HT-Free: Can You Really Pass on £1 Million Without Paying Inheritance Tax?

 Introduction: £325,000 or £1 Million — What’s the Real Inheritance Tax-Free Limit?

You’ve probably heard that your estate can pass on £325,000 tax-free. But you might also have read that £1 million can be passed on inheritance tax (IHT)-free under certain conditions.

So, which is it — £325,000 or £1 million?

The answer is: both can be true, depending on your circumstances, marital status, and who inherits your estate.

In this article, we explain:

• What the nil-rate band and residence nil-rate band are
• How to double these through spousal transfers
• When you can pass on £1 million without paying a penny in IHT
• What to watch out for (e.g. estate size limits, documentation, and timing)

 The Basics: What Is the Nil-Rate Band?

The standard nil-rate band (NRB) is the amount of your estate that can pass tax-free when you die.

 For the 2025/26 tax year:

• Everyone gets a £325,000 nil-rate band
• Anything above this is normally taxed at 40%

But that’s just the beginning…

 Married Couples: You Can Transfer Unused Allowances

If you’re married or in a civil partnership, any unused portion of your nil-rate band can be transferred to your surviving spouse.

This means that on the second death, the surviving partner can pass on up to £650,000 IHT-free, assuming no chargeable gifts were made in the 7 years prior to either death.

 The Residence Nil-Rate Band (RNRB)

In 2017, the government introduced the Residence Nil-Rate Band (RNRB) to help families pass on their homes to children or grandchildren.

 For 2025/26:

• RNRB is £175,000 per person
• Only applies if you pass on a main residence to a lineal descendant (e.g. child, grandchild)
• Can also be transferred between spouses/civil partners

 RNRB is in addition to the standard nil-rate band.

 So How Do You Reach £1 Million IHT-Free?

Here’s the maximum scenario for married couples or civil partners:

 But There’s a Catch: The £2 Million Estate Limit

The RNRB starts to be reduced (tapered) if your estate exceeds £2 million.

For every £2 over the £2 million threshold, £1 of RNRB is lost.

So if your estate is over £2.35 million, you lose all RNRB — and the IHT-free threshold is capped at £650,000.

 Example: Leaving Everything to the Kids

Let’s look at a real-world example to bring this to life.

 Andrew and Belinda

• Married couple
• Andrew dies in 2021, leaving everything to Belinda (so no IHT on his estate)
• Belinda dies in 2025, leaving £1.8 million to their two children

Breakdown of Belinda’s estate:

• Family home (now solely in her name): £725,000
• Investments: £375,000
• Buy-to-let property: £700,000
• Total estate = £1.8 million

Because:

• The home is left to children
• Andrew’s unused NRB and RNRB are transferred
• The estate is under £2 million (so no RNRB taper applies)

IHT-free threshold =
£325,000 (Belinda’s NRB)

• £325,000 (Andrew’s unused NRB)
• £175,000 (Belinda’s RNRB)
• £175,000 (Andrew’s unused RNRB)
  = £1,000,000

IHT due =
£1.8 million – £1 million = £800,000 taxed at 40%
IHT bill = £320,000

 How to Claim the Transferred Allowances

Your executors must formally claim the transferable nil-rate bands on the second death.

You’ll need:

• Marriage/civil partnership certificates
• Death certificates
• Details of the first estate
• Proof that no NRB or RNRB was used on the first death

The claim must be made within 2 years of death.

Tip: Keep your records and wills up to date — poor documentation can lead to missed allowances.

 Downsizing and RNRB: Still Eligible

What if you’ve already sold the family home before death?

The RNRB can still apply if:

• You downsized or sold your home after 8 July 2015
• Your estate leaves equivalent value to your children or grandchildren
• The downsizing took place before death

This ensures you’re not penalised for moving to a smaller property — or into care.

 What If You’re Not Married?

Unfortunately, unmarried couples:

• Cannot transfer unused NRBs or RNRBs

• Must rely solely on their own £325,000 + £175,000 (if eligible)

Planning Tip: Marriage or civil partnership can provide significant IHT advantages — in some cases saving hundreds of thousands in tax.

 Planning Checklist: Maximise Your IHT-Free Allowance

Here’s how to get closer to passing £1 million IHT-free:

 Leave your estate (or part) to children or grandchildren
 Own a qualifying residence at death (or have downsized)
 Ensure your estate is under £2 million to retain full RNRB
 Make full use of spouse/civil partner transfer rules
 Keep records of the first death and estate
 Review wills to confirm assets are passed to eligible recipients
 Consider gifting or trusts to reduce estate value if nearing £2m

 Final Thoughts: £1 Million IHT-Free Is Real — But You Need to Plan

Passing £1 million tax-free is possible, but only if:

• You’re married or in a civil partnership
• You leave a qualifying home to direct descendants
• Your estate is below £2 million on death
• The right claims and documentation are submitted in time

 Without proper planning, families often lose out on tens or hundreds of thousands in avoidable tax.

 Speak to Merranti to Maximise Your IHT-Free Threshold

At Merranti Accounting, we help individuals and families:

• Understand their IHT position
• Claim transferred nil-rate bands
• Structure wills and estates efficiently
• Plan gifting, trusts, and estate reduction strategies

 Whether you’re just starting to plan or you’re reviewing your will, we’ll ensure you’re not leaving tax behind unnecessarily.

 Book an Inheritance Tax Planning Review

HMRC: Inheritance Tax Thresholds