£325,000
Nil rate band
The basic threshold below which no IHT is charged. Frozen at this level since 2009. Verify the current figure at GOV.UK — it is subject to change.
£175,000
Residence nil rate band
An additional allowance when the main home is left to direct descendants. Combined with the nil rate band, this gives couples an effective threshold of up to £1 million. Verify at GOV.UK.
40%
IHT rate above threshold
The standard rate charged on the value of the estate above the threshold. A reduced rate of 36% applies if 10% or more of the estate is left to charity — verify at GOV.UK.
The nil rate band has been frozen since 2009 — and that matters more than it sounds
The nil rate band has not moved from £325,000 since 2009. House prices and savings have grown significantly over that period. An estate that would comfortably have sat below the threshold a decade ago may now be approaching or over it, particularly if the main asset is a property in London or the South East. If you have property and savings and have not checked your position recently, it is worth doing. You do not need a complicated estate to be in IHT territory.
How IHT is calculated
IHT is charged at 40% on the value of the estate above the nil rate band threshold. But there are two thresholds to understand.
The nil rate band (NRB) is the basic threshold that applies to everyone. The residence nil rate band (RNRB) is an additional allowance that applies when you leave your main home to your direct descendants — children, grandchildren, or step-children. Together, they can significantly reduce or eliminate an IHT liability.
Worked example (indicative only — verify thresholds at GOV.UK): Suppose an estate is worth £600,000. After applying the nil rate band and the residence nil rate band, the taxable portion might be substantially reduced. The IHT due is 40% of whatever remains above the combined threshold. Your solicitor or a tax adviser can work through the exact figures for your situation.
What counts as the estate: property, savings, investments, vehicles, personal possessions, and life insurance policies not written in trust. Gifts made in the last seven years may also be included, depending on when they were made.
Use the HMRC IHT calculator for your specific situation, or speak to an estate planning solicitor or independent financial adviser.
The spousal exemption
Assets passed to a spouse or civil partner on death are entirely exempt from IHT, regardless of the value. There is no limit on this exemption.
There is a further benefit that couples often do not know about. When one spouse dies, any unused portion of their nil rate band and residence nil rate band transfers to the surviving spouse. This means a surviving spouse can potentially apply double the individual threshold when they die — an effective threshold significantly higher than for a single person. This rule applies regardless of whether the spouses were married at the time the first spouse died. Verify the current transferred nil rate band rules at GOV.UK spousal exemption.
Transferring a nil rate band between spouses can double the effective threshold
When the first spouse dies and leaves everything to the surviving spouse, the first spouse's nil rate band is often entirely unused. That unused percentage transfers to the surviving spouse's estate when they die. A surviving spouse can therefore benefit from up to double the standard nil rate band — plus two residence nil rate bands if the main home is left to direct descendants. For couples with property and savings, this is the most valuable IHT planning rule available — and it requires no active steps other than making a valid will. Verify the current transferred nil rate band position at GOV.UK.
Gifts and the seven-year rule
Gifts made more than seven years before death are completely outside the estate for IHT purposes. Gifts made in the final seven years are called potentially exempt transfers (PETs) and may be included in the estate calculation when the donor dies.
If the donor survives at least three years after making a gift, taper relief reduces the IHT charge on that gift on a sliding scale. The longer the donor survives after making the gift, the lower the effective IHT rate. Verify the current taper relief rates at GOV.UK IHT gifts.
Exempt gifts — amounts you can give away each year without them being potentially exempt transfers — include:
- An annual gift allowance of £3,000 (verify current allowance at GOV.UK)
- Small gifts of up to £250 to any number of people (verify at GOV.UK)
- Wedding or civil partnership gifts within specific amounts per relationship type (verify tiered amounts at GOV.UK)
- Regular gifts made from surplus income, provided they do not reduce your standard of living
Giving money away to reduce IHT only works if the donor survives seven years
A gift made within seven years of death re-enters the estate and may attract IHT. This is not a risk-free strategy. Anyone considering significant gifting as part of IHT planning should take proper advice, keep clear records of when and to whom gifts were made, and understand that the seven-year clock starts from the date of the gift, not the date of any planning conversation. If the donor's health is uncertain, this is particularly important.
