IHT £500,000 Threshold UK: When Does the £500k Inheritance Tax-Free Allowance Apply? (2026)
The £500,000 threshold is NRB (£325,000) + RNRB (£175,000). But the RNRB is conditional — the main home must pass to direct descendants. No children, no RNRB: the threshold drops to £325,000. Couples can combine both for £1,000,000. Estates above £2m lose the RNRB progressively. And your will must be structured correctly to claim it.
| Situation | NRB | RNRB | Effective IHT-Free Threshold |
|---|---|---|---|
| Single — home to children, estate below £2m | £325,000 | £175,000 | £500,000 |
| Single — no children / home not to descendants | £325,000 | £0 | £325,000 |
| Single — estate above £2.35m (RNRB fully tapered) | £325,000 | £0 | £325,000 |
| Couple — both thresholds transferred (second death), home to children | £650,000 | £350,000 | £1,000,000 |
| Couple — no children (no RNRB) | £650,000 | £0 | £650,000 |
| Couple — estate above £2.7m (combined RNRB fully tapered) | £650,000 | £0 | £650,000 |
2026–27 figures. Both thresholds frozen until at least 2030. RNRB tapers £1 per £2 above £2m estate; lost fully at £2.35m (single) or £2.7m (couple, combined RNRB). Couple figures assume 100% of each threshold is transferred.
The £500,000 IHT Threshold: Complete Guide
How the £500,000 IHT threshold works
The £500,000 IHT threshold is not a single allowance — it is the combination of two separate thresholds: (1) The Nil-Rate Band (NRB — s4 IHTA 1984): £325,000 per person. This applies to all estates, regardless of what assets are in the estate or who inherits them. No conditions apply; (2) The Residence Nil-Rate Band (RNRB — s8D IHTA 1984): an additional £175,000 per person. This applies ONLY where a qualifying residential interest (typically the main home) passes to direct descendants (children, stepchildren, grandchildren, or their spouses). The NRB and RNRB together give an estate of £500,000 that is fully IHT-free for a single person. The thresholds are applied to the net estate (gross estate minus liabilities such as mortgages and debts) after all IHT-exempt assets have been removed (assets passing under the spousal exemption, charitable legacies, etc.). Both thresholds are currently frozen until at least 2030 — the NRB at £325,000 and the RNRB at £175,000. This freeze means that as property values and savings balances rise, more estates are drawn into the IHT net — even without any increase in actual wealth above inflation.
The £500,000 threshold: conditions you must meet
The £500,000 threshold is conditional — it is NOT automatically available to everyone. The conditions: (1) You must own (or have owned) a qualifying residential interest — your main home or a share of it; (2) The home must pass to direct descendants under your will or intestacy — children (biological, adopted, or step-children), grandchildren, great-grandchildren, or their spouses or civil partners. 'Friends', 'cohabiting partners without a civil partnership', or 'siblings' do NOT count as direct descendants; (3) Your estate must be below £2,000,000 — above this, the RNRB tapers (losing £1 for every £2 above £2m) and disappears entirely at £2,350,000; (4) The will must be structured correctly — leaving the home to a standard discretionary trust generally DISQUALIFIES the RNRB. If any of these conditions are not met: the effective threshold falls back to the NRB (£325,000). For people with no children or who choose to leave the home to someone who is not a direct descendant, the IHT-free threshold is £325,000 — NOT £500,000. Planning point: a will that leaves the home to children or grandchildren (outright, or via an IPDI trust for a spouse with children as remaindermen) claims the £500,000 threshold. A badly drafted will can cost up to £70,000 in avoidable IHT.
Married couples and civil partners: up to £1,000,000 combined
A married couple or civil partnership can combine both partners' NRBs and RNRBs on the death of the surviving spouse: (1) Both NRBs: £325,000 + £325,000 = £650,000; (2) Both RNRBs: £175,000 + £175,000 = £350,000; (3) Combined: £1,000,000 IHT-free on the second death. This only applies where: the first spouse's NRB and RNRB were not fully used on the first death (unused proportions are transferred to the survivor — transferred NRB: s8A IHTA 1984; transferred RNRB: s8G IHTA 1984); the main home (or sufficient other assets under the downsizing addition — s8FA IHTA 1984) passes to direct descendants on the second death. If the first spouse's estate was small and passed entirely to the surviving spouse under the spousal exemption (s18 IHTA 1984), 100% of both the NRB and RNRB are transferred. On the second death, the survivor can claim: their own NRB (£325,000) + transferred NRB (£325,000) = £650,000 NRB; their own RNRB (£175,000) + transferred RNRB (£175,000) = £350,000 RNRB. Total: £1,000,000 threshold.
