Inheritance Tax on Property in the UK

The tax-free threshold (nil-rate band)

Everyone can pass on up to £325,000 free of Inheritance Tax – this is the “nil-rate band”. Only the value above that threshold is taxed, at the standard rate of 40%. The figures are set out on gov.uk.

The extra allowance for your home

If you leave your main home to your children or grandchildren, an additional “residence nil-rate band” applies, which can raise your total threshold to as much as £500,000. Because a house is often the largest part of an estate, this allowance matters most where property is involved.

What’s exempt

• Anything you leave to your spouse or civil partner is free of Inheritance Tax.
• Any unused threshold passes to your surviving spouse or civil partner – so a couple can potentially pass on up to £1 million between them.
• Gifts to charities are exempt, and leaving 10% or more of your estate to charity cuts the rate on the rest from 40% to 36%.

When it’s due – and why property can be a problem

Inheritance Tax is usually due by the end of the sixth month after the person died, and some of it often has to be paid before the grant of probate is issued. That can create a cash-flow squeeze when most of the estate’s value is tied up in a house. Selling the property – especially quickly, for cash – is one way to free the funds to settle the bill and the estate. (There are also options to pay tax on property in instalments; take advice.)

Common questions

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