Inheritance Tax: The £325,000 Nil-Rate Band, the Home Allowance and the 40%
Inheritance tax (IHT) is charged at 40% on the value of an estate above the nil-rate band of £325,000, with an extra residence nil-rate band of up to £175,000 when a main home passes to direct descendants. Anything left to a spouse or civil partner, or to charity, is exempt, and unused bands pass to the surviving spouse — so a couple can leave up to £1 million tax-free.
The bands have been frozen since 2009 and 2020 respectively and are fixed until April 2030, while house prices have roughly doubled, which is why a tax once paid by fewer than 4% of estates is reaching ordinary homeowners in the south of England. The residence band tapers away by £1 for every £2 the estate exceeds £2 million, so larger estates lose it entirely.
Gifts are the main planning tool. Anything given more than seven years before death is outside the estate; gifts in the seven years before are potentially exempt and taxed on a sliding scale after year three. Each year you can give £3,000 in total (carrying one unused year forward), £250 to any number of people, wedding gifts of up to £5,000 to a child, and — most powerful and least used — unlimited gifts from surplus income that do not reduce your standard of living, provided they are regular and documented.
Assets are treated differently. Pensions have sat outside the estate entirely, which made leaving the pension untouched and spending ISAs first the standard advice; from April 2027 unused pension funds are due to be brought into the estate, reversing that order for many families. AIM shares and business or agricultural property get relief, though the 100% relief is being capped from April 2026. ISAs, property, cash and investments count in full.
The tax is due six months after the end of the month of death, before probate is granted, which creates a cash problem when the estate is mostly a house: executors can pay from the deceased's bank accounts under the direct payment scheme, pay in instalments over ten years on property, or borrow. Life insurance written in trust pays outside the estate and is the common fix for a predictable bill.
For most families the sequence is: make a will, record gifts, use the annual and surplus-income exemptions every year, check whether the residence band applies to your home and heirs, and revisit the pension-versus-ISA drawdown order before 2027. The estate that pays the most tax is usually the one that never had the conversation, not the one that was too large to shelter.
Richify values your whole estate — property, pensions, ISAs, investments and debts — against the bands that apply to your family, and shows what the April 2027 pension change adds before it happens.
