If you are wondering how much inheritance tax (IHT) your family might have to pay, the value of your estate is an important starting point.

But an estate worth £500,000 does not necessarily have a £70,000 inheritance tax bill, and an estate worth £1 million does not necessarily have a £270,000 bill.

The amount of inheritance tax payable depends on factors including your available tax-free allowances, whether you own a qualifying home, who inherits it, gifts you have made and whether you have unused allowances from a spouse or civil partner.

This guide explains what could happen to estates worth £500,000, £750,000 and £1 million, using the current UK inheritance tax thresholds.

What is the inheritance tax threshold?

For the 2026/27 tax year, the standard Inheritance Tax Nil Rate Band is £325,000.

This means that, broadly, the first £325,000 of an individual’s estate can pass without inheritance tax, subject to the wider inheritance tax rules.

There is also a Residence Nil Rate Band of up to £175,000 if you leave a qualifying home to direct descendants, such as children or grandchildren.

This means a qualifying individual could potentially have up to:

available before inheritance tax becomes payable.

Unused allowances can also potentially be transferred between spouses or civil partners. In certain circumstances, this means a surviving spouse or civil partner could have up to £1 million of combined allowances available.

The residence nil-rate band is subject to conditions and begins to taper for estates worth more than £2 million. Read the current GOV.UK guidance on passing on a home.

How much inheritance tax could be payable on a £500,000 estate?

Let’s start with a £500,000 estate.

Example 1: £500,000 estate with only the standard £325,000 allowance

If the estate is worth £500,000 and only the £325,000 nil-rate band is available:

The taxable amount would therefore be £175,000.

At the standard 40% inheritance tax rate:

So, in this simplified example, the inheritance tax bill could be £70,000.

Example 2: £500,000 estate with a qualifying home

If the estate includes a qualifying residence which is being passed to direct descendants, the residence nil-rate band could increase the available allowance to £500,000.

In that simplified scenario:

The inheritance tax bill could therefore be £0. This is why simply knowing the total value of an estate is not enough to calculate the actual IHT bill.

How much inheritance tax could be payable on a £750,000 estate?

Now consider an estate worth £750,000.

Using a £325,000 allowance

At 40%:

So the simplified IHT figure would be £170,000.

Using the full £500,000 allowance

If the individual qualifies for the full residence nil-rate band and leaves the qualifying residence to direct descendants:

At 40%:

So the simplified inheritance tax figure could instead be £100,000. That is a £70,000 difference simply because of the additional residence allowance.

How much inheritance tax could be payable on a £1 million estate?

A £1 million estate is where inheritance tax planning becomes particularly important.

Using only the £325,000 nil-rate band

At 40%:

A simplified calculation would therefore produce an IHT bill of £270,000.

Using the full £500,000 allowance

If the full residence nil-rate band is available:

At 40%:

So the simplified figure could be £200,000. Again, this is only an illustration. The actual calculation can be affected by gifts, exemptions, reliefs, debts, the ownership of assets and other circumstances.

What if you are married or in a civil partnership?

This is particularly important.

Unused nil-rate band and residence nil-rate band can potentially be transferred between spouses or civil partners. As a result, a qualifying surviving spouse or civil partner can potentially have up to £1 million of combined allowances available.

For example, if the first spouse dies and leaves their estate to their spouse, there is generally no inheritance tax on that transfer. If allowances are unused, they may potentially be transferred to the surviving spouse.

This means a £1 million estate belonging to a surviving spouse could potentially fall within their available allowances. However, the rules are dependent on the circumstances and should not be assumed to apply automatically.

What about gifts made before death?

Your estate is not necessarily just what you own on the day you die. Certain gifts made during your lifetime can affect the inheritance tax calculation.

The commonly discussed 7-year rule means that many gifts can fall outside the estate for IHT purposes if you survive seven years after making them. If you die within seven years, the gift may still be relevant to the inheritance tax calculation.

There are also exemptions and allowances, including the £3,000 annual exemption and certain gifts made from normal income. Learn how much you can gift tax-free.

This is one reason why someone with a £750,000 estate today cannot necessarily work out their future IHT liability simply by subtracting £325,000 from the estate value.

Does the family home change the inheritance tax calculation?

It can make a significant difference.

The residence nil-rate band can provide an additional allowance of up to £175,000 where a qualifying residence passes to direct descendants and the relevant conditions are met.

For estates above £2 million, the residence nil-rate band starts to taper away. The family home can therefore be one of the most important factors when estimating inheritance tax.

What about business and agricultural assets?

Some business and agricultural assets may qualify for inheritance tax reliefs.

The rules around these reliefs are detailed and have changed, so they should not simply be assumed when calculating an estate’s potential tax bill. If you own a business, agricultural land or other potentially qualifying assets, professional advice can be particularly valuable.

So how much inheritance tax will I actually pay?

The simple examples above show why there is not one answer based solely on the estate value.

These are illustrative calculations, not personalised tax advice. Your actual liability could be different depending on your circumstances.

Factors that can make a significant difference include:

• Whether you own a qualifying residence
• Who inherits your home
• Whether you are married or in a civil partnership
• Unused allowances from a deceased spouse or civil partner
• Gifts made during your lifetime
• Trusts
• Business or agricultural assets
• Charitable gifts
• Debts and liabilities
• Other available exemptions and reliefs

Need advice about your estate?

If your calculation suggests that inheritance tax could be significant, you may want to consider getting professional advice.

A solicitor specialising in wills, trusts, inheritance tax and estate planning can look at your individual circumstances and explain the options available to you. A current will health check can also help you identify practical areas to discuss.

Inheritance Planner is developing relationships with independent UK solicitors so that people who need professional help can potentially be connected with an appropriate firm. There is no obligation to instruct a solicitor.

Contact Inheritance Planner to find out the next step.

Sources and further reading

• GOV.UK: Inheritance Tax overview
• GOV.UK: Passing on a home
• GOV.UK: Gifts and Inheritance Tax