Inheritance Tax for Married Couples UK (2026): The £1 Million Threshold Explained

A married couple or civil partnership can potentially pass up to £1 million to their children free of IHT, by combining four allowances — two Nil-Rate Bands and two Residence Nil-Rate Bands: (1) NIL-RATE BAND (NRB): each person has an NRB of £325,000 (frozen at this level until 2030 under current government policy). Combined: £650,000. The NRB applies to all chargeable estate assets — cash, investments, property, and any other assets; (2) RESIDENCE NIL-RATE BAND (RNRB): each person has an RNRB of up to £175,000, applicable specifically to a qualifying residential property that passes to a direct descendant (children, grandchildren, stepchildren, adopted children). Combined: up to £350,000. The RNRB requires: (a) the deceased owned a qualifying residential property (their main or former home); (b) the property (or equivalent assets if downsized) passes to a direct descendant; (3) COMBINED THRESHOLD: NRB £650,000 + RNRB £350,000 = £1,000,000. This is the maximum IHT-free threshold for a married couple. Both spouses must die for the full £1 million to be available. On the first death, typically all assets pass to the surviving spouse under the spouse exemption (IHTA 1984 s.18) — no IHT at all; (4) IMPORTANT CAVEAT — RNRB TAPER: the RNRB reduces by £1 for every £2 by which the net estate on the second death exceeds £2 million. For a £2.35m estate, the RNRB is eliminated entirely. The £1m threshold is therefore only fully available for couples whose combined estate is under £2 million. For estates above £2m, professional IHT planning is strongly recommended; (5) UNUSED NRB FROM FIRST DEATH: if no NRB was used on the first death (because everything passed to the surviving spouse under the spouse exemption), the unused NRB transfers to the survivor. The executor on the second death can claim a 100% uplift of the NRB — effectively doubling it; (6) THE PRACTICAL EFFECT: for a couple whose estate is worth up to £1 million and will pass mainly to children, IHT is typically zero if the estate is structured correctly. Above £1 million, IHT is charged at 40% on the excess.

The spouse exemption is one of the most important reliefs in UK inheritance tax law: (1) THE RULE (IHTA 1984 s.18): transfers between spouses and civil partners are entirely exempt from IHT. There is no limit on this exemption — a husband can leave an estate of £50 million to his wife and pay zero IHT. The exemption covers both: (a) gifts made during lifetime (PETs become exempt; CLTs are exempt); and (b) transfers on death — assets passing to a surviving spouse or civil partner under a will or intestacy; (2) CONDITIONS: the recipient spouse must be: (a) the deceased's legal spouse or civil partner at the time of death; and (b) UK-domiciled (or deemed UK-domiciled). Note: a non-UK-domiciled spouse has a limited spouse exemption of £325,000 (the NRB equivalent), not an unlimited exemption. For non-UK-domiciled spouses, a special election can be made to treat the non-domiciled spouse as UK-domiciled for IHT purposes; (3) COHABITING COUPLES ARE NOT EXEMPT: the spouse exemption applies ONLY to legal spouses and civil partners. Unmarried couples who have lived together for decades receive no spousal exemption. This is one of the key tax reasons (alongside inheritance rights) why unmarried couples should consider marriage or civil partnership, particularly when the estate is significant; (4) WHAT IT DOES NOT DO: the spouse exemption does NOT reduce the estate — it defers the IHT. The assets that pass to the surviving spouse become part of their estate. When the survivor dies, those assets may be subject to IHT (reduced by the combined NRBs and RNRBs available on the second death). The exemption is a deferral, not a permanent relief; (5) LIFE INTEREST TRUST: it is possible to use a 'nil rate band discretionary trust' on the first death to use the first spouse's NRB rather than deferring everything to the survivor. This approach was more valuable before the transferable NRB was introduced in 2007 — today it is rarely necessary unless the estate is complex or the second spouse's NRB is likely to be used by other assets.

