UK inheritance tax (IHT) gets a reputation for being a tax that hits hardest because it isn’t planned for. The structure of allowances available to a married or civil-partnered couple is actually generous by international standards — but it has to be set up properly to land.
This article walks through how the various nil-rate bands combine for couples, the role of the family home, and the most common steps people consider when shaping an estate plan. It is general education, not a personal recommendation.
The two nil-rate bands in plain terms
Every UK individual has two potential allowances against IHT at death.
The nil-rate band (NRB). Currently £325,000. The first £325,000 of an estate is taxed at 0%.
The residence nil-rate band (RNRB). Up to £175,000 per person, but only when a “qualifying residential interest” — essentially the home you’ve lived in — is passed to direct descendants (children, stepchildren, grandchildren).
For a single person leaving their home to their children, that’s a combined allowance of £500,000. Anything above is taxed at 40%.
How transferable allowances work between spouses
The first feature that often gets missed is that everything passing between spouses or civil partners is fully exempt from IHT on the first death. That exemption sits separately from the nil-rate bands.
Beyond the spousal exemption, both allowances are transferable. When the first spouse dies and uses none (or some) of their nil-rate band — typically because everything passes to the surviving spouse — the unused proportion is carried forward to the second death.
The result: when the second spouse eventually dies, their estate has access to:
- Their own NRB of £325,000
- The unused proportion of the first spouse’s NRB (potentially the full £325,000)
- Their own RNRB of up to £175,000
- The unused proportion of the first spouse’s RNRB (potentially the full £175,000)
Added together, that’s the often-quoted £1m threshold for a married couple passing the family home to direct descendants.
Where the £1m threshold breaks down
The £1m figure assumes a few things. It’s worth understanding when it doesn’t apply.
Estates over £2m. The RNRB tapers away by £1 for every £2 the estate exceeds £2m. By the time the estate reaches £2.35m (single) or £2.7m (couple), the RNRB has disappeared entirely.
No qualifying home, or the home isn’t going to direct descendants. No RNRB applies. The threshold drops back to £325,000 per person (so up to £650,000 across a couple).
Unmarried partners. The spousal exemption and the transferable nil-rate bands don’t apply. Each partner’s estate is treated independently. This is a genuinely large gap that many cohabiting couples don’t realise until it’s too late.
Multiple marriages. The transferable nil-rate band from a previous spouse is capped at 100% in total — you can’t accumulate three or four bands.
Lifetime steps people commonly weigh
Once the structure of the allowances is understood, the conversation usually moves on to what someone can do during life — within their circumstances — to manage potential IHT exposure. Here are the levers most often discussed, framed as educational concepts rather than recommendations.
Gifting
Gifts to individuals are generally treated as potentially exempt transfers (PETs). If you survive seven years from the date of the gift, the value falls completely outside your estate. If you die within seven years, the gift is added back into the estate for IHT calculation, with taper relief reducing the tax due on the gift after the third year.
There are also smaller annual gifting allowances — the annual exemption (£3,000), small gifts allowance, wedding gifts, regular gifts out of surplus income — which sit outside the seven-year rule entirely. Properly used over time, they can move meaningful sums out of an estate.
The “regular gifts out of surplus income” exemption
This is one of the most underused tools. Gifts made regularly, out of surplus income, from a pattern that does not affect the donor’s standard of living, are immediately exempt from IHT — no seven-year wait. Strict record-keeping is essential, but the cumulative effect over years can be very large.
Trusts
Some clients use trusts to remove assets from their estate while retaining a degree of control over how those assets are eventually distributed. Trusts come in several forms (discretionary, interest in possession, bare) with different tax treatments. They aren’t a universal solution and they carry ongoing reporting obligations.
Life cover in trust
A whole-of-life policy written in trust and sized to cover the projected IHT bill is a way of providing liquidity for the eventual estate without inflating the estate itself. The trust ensures the payout passes outside the estate; it lands with the beneficiaries quickly and can be used to settle HMRC.
Pensions
Under current rules, defined contribution pensions generally sit outside the estate for IHT. That makes pension drawdown ordering — which pot you draw from first — a meaningful estate-planning lever for clients with significant assets. This area has been signposted for possible reform, so it should always be checked against the position at the time of any decision.
Where this fits in a wider plan
IHT planning isn’t a single decision; it’s a programme of small, coordinated steps taken over years. The right shape of plan depends entirely on your circumstances — assets, age, family structure, income, attitude to control, and intent.
When my authorisation is in place, this is precisely the kind of long-arc planning conversation I’ll be having with private clients. Join the waitlist to be first in line.