Breakdown
How it works
Everyone has a £325,000 nil-rate band (NRB). If a home passes to children or grandchildren, up to a further £175,000 residence nil-rate band (RNRB) applies, tapered away by £1 for every £2 the estate exceeds £2 million. Unused bands from a late spouse transfer, so a couple can shelter up to £1 million. The excess is taxed at 40%, or 36% if 10%+ of the net estate goes to charity. Gifts in the 7 years before death are added back (with taper relief on gifts over the NRB after 3 years).
Formula
Worked example
Home £450,000 + other £300,000 − debts £50,000 = £700,000. NRB £325,000 + RNRB £175,000 = £500,000. IHT = £200,000 × 40% = £80,000. With a full transferred allowance from a late spouse: £0.
Frequently asked questions
How much can I leave tax-free?
£325,000, or £500,000 if your home goes to direct descendants; double for a surviving spouse who inherited the full unused allowance — up to £1 million.
Is inheritance to my spouse taxed?
No — transfers to a UK-domiciled spouse or civil partner are exempt, and their unused allowances pass to the survivor.
How do gifts work?
£3,000 a year is exempt (plus last year's unused). Larger gifts are potentially exempt transfers: tax-free if you survive 7 years, with taper relief after 3 years on the part above the NRB. Regular gifts from surplus income are exempt immediately.
Does IHT apply to expats?
From April 2025 liability depends on long-term residence: 10 of the last 20 tax years in the UK keeps you in scope for worldwide assets for up to 10 years after leaving. UK property is always in scope.
What changes for pensions in 2027?
From 6 April 2027 unused defined-contribution pension pots are included in the estate for IHT, removing the main planning route of leaving pensions untouched.