What is the inheritance tax threshold?

The nil-rate band is £325,000 per person. Additionally, there's a residence nil-rate band of £175,000 if passing a home to direct descendants. A married couple can pass on up to £1,000,000 tax-free.

How much is inheritance tax?

Inheritance tax is charged at 40% on the value of an estate above the threshold. If 10% or more of the estate is left to charity, the rate reduces to 36%. Gifts made 3-7 years before death may be taxed at reduced rates.

Do I pay inheritance tax on my parents' house?

It depends on the total estate value and whether it qualifies for the residence nil-rate band. If the total estate is under £325,000 (or £500,000 with residence band), no IHT is due. The tax is paid by the estate before you inherit, not by you personally.

Inheritance Tax Calculator Guide - IHT Thresholds UK 2025/26

Inheritance Tax (IHT) is charged on estates above certain thresholds when someone dies. Understanding how it works can help you plan effectively and potentially reduce the tax burden on your beneficiaries.

Inheritance Tax Thresholds 2025/26

Threshold	Amount	Notes
Nil-rate band	£325,000	Per person, frozen until 2028
Residence nil-rate band (RNRB)	£175,000	If passing home to direct descendants
Single person maximum	£500,000	With RNRB
Married couple maximum	£1,000,000	With transferred allowances

IHT Rate: 40% on estate value above the threshold. Reduces to 36% if 10% or more of the estate is left to charity.

Basic IHT Calculation

Example: Single Person Estate

Estate value: £600,000

Nil-rate band: £325,000

Residence nil-rate band: £175,000 (home left to children)

Total threshold: £500,000

Taxable amount: £600,000 - £500,000 = £100,000

IHT due: £100,000 × 40% = £40,000

Example: Married Couple (Second Death)

Estate value: £1,200,000

Combined nil-rate bands: 2 × £325,000 = £650,000

Combined RNRB: 2 × £175,000 = £350,000

Total threshold: £1,000,000

Taxable amount: £1,200,000 - £1,000,000 = £200,000

IHT due: £200,000 × 40% = £80,000

Transferable Nil-Rate Band

When the first spouse dies, any unused nil-rate band can transfer to the surviving spouse:

If everything left to spouse on first death: 100% transfers
Transfer is proportional, not a fixed amount
RNRB can also transfer between spouses
Must be claimed within 2 years of second death

What's Included in Your Estate?

Property: Your home and any other properties
Investments: Shares, savings, ISAs
Possessions: Cars, jewellery, art, furniture
Business interests: May qualify for relief
Life insurance: Unless written in trust
Pensions: Usually exempt (death benefits may be included)
Gifts made within 7 years: Potentially taxable

IHT Exemptions

Completely Exempt

Spouse/civil partner: All transfers exempt (if UK-domiciled)
Charity: Gifts to registered charities
Political parties: Certain qualifying parties
National purpose: Museums, National Trust, etc.

Annual Exemptions

Exemption	Amount
Annual gift allowance	£3,000 per year
Small gifts	£250 per person per year
Wedding gift (parent)	£5,000
Wedding gift (grandparent)	£2,500
Wedding gift (anyone else)	£1,000
Normal expenditure from income	Unlimited*

*Must be regular, from income (not capital), and not affect your living standards

The 7-Year Rule

Gifts made during your lifetime may be taxable if you die within 7 years:

Years Before Death	Tax Rate (% of 40%)
0-3 years	100% (full 40%)
3-4 years	80% (32%)
4-5 years	60% (24%)
5-6 years	40% (16%)
6-7 years	20% (8%)
7+ years	0% (exempt)

Gifts with Reservation: If you gift something but continue to benefit from it (e.g., give your house but keep living in it rent-free), it remains in your estate for IHT purposes.

Business Relief

Qualifying business assets can be exempt from IHT:

100% relief: Unquoted trading companies, sole trader businesses
50% relief: Quoted company shares (controlling holding), land/buildings used by partnership
Condition: Must have owned for at least 2 years

Agricultural Relief

Agricultural property may qualify for 50% or 100% relief if actively farmed.

Residence Nil-Rate Band (RNRB)

The additional £175,000 allowance applies when:

Estate includes your residence
Left to direct descendants (children, grandchildren)
Estate worth less than £2 million (tapers above this)

Downsizing Rule: If you've sold your home or moved to a smaller one after 8 July 2015, you may still qualify for RNRB if you leave equivalent assets to descendants.

Strategies to Reduce IHT

Use annual exemptions: £3,000 per year, can carry forward 1 year
Make regular gifts from income: Unlimited if from surplus income
Consider larger gifts: Potentially exempt after 7 years
Life insurance in trust: Covers IHT bill without adding to estate
Leave to charity: 36% rate if 10%+ to charity
Business investment: EIS/SEIS can qualify for business relief after 2 years
Pension planning: Pensions usually outside estate

Calculate Your Estate Value

Estimate potential inheritance tax

Use Calculator

Who Pays the Tax?

Tax is paid by the estate (executors/administrators)
Due within 6 months of death
HMRC may charge interest on late payment
Property tax can be paid in instalments over 10 years

Seek Advice: IHT planning can be complex. Consider consulting a financial adviser or solicitor, especially for larger estates or complicated situations.