At a basic level, you can inherit up to £325,000 from your parents completely tax-free, however, this may increase to £500,000 if they leave their primary residence to you and up to £1,000,000 if you combine the allowances of both parents if they are married or in civil partnership.

What is The Nil-Rate Band (NRB)?

The nil rate band (NRB) allows you to inherit up to £325,000 with zero inheritance tax implications.

This £325,000 mark consists of the estate, including any property, land, cash, investments, business ownership, furniture, jewellery and art.

Anything above the £325,000 figure is subject to the standard 40% inheritance tax rate in the UK, unless you take advantage of some tax exemptions.

What is The Residence Nil-Rate Band (RNRB)?

If your parents leave their primary residence to you, as a direct descendant, an additional allowance of up to £175,000 may apply, known as the residence nil-rate band (RNRB).

When you combine the two (£325,000 NRB + £175,000 RNRB), each parent can pass on up to £500,000 tax-free, providing that they meet the terms and conditions for the residence allowance.

The residence nil-rate band tapers off if the estate is worth more than £2 million, reducing by £1 for every £2 above this threshold. 

What Are The Combined Allowances For Married Couples or Civil Partners?

If both of your parents are married or in a civil partnership, any allowance from the first parent can be transferred to the surviving spouse or civil partner. 

This allows you to double the tax-free threshold for the second parent’s estate, making a combined allowance of £1,000,000.

So in theory, you can inherit up to £1,000,000 from your parent’s estate, assuming that they are leaving you their primary residence and you are using the combined allowance of both parents.

Importantly, if the estate and property is worth more than £1,000,000, any amounts will be taxed at 40% inheritance tax (IHT) and you will be required to pay this upfront for any monies to be made available to you.

Will I be liable for any other costs?

Yes, when you inherit property or assets from your parents, there are some outstanding fees and costs that apply including:

• Any inheritance tax
• Solicitor and legal fees
• Funeral costs
• Outstanding mortgage payment (ongoing)
• Outstanding car payments (ongoing)
• Outstanding personal loan payments/credit card bills (ongoing)
• Digital assets, payments and subscriptions

Can my parents help me reduce the inheritance tax that I pay? 

Yes, if your parents are still alive, there are ways that they can help to reduce the overall inheritance tax liability. The process of ‘gifting’ means that any money transferred to you is tax-free, assuming that it is 7 years before they die. If they die sooner than this, it reduces on a sliding scale.

Other options include giving an allowance of £3,000 each year, which is tax-free and giving cash of up to £250.

If at least 10% of the estate is donated to charity, this will reduce the overall inheritance tax owed from 40% to 36%.

Do you have a large inheritance tax bill? At Provira, we help with estate advance loans and inheritance advances to help beneficiaries to unlock 50% of their inheritance upfront. Contact us for more information or to apply online.