What is the inheritance tax threshold in the UK?
Last updated 14th July 2023
4 min read
The inheritance tax threshold in the UK, also known as the nil-rate band allowance, is the amount of inheritance a person can receive tax-free before having to pay the standard 40% inheritance tax rate.
Inheritance and its related terms can be complex. If you’re not too familiar with the subject, first take a look at our glossary at the end of this article. You may also find our 'How to calculate your inheritance tax’ guide useful.
Also note that while the standard rate of inheritance tax above the threshold is 40%, there are ways to reduce or avoid this, such as leaving money to charity. Read our complete guide to inheritance for more on this.
The current inheritance tax threshold in the UK for 2023/2024
In the UK, the standard inheritance tax threshold is £325,000. This means you’ll be taxed 40% on any inheritance that exceeds this threshold, but not taxed for any amount under this threshold.
It was reported by the UK government that the inheritance tax threshold will stay the same(www.gov.uk opens in a new tab) until at least April 2028, remaining at £325,000. This also includes the residence nil-rate band, which will remain at £175,000, and the residence nil-rate band taper, which will continue to start at £2 million.
However, there are cases and certain circumstances where this threshold may be increased and your tax-free allowance is much higher.
If you’re currently trying to calculate your inheritance tax, it’s important to know which thresholds apply to you and whether you qualify for one higher than the standard £325,000 allowance. The next section explains the factors that can affect this. And as always, it’s a sensible idea to talk to a financial adviser if you’re unsure.
Factors that can affect the inheritance tax threshold
While the standard inheritance tax threshold in the UK is £325,000, there are circumstances where this may be increased – depending on what the estate comprises and who the beneficiaries are.
In some cases, an individual’s threshold can be increased to £500,000, or even more if the nil-rate band and residence nil-rate band are transferred between partners.
Residence nil-rate band (RNRB)
The residence nil-rate band(www.gov.uk opens in a new tab) is an allowance allocated to children or grandchildren of the deceased who are inheriting a main home (provided the estate is worth less than £2 million).
This residence nil-rate band is £175,000, and can be used in conjunction with the standard nil-rate band, increasing the total tax-free allowance to £500,000.
If the total value of the estate exceeds this £500,000, then the standard 40% tax rate will be applied to the amount above.
Married couples and civil partners
If you’re married or in a civil partnership, the rules can be a little different – there are two key points to remember.
Firstly, if everything above the threshold is left to your spouse or civil partner, it all remains exempt from tax (as long as they're living in the UK).
Secondly, if you don’t use all or even any of your allowance, then the remaining amount can be transferred to your partner(www.gov.uk opens in a new tab), including the residence nil-rate band previously mentioned.
Together, these two rules mean that the full nil-rate band and residence nil-rate band could be transferred to a surviving partner, leaving them with a potential total of £1 million in tax-free allowance.
Inheritance tax threshold terms
|Nil-rate band||The threshold where someone's total asset value becomes subject to inheritance tax.|
|Residence nil-rate band||An additional inheritance tax allowance that may be available when a residence (main home) is passed on to direct descendants, such as children or grandchildren.|
|Transferable nil-rate band||The ability to transfer any unused portion of the inheritance tax threshold from a deceased spouse or civil partner to the surviving spouse or civil partner.|
|Taper relief||A tax relief mechanism that may apply to gifts made within seven years of death. Taper relief reduces the amount of inheritance tax owed on such gifts on a sliding scale based on the number of years that have passed since the gift was made.|
|Estate||The net worth of an individual's assets, such as money, property, and investments.|
|Beneficiaries||Individuals that are entitled to receive a share of the assets from the estate.|
- A complete guide to inheritance
- What is the Guaranteed Inheritance Plan?
- What happens if you die without a will
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