How Much Can I Leave Before Inheritance Tax Is Charged

At Towerstone, we provide specialist Inheritance Tax accountancy services for families and executors. We have written this article to explain allowances and thresholds, helping you make informed decisions.

This is one of the most common questions I am asked and in my opinion it is also one of the most misleadingly simple. People want a single number. A clear limit. A figure they can plan around with confidence.

From experience, inheritance tax rarely works that neatly.

While there are headline thresholds that apply to most people, the amount you can leave before inheritance tax is charged depends on who you leave assets to, what those assets are, whether you are married, what gifts you have made during your lifetime, and how well your estate is structured.

In this guide, I am going to explain how much you can leave before inheritance tax is charged in the UK, how the allowances actually work in practice, and where I see people make costly assumptions. I will also share practical insights from experience that can help you plan with more certainty and less stress.

The Basic Inheritance Tax Threshold

Let us start with the figure most people recognise.

The standard inheritance tax nil rate band is £325,000.

This means that if the total value of your estate is £325,000 or less, there is usually no inheritance tax to pay.

If your estate exceeds £325,000, inheritance tax is normally charged at 40 percent on the amount above that threshold.

This allowance has been frozen for several years and applies to individuals rather than households.

From experience, many people stop here and assume anything above £325,000 will be taxed. That is rarely the full picture.

The Residence Nil Rate Band

If you own a home and leave it to your direct descendants, an additional allowance may apply.

This is known as the residence nil rate band.

Currently, this allowance is up to £175,000 per person.

To qualify:

The property must have been your main residence at some point

It must be left to direct descendants

The value of your estate must not exceed certain limits

Direct descendants include children, stepchildren, adopted children, foster children, and grandchildren.

When combined with the standard nil rate band, this means an individual could potentially leave up to £500,000 without inheritance tax.

From experience, this allowance is frequently misunderstood or missed entirely.

What Counts as a Direct Descendant?

This point matters more than people realise.

Direct descendants include:

Biological children

Adopted children

Stepchildren

Foster children

Grandchildren

Great grandchildren

They do not include:

Nieces or nephews

Siblings

Friends

Unmarried partners who are not civil partners

Leaving a property to someone outside the direct descendant definition can remove access to the residence nil rate band entirely.

In my opinion, this is one of the most expensive drafting mistakes I see in wills.

What If I Am Married or in a Civil Partnership?

Marriage and civil partnership dramatically change how much you can leave before inheritance tax is charged.

Assets passing to a spouse or civil partner are usually exempt from inheritance tax, regardless of value.

In addition:

Any unused nil rate band can be transferred to the surviving spouse

Any unused residence nil rate band can also be transferred

This means a married couple or civil partners could potentially leave up to £1 million tax free to their children.

That figure is made up of:

£325,000 standard nil rate band each

£175,000 residence nil rate band each

From experience, couples often assume this happens automatically. The allowances do not disappear, but they must be claimed correctly on the second death.

The Tapering of the Residence Nil Rate Band

The residence nil rate band is reduced for larger estates.

If your estate exceeds £2 million, the residence nil rate band begins to taper away.

For every £2 above £2 million, £1 of the allowance is lost.

Once the estate reaches £2.35 million, the residence nil rate band is fully removed.

In my opinion, this is one of the most punitive aspects of the inheritance tax system and it often catches people out, especially where property values have risen sharply.

What If I Do Not Own a Property?

If you do not own a qualifying residential property, the residence nil rate band does not apply.

In that case, the amount you can leave before inheritance tax is charged usually reverts to the standard nil rate band.

This does not mean planning opportunities disappear, but the headline tax free amount is lower.

Lifetime Gifts and Their Impact

How much you can leave before inheritance tax is charged is not only about what you own at death. It is also about what you have given away during your lifetime.

Most lifetime gifts are potentially exempt transfers.

This means:

If you survive seven years from the date of the gift, it usually falls outside your estate

If you die within seven years, the gift may use up some or all of your nil rate band

From experience, people often forget that gifts can reduce how much of the allowance remains available on death.

Annual Gift Allowances

Certain gifts are exempt from inheritance tax regardless of when you die.

These include:

The annual exemption of £3,000 per tax year

Small gifts of up to £250 per person per tax year

Wedding gifts within set limits

Gifts between spouses or civil partners

Gifts to UK charities

Normal expenditure out of income

These exemptions can increase how much you effectively pass on tax free over time.

In my opinion, the annual exemption is underused simply because people do not track it.

Normal Expenditure Out of Income

This is one of the most valuable and least understood exemptions.

If you make regular gifts from surplus income, and those gifts do not affect your standard of living, they can be immediately exempt from inheritance tax.

Examples include:

Helping children with rent

Paying school fees for grandchildren

Regular monthly transfers to family members

From experience, this exemption can significantly reduce estates without triggering inheritance tax, but only if proper records are kept.

What About Pensions?

Pensions sit slightly outside the standard inheritance tax framework.

In many cases, pensions do not form part of your estate at all.

This means:

Pension funds can often be passed on without inheritance tax

The age at which you die affects income tax treatment for beneficiaries

In my opinion, pensions are one of the most powerful inheritance planning tools available, yet they are often ignored in favour of property discussions.

Business and Agricultural Relief

Certain assets may qualify for reliefs that reduce or eliminate inheritance tax.

These include:

Business property relief

Agricultural property relief

If available, these reliefs can reduce the taxable value of assets by up to 100 percent.

However:

Reliefs are not automatic

Strict conditions apply

Valuation still matters

From experience, relying on reliefs without advice is risky.

What Happens If My Estate Exceeds the Allowances?

If your estate exceeds the available allowances, inheritance tax is normally charged at 40 percent on the excess.

For example:

An estate of £600,000 with a £325,000 allowance

£275,000 taxable

£110,000 inheritance tax

This is a simplified example and does not account for residence nil rate band or other reliefs.

Common Misunderstandings I See

From experience, the most common misconceptions include:

Thinking the £325,000 limit applies per family rather than per person

Assuming the family home is always tax free

Forgetting about lifetime gifts

Not realising allowances can be transferred

Believing inheritance tax is unavoidable once assets exceed thresholds

Most of these beliefs lead to unnecessary anxiety or poor planning.

Planning to Increase What You Can Leave Tax Free

In my opinion, inheritance tax planning is about structure rather than avoidance.

Common strategies include:

Making use of lifetime gift allowances

Using pensions effectively

Reviewing wills regularly

Considering asset ownership between spouses

Taking advice before major financial changes

Keeping good records

The goal is not to eliminate tax at all costs, but to ensure you do not pay more than necessary.

My Honest View From Experience

There is no single answer to how much you can leave before inheritance tax is charged.

For some people, it is £325,000.
For others, it is £500,000.
For married couples, it can be £1 million.
For some estates, it can be far more with planning.

From experience, the biggest problem is not the tax itself but misunderstanding the rules and leaving planning too late.

Inheritance tax is predictable if you engage with it early and punitive if you do not.

Where this leaves you

So how much can you leave before inheritance tax is charged?

It depends on your allowances, your family circumstances, your assets, and the decisions you make during your lifetime.

In my opinion, the right approach is not to fixate on a single number, but to understand how the system works and how your choices affect it.

From experience, clarity brings confidence and confidence leads to better decisions for you and your family.

If you would like to explore related Inheritance Tax guidance, you may find How much Inheritance Tax is paid on large estates and What expenses can be deducted from the estate value useful. For broader inheritance tax guidance, visit our inheritance tax hub.