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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