If you’re expecting to inherit money or property, you’re probably wondering how much you can receive before inheritance tax (IHT) kicks in. IHT only applies when an estate goes over certain tax‑free limits, and those limits depend on who you are and what’s being passed on.
Your Basic Tax‑Free Allowance
Everyone gets a £325,000 nil rate band for the 2025/26 tax year. If the estate you’re inheriting from is worth less than that, you won’t pay any inheritance tax. Anything above £325,000 might be taxed, which is why knowing the available allowances can make a big difference.
You May Be Able to Inherit More Tax‑Free
If you’re inheriting a main home and you’re a direct descendant—like a child, stepchild, or grandchild—you could also benefit from the residence nil rate band, worth up to £175,000.
Put the two allowances together and you could inherit up to £500,000 tax‑free from one person.
And if you’re dealing with the estate of a married couple or civil partners, things get even better. Any unused allowance from the first partner can usually be transferred to the second, meaning a couple can potentially pass on up to £1 million tax‑free.
What Actually Counts Toward the Threshold?
It’s not just cash. The estate value includes:
- Property
- Savings
- Investments
- Personal items like jewellery or cars
- Some business assets
Before the estate is valued, debts—like mortgages or loans—are normally taken off.
How Much Tax Could You Pay?
The standard IHT rate is:
- 40% on anything above the tax‑free allowance
- 36% if at least 10% of the estate goes to charity
So, if an estate is worth £600,000 and the allowance is £325,000, tax may be due on the remaining £275,000. At 40%, that’s £110,000.
When Allowances Start to Shrink
The residence nil rate band doesn’t apply in full to very large estates. Once an estate goes over £2 million, the allowance starts to taper. By £2.35 million, it may disappear altogether.
Do Gifts Make a Difference?
They can. Gifts can reduce the taxable value of an estate, but timing matters:
- Gifts made more than seven years before death are usually exempt
- There’s a £3,000 annual gift allowance
- You can receive small gifts of up to £250 per person
- Gifts made within seven years may still count toward the estate
Why More People Are Being Caught by IHT
Property prices and asset values have risen, but the main IHT thresholds haven’t. That means more estates now fall into taxable territory, making it more important than ever to understand how the rules affect you.
Do you need advice?
You may do, especially if you’ve made a calculation and found out that your estate is liable. A financial adviser will first work out whether or not you have an inheritance tax liability. Thankfully, there are strategies available for reducing the financial burden of inheritance tax. Some of these strategies involve simple planning. Others may involve more complex strategies, like trust planning or investing in instruments that are inheritance tax exempt. Planning early is crucial. Doing nothing can end up being expensive. And it’s almost always too late to do any planning once the bill arrives. If you’d like help deciding what’s appropriate for your circumstances, it may be worth speaking to a regulated financial adviser who can help you weigh these factors in a structured and impartial way.
Related reading:
https://www.sterlingandlaw.com/who-pays-inheritance-tax-when-does-it-have-to-be-paid/