What Is the Inheritance Tax Threshold?

The nil rate band is the basic amount every individual can leave, whether under a will or under intestacy, without inheritance tax being charged. It currently stands at £325,000 and has been frozen at that level for a number of years, meaning that as asset values, particularly property prices, have risen, more estates have been drawn into paying some inheritance tax over time.

Anything left above the nil rate band, after exemptions and reliefs are applied, is generally taxed at 40%. Because the nil rate band applies per person, a married couple can, between them, potentially shelter more than double this figure once transferability is taken into account.

When someone dies and does not use all of their nil rate band, commonly because they left everything or most of their estate to a surviving spouse or civil partner under the exempt spouse rule, the unused percentage can usually be transferred to the survivor's estate. This means it can effectively increase the survivor's own nil rate band when they later die.

This transfer is not automatic; it must be claimed by the executors when the second death occurs, using the appropriate forms, and it depends on the percentage of the nil rate band that was unused on the first death rather than a fixed amount. Executors need to gather evidence about the first death to support this claim, which is one reason record-keeping matters even many years later.

In addition to the standard nil rate band, there is a residence nil rate band, currently up to £175,000, which applies when a home the deceased lived in is left to children, grandchildren or other direct descendants. Combined with the standard nil rate band, and where both can be transferred between spouses, this allowance means a married couple's combined estate may be able to pass on a substantial amount before any inheritance tax is due, subject to the rules being met.

The residence nil rate band is more restrictive than the standard nil rate band. It only applies to a home that was lived in by the deceased at some point, only benefits gifts to direct descendants rather than, for example, nieces, nephews or friends, and it tapers away for estates above a certain value, reducing by £1 for every £2 the estate exceeds that threshold. Very large estates may lose the residence nil rate band altogether.

To get a rough sense of whether an estate might face inheritance tax, executors or individuals doing their own planning typically add up the value of the estate, then compare it against the available nil rate band and residence nil rate band, including any amounts transferable from a late spouse or civil partner. If the total value is below the combined thresholds, no tax is likely to be due; if it is above, tax may apply to the excess at 40%, subject to any further exemptions or reliefs.

This is only a starting point. Business and agricultural property relief, gifts made during lifetime, and trust arrangements can all affect the final calculation, and thresholds themselves are reviewed and can change, so it is important to check the current figures on GOV.UK or speak to an adviser rather than relying on out-of-date numbers.

Whatever your estate's likely tax position, a will that clearly states who inherits your home and other assets makes it far easier for your executors to work out which allowances apply and to make any necessary claims after your death. My Posh Will is an online guided will service for England and Wales that helps you record these wishes clearly, with a single will costing £69 and mirror wills costing £89, both one-off payments with lifetime access.

If your estate is close to or above the combined thresholds, or includes property, business assets or is otherwise more complex, use our suitability check to see whether you should speak to a solicitor or tax adviser before finalising your plans.