The thresholds — £325,000, £500,000, £1 million
Inheritance Tax is only charged on the value of an estate above a tax-free threshold. There are two allowances that build it up:
| Allowance | Amount | When it applies |
|---|
| Nil-rate band | £325,000 | Everyone — on any assets |
| Residence nil-rate band | up to £175,000 | When you leave your home to children or grandchildren |
| Both together | up to £500,000 | One person leaving a home to direct descendants |
| A married couple / civil partners | up to £1 million | Unused allowances pass to the survivor |
Tax is then charged at 40% on the value above your threshold — not on the whole estate. For example, an estate of £400,000 with a £325,000 nil-rate band pays 40% on the £75,000 over the threshold, which is £30,000. Both thresholds are frozen until 2030, which means more estates will gradually be pulled in as house prices rise.
The reassuring bit
Only a small minority of estates pay Inheritance Tax at all. With the nil-rate band, the home allowance and the transfer between spouses, a married couple leaving their home to their children can pass on up to £1 million before any tax is due.
What’s always free — spouses and charity
Some things are completely exempt, no matter the amount:
- Anything left to a husband, wife or civil partner is free of Inheritance Tax — and their unused allowances pass to you (this is what creates the £1 million couple’s figure).
- Anything left to a registered charity is exempt. And if you leave 10% or more of your net estate to charity, the 40% rate on the rest drops to 36%.
- Gifts to UK political parties and some national institutions.
Unmarried partners get no spouse exemption
The spouse exemption only applies to married couples and civil partners. If you live with a partner but are not married, anything you leave them is
not automatically exempt, and their estate can’t inherit your unused allowances. If this is you, it is well worth getting advice and a proper
will.
The 7-year rule — giving money away
You can reduce a future Inheritance Tax bill by giving money away while you’re alive — but timing matters. Most gifts are completely free of Inheritance Tax if you live for 7 years after making them. If you die within 7 years, the gift may count towards your estate, but taper relief reduces the tax the longer ago it was:
| Years between gift and death | Tax on the gift |
|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | 0% — completely free |
On top of the 7-year rule, several gifts are free straight away, every year:
- £3,000 a year total (your “annual exemption”) — and you can carry forward one unused year.
- Small gifts of £250 to as many different people as you like.
- Wedding gifts — up to £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
- Regular gifts out of surplus income — if they come from income (not savings) and don’t affect your standard of living.
Who pays it — and when
The people inheriting usually don’t pay the tax themselves — the executor or administrator pays it out of the estate as part of dealing with probate. Key points:
- It’s normally due by the end of the sixth month after the person died, and often must be paid before probate is granted.
- Tax on a property and some other assets can be spread over up to 10 yearly instalments.
- Even when no tax is due, the estate usually still has to report values to HMRC as part of getting probate — see our probate guide.
A change is coming — pensions from April 2027
The government has announced that from 6 April 2027, most unused pension funds and pension death benefits will count as part of the estate for Inheritance Tax. If you’re planning around a pension, get up-to-date advice, as the detailed rules are still being finalised.
Do this now
Roughly value the estate — property, savings, investments and possessions, minus debts. Compare it to the thresholds: £325,000 each, up to £500,000 leaving a home to children, up to £1 million for a couple.
Well under the threshold? There is usually nothing to do but make sure there’s a valid will. Close to or over it? Use the free, government-backed MoneyHelper service and consider a qualified solicitor or accountant for estate planning — the savings can be large.
Not financial or legal advice
SortedUK is not a regulated financial adviser, solicitor or tax adviser. This is general information about how Inheritance Tax works. The rules on reliefs, trusts and business or agricultural property are detailed and changing — always confirm your own position on GOV.UK or with a qualified professional before acting.