What is NOT covered by the £500,000 threshold
Several common misunderstandings about the £500,000 threshold: (1) Pensions are not in the IHT estate (until April 2027) — SIPP and personal pension funds currently pass outside the estate; they are not counted in the £500,000 threshold but also do not reduce it. From April 2027, pensions enter the IHT estate under Budget 2024 reforms; (2) Life insurance paid to beneficiaries directly is not in the estate — a policy written in trust pays outside the estate and is not included in the £500,000 threshold calculation; (3) Lifetime gifts made more than 7 years before death are not in the estate — they reduce the estate value and are not included in the threshold calculation; (4) The £500,000 threshold does NOT include any allowance for funeral costs — those are deducted from the estate as an expense (s172 IHTA 1984 — funeral costs are deductible from the estate before calculating the IHT liability); (5) The £500,000 threshold does NOT include any 'automatic' double on divorce or remarriage — a divorced person has only their own NRB and RNRB; only widows/widowers who have not remarried can inherit a transferred NRB/RNRB from a deceased spouse.
The RNRB taper: estates above £2,000,000
For estates above £2,000,000, the RNRB tapers and the £500,000 threshold shrinks. The taper: for every £2 the estate exceeds £2,000,000, the RNRB is reduced by £1. At £2,350,000 (single person): the RNRB is completely lost; the effective threshold reverts to the NRB alone (£325,000). For a married couple where the combined estate (on the second death) exceeds £2,700,000: both transferred and own RNRBs are fully tapered; the effective threshold is NRB + transferred NRB = £650,000. Planning to preserve the RNRB above £2m: lifetime gifting (PETs to children) to reduce the estate below £2m; AIM BPR portfolio (estate reduction by 100% of BPR value after 2 years); charitable legacy of 10%+ of the estate to trigger the 36% reduced rate AND potentially reduce the net estate below £2m; estate equalisation between spouses.
Making sure your will claims the full £500,000 threshold
The £500,000 threshold is not automatic — it requires the will to be structured correctly. Key will-planning points for claiming the RNRB (the additional £175,000): (1) Leave the main home to children or grandchildren: the simplest approach. Under a standard will, the home passes outright to children on death; (2) For married couples — first death: the home typically passes to the surviving spouse (under the spousal exemption — no IHT). On the second death, the home passes to children, claiming both the surviving spouse's own RNRB and the transferred RNRB; (3) IPDI trust: if you want to give the surviving spouse a life interest in the home (protecting it for children from a first marriage, for example), use an Immediate Post-Death Interest (IPDI) trust — the spouse has a life interest; children are the remaindermen. The RNRB is available because the home ultimately passes to the children; (4) Avoid standard discretionary trusts: do NOT put the home in a discretionary trust in the will — the RNRB is lost. Fund any NRB discretionary trust from other assets (cash, investments), not the home; (5) Downsizing addition (s8FA IHTA 1984): if you have sold your main home, ensure the will passes sufficient other assets to direct descendants to claim the downsizing addition — it can preserve the RNRB even without the property.
Frequently Asked Questions
What is the £500,000 inheritance tax threshold in the UK?
The £500,000 IHT threshold combines the Nil-Rate Band (NRB — £325,000) and the Residence Nil-Rate Band (RNRB — £175,000). It is available where the main home passes to direct descendants (children, stepchildren, grandchildren) under the will or intestacy. Without children or where the home doesn't pass to descendants, the threshold is £325,000. Married couples and civil partners can combine: up to £1,000,000 combined threshold (both NRBs + both RNRBs). Both thresholds are frozen until at least 2030.
Do I automatically get the £500,000 IHT threshold?
No — the RNRB (the additional £175,000) requires: (1) You own a main home (or owned one after 8 July 2015); (2) It passes to direct descendants under your will; (3) Your estate is below £2,000,000 (the RNRB tapers above £2m and disappears at £2,350,000 for a single person); (4) Your will is structured correctly — a standard discretionary trust for the home disqualifies the RNRB. If any condition is not met, the effective threshold is £325,000.
Can a married couple pass on £1 million free of inheritance tax?
Yes — if both conditions are met: (1) The first spouse's unused NRB and RNRB are transferred to the survivor (s8A and s8G IHTA 1984) — this happens automatically where the first estate passed entirely to the surviving spouse; (2) The main home passes to direct descendants on the second death (the survivor's will should leave the home to children or use an IPDI trust). Combined: 2 × NRB (£650,000) + 2 × RNRB (£350,000) = £1,000,000.
What happens to the £500,000 threshold if my estate is over £2 million?
The RNRB (£175,000 part) tapers: losing £1 for every £2 above £2,000,000. At £2,350,000, the RNRB is entirely lost and the threshold reverts to £325,000 NRB only. For a couple with transferred thresholds, the combined RNRB (£350,000) is lost at £2,700,000. The taper band (£2m–£2.35m single) has an effective 60% marginal IHT rate — making reducing the estate below £2m a high-priority planning action.
Does my pension count towards the £500,000 IHT threshold?
Currently (until 5 April 2027): no — pension funds (SIPP, personal pension, drawdown) are outside the IHT estate and do not count against or reduce the £500,000 threshold. From 6 April 2027 (Budget 2024 reform): unused pension funds will enter the IHT estate and will be counted in calculating the taxable estate above the threshold. This is a significant change — pension holders should review nominations and consider drawdown strategy before April 2027.
Your Will Determines Whether You Get the Full £500,000
A will that leaves the home to children claims the full £500,000 threshold. A poorly drafted will can lose £175,000 of it — costing £70,000 in IHT. WillSafe will kits for England and Wales are structured to maximise the RNRB where you have children or grandchildren to benefit.
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