A guide to Inheritance Tax thresholds & allowances in 2025

Inheritance Tax thresholds and allowances are set to remain largely consistent in the 2024/25 tax year, though significant changes have been announced for 2025, which will affect both UK residents and international taxpayers.

On this page we will cover the current Inheritance Tax thresholds, the allowances available and the expected changes on the horizon.

What are the 2025 Inheritance Tax thresholds?

For the 2024/25 tax year, the Inheritance Tax threshold remains at £325,000. This amount, also known as the Nil Rate Band, represents the portion of an estate that can be passed on without triggering an Inheritance Tax liability.

If an estate’s value falls below the £325,000 threshold, no Inheritance Tax is due. However, any value exceeding £325,000 may be taxed at a rate of 40%. This means that, for estates above the threshold, 40% Inheritance Tax could apply to the amount over £325,000.

Additionally, qualifying estates may benefit from the Residence Nil Rate Band for passing on main residence to direct descendants, which can further reduce the taxable value.

How does the Residence Nil Rate Band affect house inheritance?

The Residence Nil Rate Band provides an additional Inheritance Tax free allowance when you pass on your main residence to direct descendants, such as children or grandchildren. For the 2024/25 tax year, this allowance is set at £175,000.

When combined with the standard Nil Rate Band of £325,000, the Residence Nil Rate Band can increase your total Inheritance Tax threshold to £500,000. For married couples or civil partners, this combined threshold can reach up to £1 million, allowing significant Inheritance Tax savings when the family home is inherited by direct descendants.

The Residence Nil Rate Band starts to taper once an estate exceeds £2 million, reducing by £1 for every £2 over this amount. As a result, estates valued above £2 million will gradually lose eligibility for the full Residence Nil Rate Band.

With thresholds remaining fixed, more estates are projected to incur Inheritance Tax in the coming years. By 2028/29 and 2029/30, the number of estates subject to Inheritance Tax is expected to increase by 1,400 and 2,900 respectively, compared to adjustments aligned with the Consumer Price Index. Consequently, the proportion of UK estates liable for Inheritance Tax will increase by 0.2 percentage points in 2028/29 and by 0.4 percentage points in 2029/30.

What was announced in the Budget?

In the recent Budget, new limitations on Inheritance Tax relief on agricultural and business property were introduced:

• From 6 April 2026, the full 100% inheritance Tax relief on agricultural and business property will be capped at the first £1 million of combined agricultural and business assets.

• For amounts above this threshold, Inheritance Tax will be due at a reduced rate of 20% instead of 40%. This tax can be paid in interest-free instalments over 10 years, allowing landowners time to pay without needing immediate liquidation of assets.

This in addition to existing spousal exemptions and nil-rate bands, so couples with qualifying farmland, depending on their circumstances, may still pass on up to £3 million free from Inheritance Tax.

However, many farmers have expressed concerns that these changes could create a financial strain, potentially requiring them to sell land or incur debt to meet the new tax requirements. For example, The Times reported that a typical 200 acre farm with an annual profit of £27,300 would face a tax liability of £435,000 — equivalent to 159% of its yearly profit, making it unsustainable for many family run farms.

For farmers facing substantial Inheritance Tax liabilities due to these new rules, selling to a cash buyer like The Property Buying Company can offer a few advantages. 

For one, we provide a fast and straightforward sale, often within as little as 7 days, bypassing the typical delays associated with financing and mortgage approvals. This quick access to liquidity can help farmers meet Inheritance Tax obligations promptly, easing the financial pressure on the family during a challenging time.

What changes are coming in 2025?

Starting April 2025, Inheritance Tax rules will shift, particularly for those with international ties:

There is also speculation that the nil rate band and the Residence Nil Rate Band could be adjusted, potentially impacting middle and higher-value estates.

Do you have to pay Stamp Duty on inherited property?

Generally, you do not have to pay Stamp Duty Land Tax when you inherit a property, as inheritance is not considered a typical property transaction but rather a transfer of ownership. However, there are some circumstances where Stamp Duty may apply…

If the property has an outstanding mortgage, Stamp Duty may be due on the portion of the mortgage that exceeds the Stamp Duty threshold of 5% (£250,001 - £925,000), 10% (925,001 - £1.5million), 12% (1.5million+). This is because taking on the debt is treated similarly to a purchase. 

For example, if you inherit a house with a mortgage of £250,100 and intend to buy out other beneficiaries’ shares, Stamp Duty might be payable on the amount of the mortgage that remains above the threshold. On the other hand, if there’s no outstanding mortgage on the property, there is no Stamp Duty obligation regardless of any subsequent actions you take with the property.

Is Capital Gains Tax due on inherited property?

Capital Gains Tax is generally not due on inherited property at the time of inheritance. The estate itself does not owe Capital Gains on any property or assets that weren’t sold (known as ‘unrealised gains’) before the person’s death.

However, if the property is sold during the probate period and has increased in value since the person’s death, Capital Gains Tax may be payable on the gain realised from the date of death to the sale date.

When beneficiaries inherit a property, they receive it at its probate value – the property’s market value at the date of death. This means that if they later sell or transfer the property and its value has risen since the date of inheritance, Capital Gains Tax may apply on the increase in value from the probate valuation to the final sale or transfer.

What tax deadlines are there for inheritance properties?

Inheritance Tax must be paid by the end of the sixth month after the person’s death. For example, if the person passed away in January, Inheritance Tax would be due by 31st July. In some cases, such as for a property, you may opt to pay Inheritance Tax in annual instalments if selling the asset could take time.

Before making any Inheritance Tax payments, you’ll need to request an Inheritance reference number from HM Revenue and Customs (HMRC) at least three weeks in advance.

If inheriting a property means you now own two properties, you must inform HMRC which property is your main residence within two years. Failing to do so, allows HMRC to determine your main residence if you later sell a property, which may lead to Capital Gains Tax on the property with the higher value.

How to prepare for potential Inheritance Tax changes

In order to help mitigate the potential Inheritance Tax exposure, you may wish to consider the following strategies:

• Make gifts: Consider gifting assets now to start the seven year exemption clock for potentially exempt transfers.

• Bank the Nil Rate Band: Use the £325,000 threshold now to reduce future Inheritance liabilities, especially if concerned about future restrictions on business property relief.

• Review residency: If you have not yet been a UK tax resident for 10 years, consider the implications of the upcoming changes.

• Consider life insurance: Insurance can help cover future Inheritance Tax liabilities, providing security for beneficiaries.

• Consider selling now: Using a cash buyer like The Property Buying Company means you can sell your property in as little as 7 days, and potentially avoid the Inheritance Tax changes.

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