Inheritance Tax (IHT) is usually charged at 40% on the value of your estate that exceeds certain thresholds when you pass away. Your estate includes property, cash, investments, and other assets. From April 2027, most unused pension funds and death benefits will come into scope for IHT, too.

You may have heard that a couple can pass on as much as £1 million without paying IHT. This figure is correct in some instances, but there are occasions when this threshold won’t apply.

Keep reading to find out more.

Your potential £1 million Inheritance Tax threshold combines two available allowances

The standard IHT threshold is known as the nil-rate band and stands at £325,000 for the 2026/27 tax year. You may also qualify for the £175,000 residence nil-rate band (as at 2026/27) when passing a home to a direct lineal descendant, potentially increasing your total IHT-free allowance to £500,000.

On death, any unused allowance can normally be transferred to your surviving spouse or civil partner. As a result, a couple could potentially pass on:

• £650,000 using their combined nil-rate bands
• £350,000 using their combined residence nil-rate bands.

Together, this creates the £1 million figure.

However, it’s vital to note that £1 million is the maximum available threshold only in specific circumstances, rather than the standard.

3 reasons why your IHT-free allowance might be lower than £1 million

1. You aren’t married or in a civil partnership

Spouses and civil partners can use the spousal exemption to gift assets to each other with no IHT to pay. When the first person dies, any unused portion of their nil-rate band may also be transferred to the surviving spouse or civil partner.

However, this doesn’t normally extend to unmarried couples, regardless of how long you and your partner have lived together or whether you have children together, share a property, or have combined household finances.

As a result, an unmarried person would usually only have access to their own allowances.

If you qualified for both the £325,000 nil-rate band and the full £175,000 residence nil-rate band, you might be able to pass on up to £500,000 if all relevant conditions were met.

Asset transfers between unmarried partners may also be subject to IHT on first death if the estate exceeds the partner’s available thresholds. This could leave the surviving partner financially exposed, especially if much of the estate consists of a home they share.

So, if you’re part of an unmarried couple, you might need to pay close attention to how assets are owned, how your wills are structured, and whether you have proper protection in place.

2. You have no direct descendants

It’s important to remember that the residence nil-rate band is only available when you leave a qualifying primary home to a direct descendant. This includes:

• Children
• Grandchildren
• Stepchildren
• Adopted children
• Foster children.

It doesn’t normally include siblings, nieces, cousins, or other relatives.

As such, if you don’t have children or other direct descendants, you’re unlikely to benefit from the residence nil-rate band, even if your estate includes a valuable home.

You may face the same issue if you have children but choose to leave your home to someone else.

For instance, you might leave it to a sibling, meaning that while your estate may benefit from the standard nil-rate band, you might not qualify for the residence nil-rate band.

If you’re part of a married couple but don’t have direct lineal descendants, your potential combined allowance may be up to £650,000.

This is why it’s important to consider who you want to inherit your estate carefully.

3. Your estate is worth more than £2 million

Even if you are married and intend to leave your home to children or grandchildren, you may still not receive the full residence nil-rate band if your estate is worth more than £2 million.

This is because the residence nil-rate band is tapered for larger estates.

For every £2 of your estate’s net value that exceeds £2 million, the available residence nil-rate band is reduced by £1.

For example, imagine your estate is worth £2.2 million. This would exceed the taper threshold by £200,000, so your residence nil-rate band would be reduced by £100,000. Rather than receiving the full £175,000 allowance, you’d only have £75,000 available.

Once your estate reaches £2.35 million, you lose the residence nil-rate band entirely.

Meanwhile, a surviving spouse or civil partner with a combined residence nil-rate band of £350,000 would lose the allowance completely when the estate reaches £2.7 million.

It’s worth noting that this calculation is based on the net value of your estate before IHT relief is applied. This means that even when some business or agricultural assets later qualify for relief, they could still cause the estate to exceed the taper.

Lifetime gifting may help you reduce the value of an estate, but it’s important to ensure you still retain enough wealth to maintain your standard of living and meet any potential later-life care costs.

We could help you deal with the complexities of estate planning

Planning around IHT can be complicated, and even seemingly insignificant differences in your circumstances could considerably affect an eventual bill.

We can help you understand which allowances may apply to your estate and how your existing arrangements fit with your wishes.

This might include:

• Reviewing your assets
• Considering lifetime gifting
• Determining retirement income needs
• Assessing how your wider estate plan is structured.

Some aspects of estate planning aren’t regulated by the Financial Conduct Authority, which is why seeking professional advice is so important. We aim to ensure that you can pass wealth to loved ones tax-efficiently without affecting your own financial security.

Get in touch

Please contact us if you have any questions regarding your estate plan and the Inheritance Tax allowances available to you. De Mellow’s expert financial planners are on hand to help.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

SJP Approved 10/07/2026