How Much Can You Inherit Tax-Free? [2025 Update]

Inheritance tax (IHT) is a complex area and often feels like it’s constantly changing. Understanding IHT thresholds and allowances is, however, vital for anyone concerned about preserving wealth for their family’s and loved ones’ future.

Answering the important question of “how much money can you inherit without paying inheritance tax?” becomes exceptionally important if you’re trying to get a sense of what your family could be entitled to. In the UK, everyone has a tax-free IHT threshold, but your extent of inheritance tax planning will influence what your spouse or family will inherit in the event of your event.

This guide looks to break down all the important IHT allowances and reliefs available in 2025, to help you understand how much can be passed on without triggering a tax charge, and how to maximise a tax-free inheritance for the future.

How Inheritance Tax Works

IHT is a tax that’s paid on the value of your estate (assets, property, money and possessions) in the event of your death.

If your total estate value exceeds the tax-free threshold you sit in, you will need to pay IHT. Your family may not need to pay IHT on your estate if its value sits below the threshold, which is officially dubbed the inheritance tax nil rate band.

The IHT Nil Rate Band 2025

The nil rate band (NRB) remains at £325,000 for 2025/26. This threshold has been frozen at this level until April 2028, meaning no indexation increases despite ongoing inflation.

Every individual can leave up to £325,000 to anyone without triggering inheritance tax. This applies to:

• Cash and investments
• Property and possessions
• Business assets
• Any other valuable items

Anything above this threshold is typically taxed at 40%, though various reliefs and exemptions can reduce or eliminate this charge. For example, if you give your home to your children or grandchildren before you die, the threshold increases to £500,000.

Any unused threshold can be transferred to your spouse or civil partner. If the first spouse to die doesn’t use their full £325,000 allowance, the unused portion transfers to the surviving spouse. This means couples can potentially have a combined nil rate band of £650,000.

Individuals can make chargeable lifetime transfers up to £325,000 within a 7-year period without having to pay any IHT.

The Residence Nil Rate Band

The residence nil rate band (RNRB) provides an additional inheritance tax allowance specifically for family homes passed to direct descendants.

For 2025/26, this allowance remains at £175,000 per person.

To claim the residence nil rate band:

• The deceased must own a qualifying residential property
• The property must form part of their estate on death
• It must be passed to direct descendants (children, stepchildren, grandchildren, or great-grandchildren)
• The total estate value must be under £2 million (see tapering below)

The residence nil rate band is reduced for estates exceeding £2 million. For every £2 above this threshold, the RNRB is reduced by £1.

Following the death of one spouse in a marriage or civil partnership, any unused NRB or RNRB can be transferred to the surviving partner. Qualifying estates can pass up to £325,000 each (as NRB) and £175,000 each (as RNRB), leaving potential totals of £1,000,000 to be passed out IHT-free.

Spouse and Civil Partner Exemptions

When your civil partner or spouse passes away, they can leave everything to you tax-free of IHT, regardless of the value.

The exemption applies to lifetime gifts and death transfers, and that both spouses must be UK domiciled.

Business Property Relief

Business property relief (BPR) has historically provided 100% inheritance tax relief on qualifying business assets, making it one of the most valuable reliefs available.

Business property relief currently provides:

• 100% relief on unincorporated businesses
• 100% relief on shares in unlisted trading companies
• 50% relief on listed company shares (where you control the company)
• 100% relief on business assets used in your own company

However, major changes are coming. From April 2026, business property relief at 100% will be capped at the first £1 million of qualifying assets, with 50% relief available thereafter.

This means:

• First £1 million of business assets: 100% relief (no inheritance tax)
• Assets above £1 million: 50% relief (effective 20% inheritance tax rate)

As far as tax planning goes, the £1 million relief allowance refreshes every seven years for lifetime gifting, creating opportunities for structured gift programmes to maximise available reliefs.

Agricultural Property Relief

Agricultural property relief (APR) follows similar changes to business property relief, reducing the IHT bill on transfers of specific qualifying assets.

Current Relief Agricultural property relief currently provides up to 100% relief on:

• Agricultural land and buildings
• Farmhouses
• Woodland
• Shares in agricultural companies

That said, from 6 April 2026, full 100% relief will be restricted to the first £1 million of combined agricultural and business property. Taxes will apply to agricultural assets over £1 million.

Lifetime Gifts, Exemptions and Allowances

Making gifts can be a tax-efficient way to pass on cash and assets to your loved ones without paying an abundance of IHT.

Annual exemptions and gift allowances

• £3,000 per year can be given away tax-free
• Unused annual exemption can be carried forward one year if not used
• Couples can each use their annual exemption (£6,000 combined)

Small gifts exemption

• £250 per recipient per year
• Cannot be combined with annual exemption for the same person
• No limit on number of recipients

Wedding gifts

• £5,000 to children
• £2,500 to grandchildren
• £1,000 to anyone else

Gifts from surplus income

• Unlimited gifts from surplus income
• Must not affect your standard of living
• Requires careful consideration

Inheritance Tax Planning Strategies

Consider the following strategies to minimise your short- and long-term inheritance tax liabilities.

• Consider lifetime gifting programmes where annual exemptions can be used consistently and accurately. Consider the seven-year rule carefully, utilise normal expenditure out of your surplus income, and plan gifts around relief changes.
• Trusts can help preserve family wealth while managing IHT. Consider exploring discretionary trusts, life interest trusts and charitable trusts to support your long-term goals.
• Consider restructuring business investments to help you maximise available IHT business property reliefs and plan the timing of your disposals around forthcoming relief changes. Explore the EIS (Enterprise Investment Scheme) additionally.
• Review your pension arrangements, as from April 2027 these will be subject to inheritance tax.

The Importance of Best Inheritance Tax Advice

Proper documentation is crucial for inheritance tax planning. Make sure that you:

• Maintain detailed records of all gifts
• Document normal expenditure patterns
• Keep business records supporting relief claims
• Regularly review and update estate plans

Given the complexity of inheritance tax rules and upcoming changes, professional advice is invaluable. At Hamlyns, we help families navigate these complexities through comprehensive estate valuations, strategic tax planning advice, trust setup and administration, business succession planning, and regular plan reviews, to help you and your family see more of your wealth.

The frozen thresholds mean more families will face inheritance tax in coming years. However, with careful planning and professional guidance, significant tax savings remain achievable whilst ensuring family wealth is preserved. Contact Hamlyns today for a comprehensive review of your inheritance tax position and develop strategies to maximise tax-free inheritance for your family.