How inheritance tax works: the £325,000 nil-rate band and £175,000 residence nil-rate band, the spouse exemption, the 40% rate, and the 7-year rule on lifetime gifts.
Each person has a tax-free inheritance tax allowance — the nil-rate band — of £325,000. Estates worth more than that may pay inheritance tax on the excess. This threshold has been frozen for many years and, following the Autumn Budget 2025, is now set to stay frozen until April 2031.
If you leave your main home to your direct descendants — children, grandchildren and their lines — you may qualify for an additional residence nil-rate band of £175,000. It tapers away for larger estates worth over £2 million. Like the main band, it is frozen until April 2031.
Anything you leave to your spouse or civil partner is exempt from inheritance tax, with no upper limit. Any unused nil-rate band and residence band can also transfer to them, which is why a married couple can often pass on up to £1 million between them tax-free. These rules do not apply to unmarried partners.
Inheritance tax is charged at 40% on the value of the estate above the available allowances. Gifts you make during your lifetime can also count: most fall outside the estate only if you survive seven years from the date of the gift, with a tapered rate in between. Larger estates and gifting plans should be reviewed with a professional.
An individual can generally leave up to £325,000 tax-free, plus up to £175,000 more if a qualifying home passes to direct descendants. A married couple combining both bands can often pass on up to £1 million. Where the figures are close to the limits, the detail matters and tax advice is sensible.
Most outright gifts become fully exempt only if you live for seven years afterwards. If you die within that period, the gift can use up your nil-rate band, and tax on it may taper down between three and seven years. There are also smaller annual and regular-gift exemptions worth knowing about.
The Counsel can explain how the bands, rates and exemptions work so you understand your likely position, but it gives general legal information rather than tax advice and does not produce a formal valuation. For a precise calculation on a substantial estate, speak to a solicitor or tax adviser.
The Counsel is an AI tool for England & Wales. It provides legal information, not legal advice, and does not replace a regulated solicitor. For anything high-value or contested, take advice before you act.
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