The UK Inheritance Tax threshold in 2025: £325,000, plus £175,000 for a home
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Two thresholds, not one, decide whether an estate owes Inheritance Tax — and both are frozen until 2031. Here is how they combine, and what is actually owed on a real estate value.
For the 2025/26 tax year, an individual can pass on up to £325,000 free of Inheritance Tax, plus a further £175,000 if their home goes to children or grandchildren — up to £500,000 tax-free in total, or £1,000,000 for a married couple who can use both partners' thresholds. Anything above that is normally taxed at 40%. Both thresholds have been frozen for years and were frozen for a further year at the Autumn Budget 2025, so more estates are drawn into paying the tax each year even without a change in the rules themselves.
The two thresholds that make up the allowance
Inheritance Tax works from two separate thresholds, not one figure:
| Threshold | 2025/26 amount | Condition |
|---|---|---|
| Nil-rate band | £325,000 | Available to every estate, no conditions |
| Residence nil-rate band | £175,000 | Only if a home passes to children, grandchildren or other direct descendants |
| Combined maximum, one person | £500,000 | Both thresholds used in full |
| Combined maximum, a couple | £1,000,000 | Both partners' unused thresholds transferred to the survivor |
The nil-rate band applies automatically to any estate. The residence nil-rate band is conditional: it is only available where a qualifying home is left to direct descendants, and it tapers away for larger estates (covered below). These figures, and the underlying rules, are set out in HMRC's guidance on Inheritance Tax and on the residence nil-rate band specifically.
Why the thresholds keep catching more estates
The £325,000 nil-rate band has not risen since 2009. It was already frozen through to 5 April 2030 by earlier Budgets, and the Autumn Budget 2025 extended that freeze by a further year, to 5 April 2031 — alongside the residence nil-rate band and the £1,000,000 combined agricultural and business property relief allowance, frozen on the same timetable. Because house prices and general asset values tend to rise even when the threshold does not, a frozen threshold draws in a growing number of estates each year without any explicit rate rise being announced — a mechanical effect sometimes called fiscal drag.
Transferring an unused threshold to a spouse
Anything left to a spouse or civil partner on death is exempt from Inheritance Tax regardless of value, and any part of the nil-rate band or residence nil-rate band that goes unused on the first death can be transferred to the survivor's estate. That is how an individual's £500,000 combined threshold can become £1,000,000 for a married couple or civil partners: if the whole of the first partner's allowance passes unused to a spouse, typically because everything was left to that spouse, the survivor's own estate can later claim both thresholds in full. The transfer has to be claimed by whoever handles the second estate — it is not applied automatically without the paperwork.
The taper for larger estates
The residence nil-rate band is not available in full to every estate. It reduces by £1 for every £2 that the whole estate is worth above a £2,000,000 taper threshold, and disappears completely once an estate reaches about £2,350,000. An estate worth £2,200,000, for example, is £200,000 over the taper threshold, so the residence nil-rate band is reduced by half of that — £100,000 — leaving £75,000 of it available rather than the full £175,000. The £2 million taper threshold applies through to the 2027/28 tax year before it starts rising with inflation.
A worked example on a real estate value
Take a single person who dies in 2025/26 leaving an estate worth £650,000 in total: a home valued at £550,000, left to their two children, plus £100,000 in savings and other assets. Because the home's value exceeds the residence nil-rate band, the full £175,000 residence nil-rate band applies on top of the £325,000 nil-rate band:
| Step | Amount |
|---|---|
| Total estate value | £650,000 |
| Nil-rate band | -£325,000 |
| Residence nil-rate band | -£175,000 |
| Taxable estate | £150,000 |
| Inheritance Tax at 40% | £60,000 |
The same estate left by a widow or widower whose late spouse left everything to them, and whose full £500,000 threshold therefore transfers across, would owe nothing: their combined £1,000,000 threshold comfortably covers the £650,000 estate. The single biggest variable in an Inheritance Tax bill is often not the value of the estate itself, but how much unused threshold is available to bring against it.
The reduced 36% rate for charitable gifts
Leaving 10% or more of the net value of an estate — broadly, its value after debts, reliefs and the available thresholds — to charity cuts the rate on the taxable remainder from 40% to 36%. This is a rate reduction, not an exemption on the charitable gift itself, which is already free of Inheritance Tax regardless of size; the 36% rate is an additional incentive that only helps if the 10% threshold is actually met, and estates that give slightly less than 10% see no benefit from this specific rule.
Gifts made before death: the seven-year rule
The thresholds above cover the estate at death, but gifts made in the seven years beforehand can also be pulled back into the calculation. No Inheritance Tax is due on a gift at all if the person giving it survives seven years afterwards. Die sooner, and gifts above the £325,000 nil-rate band are taxed on a sliding scale called taper relief, applied to the tax on the gift itself rather than to the whole estate:
| Years between gift and death | Rate charged |
|---|---|
| Less than 3 years | 40% (full rate) |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more years | 0% |
Taper relief only comes into play once gifts made in the seven years before death already exceed the £325,000 nil-rate band — it reduces the tax on the excess, not the tax on the whole gift, and it offers no benefit at all for a gift that falls entirely within the nil-rate band regardless of how soon death follows it. GOV.UK sets out the full mechanics on its Inheritance Tax and gifts page.
What this figure does not include
The thresholds and the seven-year rule above are only the starting point for working out a real Inheritance Tax bill. Life insurance written in trust, agricultural and business property relief, jointly owned assets and certain trusts all affect the final calculation and are not covered by the headline nil-rate band and residence nil-rate band figures on their own. An estate with any of these features needs a fuller calculation than the worked example here provides, usually with professional help.
Sources
- GOV.UK: Inheritance Tax
- GOV.UK: Work out and apply the residence nil rate band for Inheritance Tax
- HM Revenue & Customs: Inheritance Tax thresholds and interest rates
- GOV.UK: Inheritance Tax and gifts
This is general information, not financial or legal advice. Inheritance Tax depends on the full detail of an estate, including gifts made before death and any reliefs that apply. For a decision about a specific estate, speak to a solicitor, regulated financial adviser or HMRC directly.