How Inheritance Tax works
Inheritance Tax is usually charged at 40% on the part of an estate above the tax-free allowances. Everyone has a nil-rate band of £325,000. If you leave your home to children or grandchildren, an extra residence nil-rate band of £175,000 can apply, taking a single person's allowance up to £500,000.
Married couples and civil partners can pass their unused allowances to each other, so the survivor's estate can use up to £1,000,000 tax-free. The residence band is tapered away for estates over £2,000,000. Leaving at least 10% of the estate to charity reduces the rate on the rest to 36%.
Worked example
A £600,000 estate, with the home left to children (single person, £500,000 of allowances) has £100,000 taxable — Inheritance Tax of £40,000.
Frequently asked questions
How much is Inheritance Tax?
The standard rate is 40% on the value of an estate above the available tax-free allowances. A reduced 36% rate applies if at least 10% is left to charity.
What is the nil-rate band for 2026/27?
£325,000 per person. Leaving your home to direct descendants can add a £175,000 residence nil-rate band on top.
Can a couple pass on £1 million tax-free?
Yes, potentially. Because spouses and civil partners can inherit each other's unused allowances, a surviving partner's estate can use up to two nil-rate bands and two residence bands — £1,000,000.
What is the residence nil-rate band?
An extra £175,000 allowance that applies when you leave your main home to children, grandchildren or other direct descendants. It's tapered for estates over £2,000,000.
Is there a lower rate for leaving money to charity?
Yes. If you leave at least 10% of your net estate to charity, the Inheritance Tax rate on the rest drops from 40% to 36%.