How much can you inherit without paying tax?
It’s important to know just how much you can inherit without paying tax in the UK. Both lifetime gifts and inheritances from someone who has died may qualify for tax relief - up to specific thresholds and conditions.
Inheritance Tax (IHT) thresholds explained
Every individual has a basic Inheritance Tax (IHT) threshold of £325,000, known as the Nil Rate Band. Assets below this value generally pass to beneficiaries free of tax. If the estate is worth more than that, IHT at 40% usually applies on the excess, unless exemptions or reliefs reduce the amount due.
If the deceased leaves everything to their spouse or civil partner, no tax is payable, and the threshold remains unused. This unused threshold can be passed on, potentially allowing a couple to transfer up to £650,000 tax‑free in total.
Additionally, if a main residence is left to direct descendants, the estate may benefit from a Residence Nil Rate Band (RNRB) of up to £175,000. That allows a single person to pass on up to £500,000 tax-free, or up to £1 million as a married couple.
Gifts vs inheritance: What counts?
Certain gifts made while someone is alive may reduce or avoid IHT. Each person can give up to £3,000 per year tax-free under the annual exemption. Small gifts of £250 or less per person and wedding gifts under specified limits also do not count towards that limit.
Any gift over the exemption limit is considered a Potentially Exempt Transfer (PET). If the giver lives for seven years after giving the gift, it falls outside their estate and is free from IHT. If they die within that time, the gift is counted against their tax threshold and may reduce the amount available to be inherited tax-free.
Inheriting from spouses or civil partners
If you inherit from your spouse or civil partner, there is no tax due, and you inherit their entire unused allowance. That means you could inherit up to £650,000 tax-free, and possibly more if the estate includes a home passed to children or grandchildren. To claim this benefit, the Personal Representative (PR) must submit HMRC form IHT402 or equivalent when applying for probate.
A simple example
Imagine you inherit from someone with no residence in their Will. Their estate is worth £400,000.
- First, the £325,000 Nil Rate Band applies;
- Only the remaining £75,000 is taxable at 40%;
- This means IHT of £30,000 is payable.
If, instead, a home worth £400,000 is left to direct descendants, and the estate qualifies for the RNRB, the £175,000 RNRB may raise the tax allowance to £500,000. That means no IHT is due.
Why this matters
Inheritance Tax thresholds have been frozen in real terms while property and asset values have continued to rise. As a result, more estates surpass the tax-free limits. Using available thresholds effectively, including lifetime gifts and spouse-to-spouse transfers, can reduce or eliminate your tax liabilities.
Final thoughts
So how much can you inherit without paying tax? Under current rules, you can receive up to £325,000 tax-free. With the Residence Nil Rate Band and spousal transfers, this can rise to £500,000 for individuals and up to £1 million for couples, provided conditions are met.
Lifetime gifting strategies, combined with estate planning and reliefs like the RNRB, can help you plan effectively and preserve more of your inheritance.