The transferable Nil-Rate Band (TNRB) was introduced in 2007 (FA 2008, now IHTA 1984 ss.8A-8M) and is one of the most important IHT planning tools for married couples: (1) THE PRINCIPLE: when a spouse dies and does not use all of their NRB (because their estate passed to the surviving spouse under the spouse exemption), the unused proportion of the NRB can be transferred to the survivor's estate and used on the second death. A spouse who leaves everything to the survivor effectively transfers 100% of their NRB; (2) HOW THE TRANSFER IS CALCULATED: the transfer is expressed as a percentage (up to 100%) of whatever the NRB is at the time of the second death. Example: first spouse dies in 2010 when NRB was £325,000 and leaves everything to the surviving spouse — 100% of NRB unused. Second spouse dies in 2026 when NRB is still £325,000 — the estate can claim an additional 100% NRB = additional £325,000. Total NRB available: £650,000. Note: the percentage unused at first death × the NRB at second death — so if the NRB rises in the future, the transferred proportion benefits from that increase; (3) CLAIMING THE TRANSFER (IHT402): the TNRB does not transfer automatically — the executor must claim it by completing form IHT402 and submitting it with the IHT400 return after the second death. Evidence required: death certificate of first spouse; details of first spouse's estate and what passed to the survivor; (4) MULTIPLE MARRIAGES: if a surviving spouse has been married more than once, they can claim the unused NRBs from each deceased spouse — but the total transferable NRB cannot exceed 100% of the NRB. So if both previous spouses left everything to the survivor (each transferring 100%), the survivor can only claim an additional 100% (not 200%); (5) TRANSFERABLE RNRB (IHTA 1984 s.8H): the RNRB can also be transferred on the same basis — an unused RNRB (e.g. because the first spouse owned no property, or had already downsized) transfers to the survivor at the proportion unused, applied to the RNRB at second death. Maximum combined RNRB available on second death = up to 200% of £175,000 = £350,000; (6) PRACTICAL EXAMPLE: Husband dies, leaves everything to wife. His NRB: £325k (100% unused). His RNRB: £175k (100% unused — property passes to wife, not children, so RNRB not used on first death). Wife dies in 2026: combined NRB available = £325k + £325k (transferred) = £650k. RNRB available = £175k + £175k (transferred) = £350k. Total IHT-free: £1,000,000.

For most married couples with estates below £2 million, the standard structure is simple and effective: (1) STANDARD 'ALL TO SURVIVING SPOUSE, THEN TO CHILDREN' STRUCTURE: each spouse leaves their entire estate to the surviving spouse (triggering the spouse exemption — zero IHT on the first death), and then on the survivor's death the estate passes to the children (using the full combined NRB £650k + combined RNRB £350k = £1m). This is the most common structure and works well for estates under £1 million. For estates between £1m and £2m, IHT is charged on the excess above £1m at 40% — simple, but the couple can do nothing further to reduce it under this structure; (2) FAMILY HOME TO CHILDREN: to use the RNRB on the first death (rather than deferring it to the second), the family home could be left directly to the children on the first death rather than to the surviving spouse. However, this typically creates practical problems — the surviving spouse loses the home. A 'life interest trust' (the survivor has the right to occupy for life; on death the property passes to children) achieves both: the surviving spouse has security in the home AND the RNRB may be preserved. However, for IHT purposes the property typically passes to the survivor under an 'immediate post-death interest' qualifying trust, which preserves the RNRB transfer to the second death; (3) TENANTS IN COMMON AND HALF-SHARE GIFTS: some couples sever joint tenancy to create tenants-in-common ownership and then leave each person's half-share to the children (rather than the surviving spouse) on first death. This uses the first NRB but leaves the survivor with 50% of the home rather than 100%. Only suitable if the estate is large and the family home value alone would exhaust the NRB; (4) ESTATES ABOVE £2 MILLION: the RNRB tapers at £2m — estate planning should focus on reducing the estate below the taper threshold through lifetime giving, normal expenditure out of income gifting, pension drawdown, or charitable legacies; (5) MIRROR WILLS: the standard practical solution for most couples is mirror wills — each spouse makes a will in the same terms, leaving everything to the other first and then to the children. WillSafe UK mirror wills are available from £59.99.

The second death is where most of the IHT liability crystallises for a married couple. Key considerations: (1) ALL ASSETS IN THE ESTATE: the surviving spouse's estate includes: (a) their own original assets; (b) everything they inherited from the first spouse (under the spouse exemption, which deferred rather than extinguished the IHT); (c) any growth in those assets since the first death; (d) assets acquired after first death. The survivor's estate can therefore be significantly larger than either spouse's individual estate; (2) AVAILABLE ALLOWANCES ON SECOND DEATH: combined NRB (own + transferred from first spouse): up to £650,000. Combined RNRB (own + transferred from first spouse): up to £350,000 (if conditions met). Total IHT-free: up to £1,000,000 (if estate under £2m, no taper); (3) IHT CALCULATION: the estate above £1m is charged at 40%. If the estate is £1.5m, the IHT bill is £500,000 × 40% = £200,000. If 10%+ of net estate goes to charity, the rate on the balance reduces to 36% (IHTA 1984 s.7A); (4) CLAIMING THE RNRB: the executor must actively claim the RNRB and the transferred RNRB. Required: IHT402 (TNRB); IHT435 (RNRB claim); if the first spouse downsized, IHT436 (downsizing addition). Missing these forms can cost the estate hundreds of thousands of pounds. A professional executor or probate specialist should be used for significant estates; (5) PAYING IHT: IHT on the second death must be paid within 6 months of death. Interest accrues at 2.5% above Bank of England base rate from month 7. Instalments are available for property (interest-bearing). The estate cannot be distributed until the HMRC IHT reference number is obtained and the IHT is agreed and paid; (6) PRACTICAL PLANNING FOR THE SECOND DEATH: update wills regularly; ensure the family home is held in the correct ownership structure; check pension expressions of wishes after first spouse dies; consider lifetime PET gifts to reduce the survivor's estate; use annual gifting exemptions (£3,000/year) and normal expenditure out of income while the survivor has income; consider charitable legacies.