When you must file an IHT return even with no tax to pay
Many families are surprised to discover they need to file an IHT return with HMRC even when no tax is owed. This happens when the estate's value exceeds certain thresholds, even if the combination of allowances means the tax due is zero.
The requirement to file depends on the value of the estate and whether any assets were held in trust or significant gifts were made. Verify the current filing thresholds at GOV.UK IHT returns. The paperwork obligation catches families off guard, particularly when they are also managing the probate process under time pressure.
Who pays IHT and when
IHT is paid by the estate, not by the beneficiaries. The executor is responsible for calculating and paying it. The key pressure point: IHT must be paid before probate is granted, which means the executor needs to find the money before they can access and distribute the estate's assets.
Where the estate's main asset is a property, this can create a cash flow problem. Banks will sometimes release funds from the deceased's accounts directly to pay IHT before probate, without waiting for the grant. HMRC also offers a payment by instalments arrangement for certain assets, including land and property. Verify the current instalment options at GOV.UK.
IHT planning is worth doing before you need it
Trusts, life insurance written in trust, pension nominations, and business relief all interact with IHT in ways that are not always obvious. For anyone whose estate is approaching or above the combined threshold, a conversation with an estate planning solicitor or IFA is worthwhile. Parce explains the concepts — for specific planning, take professional advice. A will writing guide is coming to Parce — it covers the basics of why wills matter and what happens without one.
We'll explain any inheritance tax rule changes in plain English — sign up for Parce UK updates.
Common questions about inheritance tax
Do most people pay inheritance tax?▾
No. Only a small minority of deaths result in an IHT charge — typically less than 5% of UK deaths in any year. Most estates are below the combined thresholds, or benefit from the spousal exemption. That said, the number has been rising as house prices increase and the nil rate band remains frozen. Verify the current IHT statistics at GOV.UK or the ONS.
What is the inheritance tax threshold?▾
The basic nil rate band is £325,000 (verify at GOV.UK). The residence nil rate band adds up to £175,000 if the main home is left to direct descendants (verify at GOV.UK). For couples, both sets of allowances can be combined, giving a potential combined threshold of up to £1 million. All these figures are subject to change — check GOV.UK for the current position.
Does my spouse pay inheritance tax when I die?▾
No. Assets passed to a spouse or civil partner on death are entirely exempt from IHT. There is no limit on this exemption. Any unused nil rate band and residence nil rate band from the first spouse's estate also transfers to the surviving spouse, potentially doubling the effective threshold when the surviving spouse dies.
How does the residence nil rate band work?▾
The residence nil rate band (RNRB) is an additional allowance that applies when you leave your main home to your direct descendants — children, grandchildren, or step-children. It adds to the basic nil rate band and reduces the taxable value of the estate. There is a taper that reduces the RNRB for estates above a higher value threshold. Verify the current RNRB figure and taper threshold at GOV.UK.
What is the seven-year rule for gifts?▾
Gifts made more than seven years before death are outside the estate for IHT purposes. Gifts made within seven years may be subject to IHT if the donor dies. Taper relief reduces the IHT charge on gifts made between three and seven years before death. Keep records of any significant gifts — dates and amounts — so the executor can account for them accurately.
Does inheritance tax apply to pensions?▾
Most pensions are not included in the estate for IHT purposes, because they are held in trust outside the estate. This makes pension nominations important — who you nominate as beneficiary for your pension is a separate decision from your will. However, the rules around pensions and IHT are changing — check the latest GOV.UK guidance before making decisions based on assumed pension IHT treatment.
Who is responsible for paying inheritance tax?▾
The executor of the estate is responsible. IHT must be paid before probate is granted — which means the executor needs to find the cash before they can distribute the estate. Where the estate's main asset is property, this can require banks to release funds in advance of probate, or HMRC's instalment arrangement for property-based assets.
Can I reduce my inheritance tax bill?▾
There are legitimate ways to reduce IHT: making gifts more than seven years before death, leaving money to charity, using trusts, writing life insurance in trust, and making pension nominations correctly. For anyone with an estate that may be affected, an estate planning solicitor or IFA can provide personalised advice. What Parce can do is explain the concepts — for planning specific to your situation, take professional advice.