Inheritance Tax is 40% above your tax-free threshold, but two allowances, a £2 million taper and a spouse's unused bands decide where that threshold sits. A couple leaving a home to their children can pass on £1 million tax-free. Work out yours.
Everyone has a nil-rate band of £325,000. Leave your home to your children or grandchildren and you add a residence nil-rate band of up to £175,000, so a single person's threshold can reach £500,000. Anything above the threshold is taxed at 40% (or 36% if at least 10% of the net estate goes to charity). Everything left to a spouse, civil partner or charity is exempt.
Two rules catch people out. First, on the second death of a couple, the survivor inherits the first partner's unused bands, so a couple can pass on up to £1 million with a home going to descendants. Second, the residence band tapers away by £1 for every £2 the estate is worth over £2 million, so larger estates quietly lose it. The £325,000 band itself does not taper.
Sources: gov.uk Inheritance Tax and the residence nil-rate band guidance (2026/27, bands frozen to April 2030). Assumes the transferred bands are 100% unused and the home is worth at least the residence allowance.
Illustrative only, not financial, tax or legal advice. Estate planning is personal and the rules are intricate. Not modelled: gifts made in the 7 years before death (potentially exempt transfers and taper relief), business and agricultural property relief (capped at £1m combined from April 2026), trusts, the precise 10%-to-charity baseline test, partially-used transferred bands, homes worth less than the residence allowance, and the planned inclusion of unused pensions in estates from April 2027. Always check gov.uk or speak to a solicitor or qualified adviser before acting.
Pairs with Net Worth and Pension Tax Relief.