UK Inheritance Tax scenarios

UK Inheritance Tax is charged at 40% on the slice of a chargeable estate above available nil-rate allowances. The basic nil-rate band is £325,000 (GOV.UK — How Inheritance Tax works).

When a home (or share) passes to children, grandchildren or other direct descendants, the residence nil-rate band can add up to £175,000 — lifting a single person’s corridor to £500,000 before taper (GOV.UK — Passing on a home / RNRB guidance).

Unused NRB and RNRB can transfer to a surviving spouse or civil partner. With 100% unused transfer on both bands plus a qualifying home gift, the combined corridor reaches up to £1,000,000 before taper.

Every scenario uses the same £850,000 headline estate. RNRB scenarios apply £400,000 home to descendants (capped by estate). NRB-only sets home to £0.

On that vignette: NRB-only ≈ £210,000; NRB+RNRB ≈ £140,000; married full transfer ≈ £0.

Rankings sort by tax due ascending — lowest tax is best for heirs under these assumptions.

GOV.UK: you can pass a home to a spouse or civil partner with no Inheritance Tax on that transfer. Leaving a home to anyone else counts toward the estate’s value.

If you leave your home (or a share) to children — including adopted, foster or stepchildren — or grandchildren, and the estate is below the taper threshold, the tax-free threshold can rise to £500,000 (NRB + RNRB). Source: GOV.UK — Passing on a home.

Giving away a home before death but still living there rent-free is usually a “gift with reservation” and still counts in the estate — this hub does not model lifetime gifts or reservations.

HMRC’s RNRB guidance treats as direct descendants: a child, grandchild or other lineal descendant; a spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner).

Also included in many cases: a step-child (where the parent is/was the spouse or civil partner), an adopted child, a child fostered at any time, and a child where the deceased was appointed guardian or special guardian while the child was under 18.

Nephews, nieces, siblings and other relatives who are not on that list do not unlock RNRB. Source: GOV.UK — Residence nil-rate band guidance.

GOV.UK: everyone has the same basic tax-free allowance (£325,000). If it is not fully used when the first spouse or civil partner dies, the unused percentage can transfer to the survivor.

With a full unused transfer, the survivor’s basic threshold can be as much as £650,000. The percentage unused on the first death increases the threshold available on the second death (measured against the NRB in force at the second death).

A claim is required — typically with probate / IHT400 and IHT402 for full returns. This hub’s married-couple scenario models 100% unused NRB and RNRB transfer maths, not claim paperwork. Source: GOV.UK — Transferring unused basic threshold.

HMRC: RNRB reduces by £1 for every £2 of estate above £2,000,000, even if a home is left to direct descendants. Taper uses estate value before spouse/charity exemptions.

On this hub’s £2.5m ladder row, taper is £250,000. Single-person NRB+RNRB then applies £0 RNRB and models £870,000 tax.

With full spouse RNRB transfer, available RNRB before taper is £350,000; after the same £250k taper the married row applies £100,000 and models £700,000 tax.

GOV.UK: gifts given less than 7 years before death may be taxed depending on who received them, value, and timing. Living 7 years after a gift usually means no IHT on that gift (trusts aside).

Annual exemption £3,000 per tax year (one year carry-forward), small gifts up to £250 per person, wedding/civil partnership gifts (up to £5,000 to a child), and “normal expenditure out of income” can be tax-free within published rules.

Taper relief on PETs applies only if total gifts in the 7 years before death exceed the nil-rate band. This hub’s vignettes ignore lifetime gifts — use professional advice and HMRC guidance for gift planning.

GOV.UK: the estate can pay Inheritance Tax at 36% on some assets if you leave 10% or more of the net value (estate after debts) to charity in your will.

This hub’s scenarios set charity gifts to £0 and use the standard 40% rate so allowance corridors stay comparable. Model charity gifts in the UK Inheritance Tax calculator.

GOV.UK: funds from the estate pay Inheritance Tax to HMRC. The executor (if there is a will) or the person dealing with the estate handles payment.

Beneficiaries do not normally pay tax on what they inherit, though they may owe other taxes later (for example rental income on an inherited property).

People who received lifetime gifts may have to pay IHT on those gifts if the donor gave away more than the nil-rate band in the 7 years before death (GOV.UK — Rules on giving gifts).

GOV.UK transferring unused basic threshold: you can only transfer if the couple were married or in a civil partnership at the first death.

You must send the transfer request to HMRC within 2 years of the surviving spouse or civil partner’s death.

Full estate returns use IHT400 with IHT402. For excepted estates, GOV.UK: deaths on or after 1 January 2022 claim when applying for probate; deaths on or before 31 December 2021 used IHT217 for a full unused transfer. This hub’s married-couple vignette models 100% unused maths — it does not replace the claim.

Lifetime gifts and the seven-year taper, Business Relief and Agricultural Relief, trusts, downsizing additions, full charity reduced-rate arithmetic, and probate costs are outside the model.

Use the UK Inheritance Tax calculator for spouse exemptions, charity gifts, and custom transfer percentages.