What are the rules around the £1 million Inheritance Tax threshold?

This article was updated on 1 November 2024 to reflect the changes to inheritance tax from the Autumn Budget 2024.

What are the facts (and the fiction) around the £1 million inheritance tax threshold? Our legal experts explain.

The inheritance tax rate is 40%: Fact

Inheritance tax is charged on your death at the rate of 40% based on the value of your assets. This 40% rate is only charged on any value exceeding the nil rate band. The nil rate band in the tax year 2024/25 is £325,000 and the Autumn Budget of 30 October 2024 announced that this figure is to remain until the tax year 2029/30. In addition, a residence nil rate band (RNRB) applies so that less inheritance tax may be paid when the family home is left to children, grandchildren and some other individuals.  The RNRB is £175,000 but tapers for estates above £2m until it is zero for estates above £2.2m.

The combined inheritance tax nil rate band is £1 million: Fact

From 6 April 2020, the maximum combined inheritance tax nil rate band and RNRB for both spouses or civil partners is £1 million.  However, the residence must be worth at least £350,000 for the full RNRB to be available. 

Married couples benefit from the £1 million threshold: Fiction

This is fiction: Not all married couples and civil partners will benefit from the £1 million threshold!

What are the rules of the £1 million inheritance tax threshold?

The qualifying rules for the £1 million inheritance tax threshold are complex but broadly, all the following must apply:

1. When the first spouse or civil partner died, they did not use any of their nil rate band or residence nil rate band. In other words, they left all their estate to their spouse or civil partner;
2. The death of the surviving spouse or civil partner occurs on or after 6 April 2020 (if the death occurs prior to that date but after 6 April 2017, the threshold will be lower);
3. The estate value is less than £2 million; and
4. The home is left to children, grandchildren or stepchildren or to their spouses or civil partners.

If you have sold your home, moved out of your home or have given your home to your children already, all is not necessarily lost.

Professional advice on the £1 million inheritance tax threshold

To ensure you maximise the tax-saving effect of the enhanced nil rate band we strongly recommend that you review your will or make a will if you don’t already have one.

For further information or assistance, please contact Julie Garbutt using [email protected] or 0191 211 7863.