My estate is worth £500k
In short
Whether a £500,000 estate pays inheritance tax depends on your circumstances. An individual has a £325,000 nil-rate band, plus a £175,000 residence nil-rate band if a home passes to children or grandchildren — totalling £500,000. Leave your home to direct descendants and the estate could pay nothing; without the residence band, around £70,000 of tax could be due.
The situation
Your estate is worth roughly £500,000 and you want to understand the inheritance tax position.
What happens legally
Two allowances determine the bill (figures current for 2026):
- Everyone has a nil-rate band of £325,000, taxed at 0%.
- An additional residence nil-rate band of £175,000 applies if you leave a qualifying home to direct descendants, giving an individual up to £500,000 tax-free.
- Anything above the available threshold is taxed at 40%. Without the residence band, £500,000 − £325,000 = £175,000 taxed at 40% ≈ £70,000.
- Transfers to a spouse or civil partner are exempt, and unused allowances can transfer to them.
The risks
- If you have no home, or don't leave it to descendants, you lose the residence band and tax becomes due.
- Leaving assets to non-exempt beneficiaries without planning can trigger a 40% charge on the excess.
- The thresholds are frozen until April 2031, so rising asset values pull more estates into tax.
Recommended actions
- Check whether your estate qualifies for the residence nil-rate band.
- Make a Will that uses your allowances efficiently (and a spouse's, if relevant).
- Consider lifetime gifts or charitable legacies to reduce the taxable estate.
- Take advice if your estate is close to or above the thresholds.
Sources
- Inheritance Tax Act 1984 — legislation.gov.uk
- GOV.UK — Inheritance Tax thresholds and rates (NRB £325,000; RNRB £175,000)
- HMRC — Residence nil-rate band guidance
- Reviewed by
- ClearLegacy editorial team
- Last reviewed
- June 2026
- Next review
- December 2026
- Jurisdiction
- England & Wales
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