Inheritance Tax Threshold 2026: The £325,000 Nil-Rate Band Explained
The Inheritance Tax threshold — properly called the nil-rate band — is £325,000. Below that, an estate pays nothing. Above it, the excess is taxed at 40%, unless another allowance or exemption applies.
That one sentence is where most explanations stop, and it's why so many people get the wrong answer. The real threshold for your estate depends on whether you own a home, who you're leaving it to, and whether a spouse died before you. It can be anywhere between £325,000 and £1,000,000.
What the threshold actually is
The nil-rate band is a slice of value taxed at 0%. It applies to the estate as a whole, not per beneficiary — leaving your estate to five children doesn't give you five thresholds.
It also applies to gifts made in the seven years before death before it applies to the estate. This is the detail that catches people out: a £200,000 gift made four years before death uses £200,000 of your £325,000 band, leaving only £125,000 for everything else. The band is one pot, and lifetime gifts get first call on it.
The four numbers worth knowing
| Situation | Threshold |
|---|---|
| Single, no home passing to children | £325,000 |
| Single, home passing to children or grandchildren | £500,000 |
| Married or widowed, no home to children | £650,000 |
| Married or widowed, home passing to children | £1,000,000 |
The jump from £325,000 to £500,000 comes from the residence nil-rate band — an extra £175,000 that only applies where a home passes to direct descendants: children, grandchildren, great-grandchildren, step, adopted and foster children, and the spouses or civil partners of any of them.
Leave the house to a sibling, a nephew, a friend or a discretionary trust and that £175,000 is simply lost.
Transferring an unused band from a late spouse
This is the most valuable and most frequently missed allowance in the system.
When the first spouse or civil partner dies, anything they leave to the survivor is exempt — so in most cases they use none of their own nil-rate band. The unused percentage transfers to the survivor's estate.
It works on percentages, not amounts. If a husband died in 2002 when the band was £250,000 and left everything to his wife, he used 0% of it. His wife's estate gets 100% of the current £325,000 band on top of her own, not £250,000. The date of the first death doesn't matter — a death in 1975 still produces a transferable band today.
Three practical points:
- It must be claimed. Executors file form IHT402 (and IHT436 for the residence element) within two years of the second death. HMRC does not apply it automatically.
- Partial transfers happen. If the first spouse left £100,000 to their children and the rest to their spouse, they used about 31% of a £325,000 band, so 69% transfers.
- You can only accumulate one full extra band, even after more than one marriage. The maximum is 100% of your own plus 100% transferred.
Dig out the old will, grant of probate and IHT forms from the first death. Where those are missing, the death certificate, marriage certificate and evidence of what passed to the survivor will usually do.
What counts towards the threshold
Nearly everything. The estate includes:
- Property, at open-market value — the share owned, so half of a jointly owned home
- Cash, current accounts, savings accounts and ISAs
- Shares, funds, bonds and investment accounts
- Business and farm assets (though these may get Business or Agricultural Relief)
- Cars, jewellery, art, furniture and other possessions
- Money owed to you
- Life insurance payouts that aren't written in trust
- From 6 April 2027, unused pension funds
What's deducted: mortgages and secured loans, credit cards and overdrafts, outstanding bills, and reasonable funeral costs.
What's outside the estate: anything passing to a spouse or civil partner, gifts to charity, life policies written in trust, pensions for a death before April 2027, and gifts made more than seven years before death.
Life insurance written in trust. A £300,000 policy paying into the estate adds £300,000 to the taxable value — potentially £120,000 of tax. The same policy written in trust pays the beneficiaries directly, outside the estate, and is usually free. Writing a policy in trust is normally free to arrange and is one of the highest-value administrative tasks in this whole area.
The freeze, and why it matters
The nil-rate band has been £325,000 since April 2009. It is frozen, and the freeze has been extended more than once — currently to the end of 2029/30, though the end date has moved before and should be checked against current guidance.
Average UK house prices have roughly doubled since 2009. The threshold hasn't moved. The result is that a steadily growing number of ordinary estates — particularly in London and the South East, where a single family home can exceed the band on its own — now pay tax that would not have been due fifteen years ago.
If you're planning, plan against a frozen threshold and rising asset values. The gap closes from both sides.
Common misunderstandings
"I can give away £3,000 a year tax free, so the threshold doesn't matter." The £3,000 annual exemption is useful but small. Most gifts above it are potentially exempt transfers and need you to survive seven years. See the 7-year rule.
"My ISAs are tax free." Free of Income and Capital Gains Tax in life. Fully within the estate on death.
"My pension is in my estate." Not for a death before 6 April 2027. From that date it will be.
"We're not married but we've been together 30 years." Cohabiting partners get no spouse exemption and no transferable band. This is the single largest structural disadvantage in the Inheritance Tax system, and the only fix is marriage or civil partnership.
"The threshold applies to each beneficiary." It applies to the estate.
"I'm below the threshold so there's nothing to do." Possibly — but an estate can be below the threshold and still need a full account filed. See do I need probate?
Put your own figures in and the calculator will tell you which threshold applies to your estate and how much headroom is left.
Common questions
What is the Inheritance Tax threshold in the UK?
The nil-rate band is £325,000 per person. A residence nil-rate band of up to £175,000 is added where a home passes to direct descendants, giving £500,000. Unused allowances transfer to a surviving spouse or civil partner, so a couple can pass on up to £1,000,000 before Inheritance Tax applies.
Has the £325,000 threshold changed?
No. The nil-rate band has been £325,000 since April 2009 and is frozen. Because house prices and asset values have risen substantially since then, the freeze pulls more estates into charge each year — an effect often called fiscal drag.
Can I transfer my husband or wife's unused nil-rate band?
Yes. Up to 100% of an unused nil-rate band transfers to the surviving spouse or civil partner, regardless of how long ago the first death was. It must be claimed on form IHT402 within two years of the second death.
Do ISAs count towards the Inheritance Tax threshold?
Yes. ISAs are free of Income Tax and Capital Gains Tax during your lifetime, but they form part of your estate on death and are fully subject to Inheritance Tax. The only partial exception is an ISA holding qualifying AIM shares, which may attract Business Relief.