Inheritance Tax on Property: The Complete UK Guide

The nil-rate band: £325,000

Every estate gets a tax-free threshold of £325,000 before Inheritance Tax applies to anything. gov.uk states the rate plainly: “The standard Inheritance Tax rate is 40%. It's only charged on the part of your estate that's above the threshold.” There is also a full exemption regardless of value: gov.uk confirms there is normally no tax to pay if “you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.”

The residence nil-rate band: an extra £175,000 for the family home

A second, separate allowance applies on top of the nil-rate band when a home passes to direct descendants. gov.uk: “If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase” — HMRC's own residence nil-rate band guidance puts the current figure at £175,000. Combined with the ordinary band, that's £500,000 before tax for someone leaving a home to their children.

The £2,000,000 taper

The residence band isn't unlimited. HMRC's guidance is explicit: “The residence nil rate band will gradually reduce, or taper away, for an estate worth more than £2,000,000… [it] will reduce by £1 for every £2 that the estate is worth more than the £2,000,000 taper threshold.” In practice that means the residence band is used up entirely once a qualifying estate reaches roughly £2,350,000 — a threshold a portfolio landlord's estate can cross without the home itself being especially large, because every let property counts toward the estate value that drives the taper.

Spouses, civil partners and the transferable allowance

Unused allowances aren't lost on the first death. gov.uk: “If you're married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner's threshold when you die.” The same transfer mechanism applies to the residence band. A couple who leave everything to each other first, then the family home to their children on the second death, can between them shelter up to £1,000,000 — see our worked example for when the second parent dies.

The 36% charity rate

gov.uk: “The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will.” For a large estate already above the thresholds, the drop from 40% to 36% on the taxable portion can be worth more to the family, after the charitable gift, than it first looks — the maths is estate-specific and worth running properly rather than assuming.

How a house is valued for Inheritance Tax

gov.uk's valuing-the-estate guidance sets the principle rather than a formula: you “find out or estimate the value of” each asset, including property, “on the date the person died.” That's a market-value test, not the price it was bought for or its council tax band — in practice most personal representatives get a professional valuation (an estate agent's or RICS valuer's opinion of what the property would have sold for on the open market that day), precisely because HMRC can challenge a figure that looks too low once the property later sells for more.

Paying Inheritance Tax on a house — and the instalment option

gov.uk sets the headline deadline: “You must pay Inheritance Tax by the end of the sixth month after the person died.” Interest runs from that date if you miss it. Property is illiquid, though, and HMRC's own instalment page recognises that: “You can pay your Inheritance Tax on things that may take time to sell in equal annual instalments over 10 years” — land and buildings (including a house) qualify, alongside certain business and unlisted-share assets. The catch is timing, not eligibility: “The first instalment is due at the end of the sixth month after the death,” the same six-month deadline as paying in full, and gov.uk confirms “you will not pay any interest on the first instalment unless you pay late” — every instalment after that accrues interest on the balance still owed. Instalments buy time to sell a property in an orderly way rather than a fire sale to meet the six-month deadline, at the cost of interest on what's outstanding.

If the property is a rental, not the family home

Everything above assumes an ordinary home. A buy-to-let in the estate is treated differently — it doesn't qualify for the residence nil-rate band unless it was genuinely the deceased's own home, and it gets no Business Property Relief for being let out. See our dedicated guide to Inheritance Tax on rental property for the landlord-specific rules, and the gifting guide if you're weighing passing a let property on before death.

This is a guide, not financial, tax or legal advice. Figures are estimates from the published rates and thresholds, which change with each Budget. Your own position depends on facts a guide can't see — check anything that matters against gov.uk guidance or a qualified adviser before you act on it.

gov.uk: Inheritance Tax · gov.uk: passing on a home · HMRC: residence nil-rate band · gov.uk: paying Inheritance Tax and its yearly instalments page · gov.uk: valuing the estate. All read verbatim 11 Sep 2026; figures match site/taxdata.py's IHT dataset (checked 4 Sep 2026) with no conflicts found.