How much Inheritance Tax is due on a £500,000 estate?

Full answer

Inheritance Tax in 2026/27 is charged at 40% on the value of an estate above the available nil rate bands. Every individual has a standard nil rate band of £325,000, plus, if they own a home and leave it (or its value) to direct descendants such as children or grandchildren, an additional residence nil rate band of £175,000. Together, these give a combined threshold of £500,000 before any Inheritance Tax is due. On a £500,000 estate that includes a qualifying home left to children, the full £500,000 threshold applies, meaning the estate falls exactly within the tax-free amount and no Inheritance Tax is due at all. However, if the estate does not include a qualifying home, or the home is left to someone other than a direct descendant (such as a sibling, niece or unmarried partner), only the standard £325,000 nil rate band applies, leaving £175,000 taxable at 40%, which is £70,000 of Inheritance Tax. This £70,000 difference illustrates how significant the residence nil rate band can be for estates that include a family home. Married couples and civil partners can also transfer any unused nil rate band to their surviving spouse, so a couple's combined threshold can reach up to £1,000,000 if both the standard and residence nil rate bands are fully available and unused on the first death.

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