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UK inherited property and Inheritance Tax: thresholds, home allowance and estate value

A guide to separate estate value, debt, the £325,000 threshold, potential home allowance and the inherited-property decision.

Reviewed: 13 September 2026 · Luís Castanheira

GOV.UK describes Inheritance Tax as a tax on the estate and states a normal £325,000 threshold. It also describes circumstances where the threshold can rise to £500,000 when a home is passed to children or grandchildren, and a standard 40% rate above the relevant threshold. These are not automatic outcomes: spouse or civil-partner treatment, charity, transferred allowances, gifts and the relevant UK territory must be checked.

Before you act

1.Identify the relevant UK territory and the person authorised to administer the estate.
2.Prepare date-of-death property value, mortgage, other debts and valuation evidence.
3.Treat £325,000 and a possible £500,000 position as selected scenario inputs, not eligibility conclusions.
4.Confirm direct-descendant, spouse, charity, gifts and transferred-allowance questions separately.
5.Keep IHT screening separate from sale, co-ownership and buyout calculations for the property.

Worked example

In Birmingham, a £500,000 net estate with a selected £325,000 threshold has £175,000 above the threshold and a £70,000 illustration at 40%. The illustration does not decide whether residence nil-rate band, spouse exemption or transferred allowance applies.

The arithmetic becomes useful only after the relevant threshold and exclusions are confirmed.

Related PropCalc tools

Open educational IHT estimate Compare inherited-property division Read UK property checklist

Frequently asked questions

Is £500,000 available for every inherited home?

No. GOV.UK describes conditions around passing a home to children or grandchildren.

Do beneficiaries usually pay IHT directly?

Estate funds are normally used by the person dealing with the estate, subject to the circumstances.