Inheritance Tax on a £500,000 Estate UK: Do You Pay IHT? (2026 Worked Examples)
£500,000 is exactly the NRB + RNRB threshold for a single person with a home left to children, meaning £0 IHT. Without the RNRB (no home, or home not to children), the taxable estate is £175,000 and the IHT is £70,000. A married couple pays £0 IHT on a £500,000 estate using just the combined NRBs (£650,000). One will clause, the difference between £0 and £70,000.
| Scenario (£500,000 estate) | NRB | RNRB | Threshold | Taxable | IHT Due |
|---|---|---|---|---|---|
| Single, home to children (RNRB applies) | £325,000 | £175,000 | £500,000 | £0 | £0 |
| Single, no RNRB (no home or home not to descendants) | £325,000 | None | £325,000 | £175,000 | £70,000 |
| Single, no RNRB + 10% charity (36% rate) | £325,000 | None | £325,000 | £175,000 (less £17.5k charity) | £56,700 |
| Married couple, both NRBs (home not to children) | £650,000 | None | £650,000 | £0 (below threshold) | £0 |
| Married couple, both NRBs + both RNRBs (home to children) | £650,000 | £350,000 | £1,000,000 | £0 (well below threshold) | £0 |
| Single, failed PET £100k (3yr ago), RNRB applies | £225,000 (residual after PET) | £175,000 | £400,000 | £100,000 | £40,000 |
| Single, home in discretionary trust (RNRB LOST) | £325,000 | LOST | £325,000 | £175,000 | £70,000 |
2026/27. NRB: £325,000 (frozen to 2030). RNRB: £175,000 (frozen to 2030). RNRB requires home to pass to direct descendants (children, grandchildren, stepchildren, adopted children) directly, not via discretionary trust. RNRB LOST if home in discretionary trust. Transferred NRB (s8A IHTA 1984): claim IHT402. 36% rate: s36 IHTA 1984 (10%+ of net estate to charity). Failed PETs: use NRB before estate (oldest first). AIM BPR: 100% after 2yr; £1m combined BPR/APR cap from April 2026.
£500,000 Estate IHT: Detailed Analysis
£500,000, the exact IHT threshold for a single person with a home to children
£500,000 is precisely the combined NRB + RNRB threshold for a single person in 2026/27, and it has been at this level since 2020 (when the RNRB reached its current £175,000 level). NRB: £325,000 (frozen since April 2009; frozen to April 2030). RNRB: £175,000 (frozen to April 2030). Combined: £500,000. For a single person with a £500,000 estate where the main home is left to children, grandchildren, or other direct descendants in the will: there is exactly £0 IHT. The estate is precisely at the threshold, not one pound above. However, the RNRB is not automatic, it requires: (1) the deceased to own (or have owned) a qualifying residential interest in a main home; (2) the residential interest to pass directly to lineal descendants (children, grandchildren, stepchildren, adopted children, NOT children-in-law or unmarried partners); (3) a claim on the IHT400 or IHT205 (where needed). For a single person with a £500,000 estate where the home does NOT pass to direct descendants (or where there is no home): the IHT estate is: £500,000 minus NRB £325,000 = £175,000 taxable. IHT at 40% = £70,000. This £70,000 difference arises from a single clause in the will.
Married couple with a £500,000 estate, no IHT in almost all cases
For a married couple (or civil partners) with a combined £500,000 estate, IHT is £0 in almost every scenario because the combined NRBs alone (without even needing the RNRB) exceed the total estate. First death: the estate (or most of it) passes to the surviving spouse under the spousal exemption (s18 IHTA 1984), £0 IHT. Second death: own NRB £325,000 + transferred NRB (s8A IHTA 1984; claim IHT402 on IHT400) = £650,000. Combined NRBs £650,000 > estate £500,000. IHT = £0. The RNRB (£175,000 each; £350,000 combined) is not even needed for a £500,000 estate when both NRBs are available. The transferred NRB claim requires: on the second death, the executor filing form IHT402 as part of the IHT400, with evidence of: the first death certificate; the marriage certificate; proof that the first NRB was unused at the first death (typically a certified copy of the first death's probate or estate details). This is not automatic, it must be claimed.
Failed PETs and how they can push the IHT to £40,000 on a £500,000 estate
A failed potentially exempt transfer (PET, s3A IHTA 1984) occurs when the donor dies within 7 years of making a gift. The gift uses up some or all of the NRB: the NRB is applied first against failed PETs (in date order, oldest first) before being applied to the estate. For a single person with a £500,000 estate and RNRB, who made a £100,000 gift to a child 3 years before death: the failed PET of £100,000 uses the first £100,000 of the NRB. Residual NRB available against the estate: £325,000 minus £100,000 = £225,000. Combined threshold with RNRB: £225,000 + £175,000 = £400,000. Taxable estate: £500,000 minus £400,000 = £100,000. IHT at 40% = £40,000. Without the failed PET: IHT £0. The failed PET cost £40,000 in IHT on the estate (plus potentially IHT on the PET itself if applicable). The lesson: gifts made within 7 years of death reduce the residual NRB available against the estate. The 7-year PET clock must be survived to preserve the full NRB.
