You may have heard that a couple can pass on £1 million free of inheritance tax. It is true, but only for some couples. The figure is two allowances, each worth up to £500,000 per person, added together for a married couple or civil partners who leave their home to their children or grandchildren.
Unmarried couples, people without children, and estates worth more than £2 million can find the real figure is much lower.
The two allowances
The nil-rate band is £325,000 per person. Everything you leave up to that amount is free of inheritance tax, whoever receives it.
The residence nil-rate band is up to £175,000 more per person, but only if you leave your home, or a share of it, to your direct descendants: children, stepchildren, adopted or foster children, grandchildren, and their husbands, wives or civil partners.
Together that is £500,000 each. Both allowances are frozen at those levels until April 2031.
How a couple reaches £1 million
Anything left to a husband, wife or civil partner is free of inheritance tax. If the first to die leaves everything to the other, their allowances go unused, and the unused allowances pass to the survivor. On the second death, the survivor's estate can use both sets:
| Allowance | First spouse | Second spouse | Together |
|---|---|---|---|
| Nil-rate band | £325,000 | £325,000 | £650,000 |
| Residence nil-rate band | £175,000 | £175,000 | £350,000 |
| Total | £500,000 | £500,000 | £1,000,000 |
The transfer is not automatic: it has to be claimed on the second death, so the records from the first death matter.
Who does not get the full £1 million
- Unmarried couples. Allowances cannot pass between unmarried partners, and nothing left to a partner is exempt. Each has their own £500,000 at most, and only if their share of the home goes to their descendants.
- People without children or grandchildren. The residence nil-rate band only applies to a home left to direct descendants. Leave it to a nephew, a friend or a charity and you have £325,000.
- Estates over £2 million. The residence nil-rate band is reduced by £1 for every £2 the estate is worth over £2 million. For a single estate it is lost entirely at £2.35 million; for an estate with a transferred allowance, at £2.7 million.
- Homes left into many kinds of trust. A home left to a discretionary trust usually does not qualify, even if the children benefit from it.
- People who no longer own a home. If you have sold or downsized since July 2015, a downsizing addition may preserve some of the allowance, but it has to be claimed and has its own rules.
From April 2027, most unused pension savings will count as part of the estate. For many families that will push the estate over £2 million and start to erode the allowance.
Why it matters
The £1 million figure is real for a married couple with children, a modest-sized estate and a will that leaves the home the right way. For everyone else, the figure is lower, and the gap is often only discovered on the second death, when nothing can be done about it.
A situation we see
Anna and Mark lived together for twenty years but never married. They owned their £700,000 home jointly, and Anna had £200,000 of savings. Each had a will leaving everything to the other.
When Anna died, her estate was her half of the home and her savings: £550,000. Because they were not married, nothing she left Mark was exempt. Because her share of the home went to Mark rather than to her children, the residence nil-rate band did not apply. Her estate had just £325,000 of allowance, and £90,000 of inheritance tax was due on the rest.
Married, with the same wills, the bill would have been nothing.
This is an illustration. The people and figures are invented, but the situation is one we see.
Where to start
The Wealth R.I.S.C.™ Assessment works out which allowances your family would actually get, and what would protect them.
Questions people ask about this
Do all couples get £1 million free of inheritance tax?
No. Only married couples and civil partners can combine their allowances, and the residence nil-rate band only applies when the home goes to children or grandchildren and the estate is under £2 million.
What is the residence nil-rate band?
An extra allowance of up to £175,000 per person, available when your home, or a share of it, is left to your direct descendants.
What happens if our estate is over £2 million?
The residence nil-rate band is reduced by £1 for every £2 over £2 million, until it disappears.
Does the allowance pass automatically to my husband or wife?
It passes to them, but the executors must claim it when the survivor dies.
Related
How inheritance tax works, and what changes for pensions in April 2027.
Why inheritance tax should be paid once.
What happens to gifts you make.
Three steps, with room to stop
-
1. Start with five questions and a short call
Answer five questions and choose a time for a 20-minute video call with Richard. Your answers are read beforehand, so the conversation starts with your situation.
The call goes over everything first: what your situation needs, whether the assessment is worth having for you, and the fee.
Where a straightforward piece of work would cover it, or nothing needs doing at present, you will be told so.
-
2. The assessment: one hour, four steps
An hour on video, worked through the four R.I.S.C.™ steps, then a written report explaining your position, the options and the reasoning behind the recommendations.
Once it is booked and paid for, you complete a short questionnaire and an identity check, so the hour is spent on your position rather than on collecting facts.
The assessment looks at the relevant legal and tax questions together, so you can understand what is necessary, what may help and why.
We aim to send your written summary of the findings and recommendations within three working days of the assessment meeting.
The report is yours to keep. The assessment is paid work in its own right; its fee is not deducted from subsequent work. Fees for this and all other work are set out in the price guide.
-
3. Decide what happens next
Take time to consider the recommendations.
You can act on the report yourself, ask Richard to carry out further work, or stop there.
If you proceed, the scope and fixed fee are agreed in writing before work begins.
You deal with Richard throughout
You should be able to ask why something is recommended and receive an explanation you understand.
You work directly with Richard Ansah TEP, from the first conversation through to the completed documents.
Richard is a full member of STEP and a member of the Society of Will Writers.
ONCE is an independent estate planning practice, not a firm of solicitors. Where your circumstances require another professional, Richard will explain why.
Ready to get this sorted?
Five questions, then a twenty minute call that goes over everything first: what your situation needs, what the assessment involves, the fee, and whether you need us at all.
Get in touch
Existing clients and general enquiries both welcome. Email reaches me fastest. The number takes calls, texts and WhatsApp.
London E20 1BD