Passing on your estate: IHT thresholds and probate

When you settle in the UK for the long term, you will accumulate assets—a home, savings, investments, pensions—that form your estate. Understanding inheritance tax thresholds and the probate process helps you plan ahead, minimize tax burden on your beneficiaries, and ensure your wishes are carried out smoothly after you pass away.

How Inheritance Tax Works: The Nil-Rate Band

Inheritance tax (IHT) in the UK is charged on estates that exceed a certain tax-free threshold. This threshold is called the nil-rate band, and it currently stands at £325,000 per person. Any value of your estate below this amount passes to your beneficiaries free of inheritance tax. Above that threshold, tax is charged at a flat rate of 40% on the excess.

For example, if your estate is worth £525,000, inheritance tax is charged only on the £200,000 above the nil-rate band—that is, £80,000 to HMRC. The nil-rate band applies to all types of assets: property, savings, investments, possessions, and anything else of value. It is available to every individual, regardless of marital status or who receives your estate.

The Residence Nil-Rate Band: Extra Relief for Your Home

In addition to the standard nil-rate band, an extra allowance applies when you pass your home to your direct descendants. This is called the residence nil-rate band (RNRB), and it is worth £175,000 per person. It can be combined with your standard nil-rate band, meaning a single person can pass up to £500,000 free of inheritance tax, or a married couple up to £1,000,000, if their home qualifies.

The residence nil-rate band applies only when a qualifying residential property—one you lived in during your lifetime—passes to your direct descendants on death. Direct descendants include children, grandchildren, step-children, adopted children, and foster children. The property must have been a residence at some point; buy-to-let properties and holiday cottages do not qualify.

Importantly, the RNRB does not apply if you leave your home to a sibling, friend, charity, or to a discretionary trust. It also does not apply if your overall estate is worth more than £2 million—above this threshold, the allowance tapers away by £1 for every £2 of excess value. If you sold or downsized your home before death, a special 'downsizing addition' may preserve some or all of the £175,000 allowance, provided the sale proceeds (or other estate assets) ultimately pass to direct descendants.

Transfers to Spouses and Civil Partners: The Complete Exemption

Transfers between spouses and registered civil partners are completely exempt from inheritance tax. This is one of the most important reliefs in UK tax law. You can leave your entire estate—no matter how large—to your spouse or civil partner without any inheritance tax being charged, both during your lifetime and on death.

Crucially, any unused nil-rate band and residence nil-rate band can be transferred to the surviving spouse or civil partner. This means if you die and leave everything to your spouse, your full £325,000 nil-rate band (and £175,000 residence nil-rate band if applicable) remains unused and can be added to theirs. When the surviving spouse later dies, their estate can benefit from a combined £650,000 nil-rate band (or up to £1,000,000 including the residence bands if a home passes to direct descendants).

This transfer does not happen automatically. The executors of the second estate must claim it from HMRC, but the process is straightforward using the standard inheritance tax forms. The spousal exemption does defer inheritance tax to the second death rather than eliminating it entirely—when the surviving spouse's estate is settled, tax will be due on any amounts above their combined thresholds.

Lifetime Gifts and the Seven-Year Rule

Gifts you make during your lifetime can fall outside your estate entirely for inheritance tax purposes, provided you survive long enough. The key threshold is seven years: gifts made more than seven years before your death are completely exempt from inheritance tax and do not count towards your estate value.

If you die within seven years of making a gift, that gift may be subject to inheritance tax. However, the rate depends on how long you survived after making it. If you die within three years, the full 40% rate applies. Between three and seven years, 'taper relief' progressively reduces the rate—the longer you lived, the less tax is due. After seven years, the gift is fully exempt.

Most gifts to individuals are 'potentially exempt transfers' (PETs)—they are not immediately subject to tax, but they count towards your estate if you die within seven years. Some gifts are always exempt regardless of timing, such as gifts between spouses, gifts to charity, small gifts up to £250, and gifts within your annual exemption of £3,000 per tax year (which you can carry over to the following year for one year only).

For non-UK residents or those planning to leave the UK, the seven-year rule is an important planning tool. By making gifts to family members during your lifetime, you reduce your taxable estate and potentially save significant amounts in inheritance tax. However, gifts are binding—once given, you cannot reclaim them if circumstances change.

Probate: Administering the Estate

After someone dies, their assets—savings, property, investments, pensions—cannot be accessed or transferred until probate is granted. Probate is the legal authority that allows executors (the people named in the will) or administrators (the closest relatives, if there is no will) to deal with the estate. Without it, banks, building societies, the Land Registry, and other organizations will not release funds or assets.

When is Probate Required?

Probate is usually required if the estate holds land or property registered at the Land Registry, or if the deceased's assets held at a single organization (such as a bank) exceed a certain threshold—typically £5,000. For most estates, probate is necessary. Some small estates (under £5,000) and certain jointly held assets may pass directly to beneficiaries without it, but this is the exception.

Applying for Probate Online

The UK probate system is designed to be accessible. You can apply online via GOV.UK without a solicitor. The process involves completing form PA1P (if there is a will) or PA1A (if there is no will), providing a copy of the original will and death certificate, and paying the application fee. If inheritance tax is payable, you must complete the inheritance tax form (IHT400) and pay any tax before submitting the probate application.

The application fee is £300 for estates valued over £5,000. Estates valued at £5,000 or less are not charged a fee. You can apply online and pay by debit or credit card, then post the original documents to the Probate Registry. The grant of probate typically arrives within 8–16 weeks of submitting a straightforward application with all documents.

Additional costs to budget for include sealed copies of the grant of probate. Each copy costs £16 and is needed to send to banks, building societies, the Land Registry, pension providers, and other organizations. A typical estate with a property, bank accounts, and a pension or ISA may need 6–10 copies.

After Probate is Granted

Once probate is granted, executors can collect the deceased's assets and distribute them according to the will (or the laws of intestacy if there is no will). This typically takes a further 3–12 months, depending on the estate's complexity, whether property needs to be sold, and whether there are any disputes. Executors must keep detailed records of all transactions and are accountable to beneficiaries and HMRC.

If inheritance tax is due, it is usually paid from the estate funds before distribution. HMRC must be notified of the death and the estate value via the inheritance tax return. Penalties and interest apply if tax is paid late, so meeting deadlines is important.

Planning Ahead: Key Takeaways

• Write a will or review your existing one regularly, especially if your circumstances have changed (marriage, children, moving property between countries).
• If you are married or in a registered civil partnership, understand how the spousal exemption and transferable nil-rate band can reduce your beneficiaries' inheritance tax bill.
• If you own a UK home and have direct descendants, check whether the residence nil-rate band applies—it can shelter up to £175,000 per person from tax.
• Consider lifetime gifts to family members if your estate is likely to exceed the nil-rate band; gifts made more than seven years before death are completely tax-free.
• Understand the difference between inheritance tax and probate: probate is about legal authority to administer the estate; inheritance tax is about the tax bill. Both may apply to your estate.
• Keep clear records of any major gifts, property purchases, or changes to your financial situation. These will be needed by your executors.
• If you are a non-UK domiciled individual or have assets outside the UK, seek professional advice—the inheritance tax rules changed significantly from 6 April 2025 and now depend on long-term UK residence rather than domicile.

For expats and long-term residents, building a UK estate is common and tax-efficient planning is valuable. Whether you are accumulating property, savings, or a business, understanding the nil-rate bands, spousal exemptions, and probate process protects your family and ensures your legacy is passed on as intended, with minimal unnecessary tax.