Strategies to reduce IHT on a £500,000 estate to £0
For a single person who would otherwise face £70,000 IHT on a £500,000 estate (no RNRB): (1) Claim the RNRB, ensure the will directs the main home (if owned) to children or grandchildren. Zero cost (a will change), saves £70,000 IHT. This is the single biggest action available on a £500,000 estate; (2) 10% charitable legacy, if RNRB cannot be claimed (no home, or home goes elsewhere): leave at least £17,500 to charity (10% of the taxable £175,000 net estate above NRB). IHT at 36% on remaining £157,500 = £56,700 (saves £13,300); (3) Gifts from surplus income (s21 IHTA), regular, surplus income gifts are immediately outside the estate with no 7-year clock. Over several years, these can reduce the estate below £500,000 (to £325,000 = NRB only) making the RNRB claim unnecessary; (4) Annual gifts (s19 IHTA, £3,000/yr), over 5 years: £15,000 removed from estate, saving £6,000 IHT; (5) Life insurance in trust, a JLSD or single-life term policy written in trust can fund the IHT bill without reducing the estate; (6) AIM BPR, if up to £175,000 is invested in qualifying AIM BPR shares (100% IHT-exempt after 2 years, up to the £1m cap from April 2026): the taxable estate reduces by £175,000, from £500,000 to £325,000 = exactly the NRB = £0 IHT.
Frequently Asked Questions
Do you pay inheritance tax on a £500,000 estate in the UK?
It depends on the RNRB. Single person, home to children (RNRB applies): NRB £325,000 + RNRB £175,000 = £500,000 threshold. Estate of exactly £500,000 = IHT £0. Single, no RNRB (no home or home not to direct descendants): NRB £325,000 only. Taxable = £175,000. IHT = £70,000. Married couple: combined NRBs £650,000 (s8A IHTA 1984; IHT402) > £500,000 = IHT £0 regardless of RNRB. The RNRB is the deciding factor for a single person at exactly the £500,000 threshold, one clause in the will (directing the home to children) is the difference between £0 and £70,000 IHT.
Is £500,000 the inheritance tax threshold in the UK?
£500,000 is the combined NRB + RNRB threshold for a single person with a home that passes to direct descendants, but only for single people in 2026/27 (NRB £325,000 + RNRB £175,000 = £500,000). For married couples/civil partners: the combined threshold is up to £1,000,000 (both NRBs + both RNRBs). Without the RNRB: the NRB is only £325,000. The £500,000 threshold is NOT automatic, the RNRB requires the home to pass to direct descendants in the will, and is not available if the home is in a discretionary trust or passes to non-qualifying beneficiaries.
What is the IHT on a £500,000 estate with no property?
If there is no property (or the home is not left to direct descendants): the NRB of £325,000 applies. Taxable estate = £500,000 minus £325,000 = £175,000. IHT at 40% = £70,000. To reduce this: a 10% charitable legacy, leave at least £17,500 to charity (10% of the net taxable estate £175,000). IHT at 36% on remaining £157,500 = £56,700 (saving £13,300). Or: AIM BPR investment of £175,000 in qualifying AIM BPR shares (100% IHT-exempt after 2yr, up to the £1m cap) reduces the taxable estate to £325,000 = NRB = £0 IHT. Or: regular gifts from surplus income (s21 IHTA, uncapped) reduce the estate below £325,000 over time.
How does a failed PET affect IHT on a £500,000 estate?
A failed PET (gift within 7 years of death) uses up the NRB before it can be applied to the estate. Example: single person, £500,000 estate, RNRB applies (home to children), but made a £100,000 gift 3 years before death. The failed PET £100,000 absorbs the first £100,000 of NRB. Residual NRB: £225,000. Combined threshold with RNRB: £225,000 + £175,000 = £400,000. Taxable: £100,000. IHT = £40,000. Without the failed PET: IHT £0. The £100,000 gift that was not survived for 7 years cost £40,000 in IHT. Taper relief on the PET itself: applies to the IHT on the PET (not the estate) for gifts of more than £325k (above the NRB), rarely applicable on most PETs below the NRB.
Can a married couple avoid IHT on a £500,000 estate?
Yes, easily. First death: the estate passes to the surviving spouse (spousal exemption s18 IHTA 1984), £0 IHT. Second death: own NRB £325,000 plus transferred NRB £325,000 (s8A IHTA 1984; claim IHT402 on IHT400) = £650,000 combined NRB. Estate £500,000 is below the £650,000 NRB, IHT = £0. The RNRB is not even needed for a married couple with a £500,000 estate when both NRBs are combined. The transferred NRB is not automatic, the executor must claim it via IHT402 on the second death's IHT400. Keep records of the first death's estate details.
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