How Much Can I Leave Before Inheritance Tax Is Charged

The basic Inheritance Tax threshold

The main threshold for Inheritance Tax is called the Nil Rate Band (NRB). For the 2025 26 tax year, it is set at £325,000 per person.

This means that if the total value of your estate is below £325,000, no IHT is due. Only the value of your estate above this amount is taxed, usually at 40%.

Your estate includes:

Property you own (including your home)

Savings and investments

Personal possessions such as jewellery or cars

Certain life insurance policies (if not written in trust)

Business or overseas assets

If your estate is worth less than the threshold, it passes to your beneficiaries tax-free. If it exceeds the threshold, only the amount above £325,000 is taxable.

Example

If your estate is valued at £500,000, the first £325,000 is covered by the Nil Rate Band. The remaining £175,000 is taxed at 40%, meaning an Inheritance Tax bill of £70,000.

The Residence Nil Rate Band (RNRB)

In addition to the £325,000 Nil Rate Band, you may also qualify for the Residence Nil Rate Band (RNRB). This is an extra allowance of up to £175,000 per person, available when you leave your main home to direct descendants such as children or grandchildren.

Combining both allowances allows an individual to pass on up to £500,000 tax-free.

Example

If you leave your home to your children and your estate is worth £500,000, both the £325,000 NRB and the £175,000 RNRB apply. Your entire estate would therefore be free from Inheritance Tax.

Transferring allowances between spouses and civil partners

Married couples and civil partners benefit from special IHT rules that allow them to transfer any unused allowances to the surviving partner.

When one partner dies, their estate can pass to the other entirely tax-free, regardless of value. The unused NRB and RNRB are then transferred, doubling the amount the couple can pass on.

This means a married couple or civil partners can currently leave up to £1 million to their beneficiaries before IHT becomes payable, provided they own a home that qualifies for the Residence Nil Rate Band.

Example

If a husband dies and leaves everything to his wife, no IHT is paid at that point. When the wife later passes away, she can leave up to £1 million tax-free — £325,000 + £175,000 from her own allowances and the same again from her late husband’s.

What happens if your estate exceeds the threshold

If your estate is worth more than your available allowances, Inheritance Tax is usually charged at 40% on the amount above the threshold.

Example:
If your estate totals £600,000 and you have no RNRB, the taxable portion is £275,000 (£600,000  £325,000). At 40%, the IHT bill would be £110,000.

There are, however, ways to reduce this bill legally through planning, gifts, and reliefs.

The seven-year rule on gifts

If you give away assets during your lifetime, they may eventually fall outside your estate for IHT purposes. These are known as potentially exempt transfers (PETs).

If you live for seven years after making the gift, it becomes exempt from IHT.

If you die within seven years, the gift may be added back to your estate and taxed, although taper relief can reduce the rate depending on how long ago the gift was made.

Years between gift and death Tax rate on gift (if over threshold)

0 3 years 40%
3 4 years 32%
4 5 years 24%
5 6 years 16%
6 7 years 8%

After seven years, the gift is completely free of IHT, no matter its value.

Annual gift exemptions

You can also make smaller gifts during your lifetime that are immediately exempt from IHT. These include:

Annual exemption: You can give away up to £3,000 each tax year without it being added to your estate. Unused allowance can be carried forward one year.

Small gift exemption: You can give up to £250 to as many individuals as you like each year.

Wedding gifts: Parents can gift £5,000 to a child for their wedding, grandparents £2,500, and anyone else £1,000.

Regular gifts out of income: You can give away regular sums from your surplus income, as long as it doesn’t affect your standard of living.

These exemptions allow you to pass on wealth gradually while staying within the tax-free limits.

Reducing Inheritance Tax through charitable giving

Leaving part of your estate to charity can lower your overall tax rate. Gifts to registered charities are exempt from IHT altogether, and if you leave 10% or more of your net estate to charity, the tax rate on the remainder falls from 40% to 36%.

This encourages charitable giving and can make a significant difference to the final IHT bill.

Example

If your taxable estate is £400,000 and you leave £40,000 (10%) to charity, the remaining £360,000 is taxed at 36%, reducing the tax due from £160,000 to £129,600.

Business and agricultural reliefs

Certain business and farming assets qualify for Business Relief or Agricultural Relief, which can reduce or eliminate IHT on those assets.

Business Relief can reduce the taxable value of a qualifying business or shares by up to 100%.

Agricultural Relief can reduce the value of farmland or buildings used for agriculture by up to 100%.

These reliefs are designed to help family businesses continue operating after the owner’s death without needing to sell assets to pay tax.

Keeping your estate below the threshold

Effective estate planning helps ensure you stay within the available allowances. Practical steps include:

Making lifetime gifts and surviving the seven-year period.

Placing life insurance policies in trust to prevent them from adding to your estate.

Leaving your home to children or grandchildren to use the Residence Nil Rate Band.

Using trusts for long-term wealth management.

Reviewing your will regularly to ensure it remains tax-efficient.

Professional advice can help you combine these strategies to minimise your IHT exposure.

Final thoughts

You can currently leave up to £325,000 tax-free, or £500,000 if your main home passes to direct descendants. For couples, this doubles to £1 million when allowances are combined.

If your estate is likely to exceed these thresholds, early planning can make a significant difference. Making use of the Residence Nil Rate Band, lifetime gifts, and available reliefs can protect your assets and ensure more of your wealth goes to the people and causes that matter most to you.

Understanding how much you can leave before Inheritance Tax is charged is the foundation of effective estate planning — and it’s never too early to start.