you give away but carry on living in is still counted as yoursSigning the house over to the children and staying in it does not take it out of the estate. It is a gift with reservation, and the seven year rule does not rescue it. Pay a market rent or move out, or accept that it is still counted.
Applies in: United Kingdom.
Source: HMRC, read 24 September 2026.
The second one is the case that catches families, and it catches them years later when nothing can be done about it. Signing the house over to the children and carrying on living in it is not a gift for this purpose, and the seven year rule does not rescue it. This is the point on this page where a real adviser earns their fee, because the answer depends entirely on the particular house and the particular family, and we do not know yours.
Where this sits in what an estate costs
Inheritance Tax is the figure everybody writes about and the one that applies to the fewest estates. The bills nearly every family does meet are the ones on the rest of this site: what a will costs to write, what the court charges for probate, and what a firm charges to wind the estate up.
Questions people ask
How much can you inherit without paying Inheritance Tax?
Three hundred and twenty five thousand pounds is the main threshold, and there is a further threshold worth up to one hundred and seventy five thousand where a home passes to children, stepchildren, adopted or foster children or grandchildren. A homeowner leaving their home that way can reach half a million, and a married couple can have twice that between them.
Is the whole estate taxed at 40%?
No, and this is where most of the fear about this tax comes from. The rate applies only to the part of the estate above the threshold. An estate of five hundred thousand pounds against a three hundred and twenty five thousand pound threshold is taxed on the difference between the two, not on the whole of it.
Do unmarried couples get the same thresholds?
Each person has their own threshold, but the unused part of it can only pass to a husband, wife or civil partner. An unmarried couple cannot transfer it between them however long they have been together, and that is the most expensive thing about this tax that people do not know about.
Does giving money away avoid Inheritance Tax?
Sometimes, and it depends on how long you live afterwards. A gift is normally out of the estate if you live seven more years, and may be pulled back in if you do not. A house you give away and carry on living in is treated as still yours whatever the seven years say, which is the case that catches families most often.