Inheritance Tax (IHT) may not be the most cheerful subject, but it’s one of the most important financial considerations when planning your estate. With rising property values and frozen tax thresholds, more families than ever are finding themselves facing an unexpected IHT bill, often at a time of grief and upheaval. Understanding the current rules and planning accordingly can make a huge difference, both emotionally and financially.
At Howard & Over, we work with individuals and families to make sure their affairs are in order, and that their estate is passed on with as little legal or financial complication as possible. So, what are the Inheritance Tax thresholds in 2025, and what do you need to know?
What Is Inheritance Tax?
Inheritance Tax is a tax on the estate (property, money and possessions) of someone who has died. The standard IHT rate is 40%, but crucially, it’s only charged on the part of the estate that exceeds certain thresholds. These thresholds, known as the nil-rate band and the residence nil-rate band, are where careful planning can come into play.
The Current Thresholds in 2025
There are two main allowances:
- Nil-rate band: The first £325,000 of an estate is tax-free. This amount hasn’t changed since 2009 and is frozen until at least 2028.
- Residence nil-rate band: If you leave your main home to your children or grandchildren, you may get an extra £175,000 tax-free.
This means one person could potentially leave up to £500,000 tax-free. For couples, allowances can be combined, so you could pass on up to £1 million without paying IHT.
However, if your estate is worth more than £2 million, the residence allowance starts to reduce. Once the estate reaches £2.35 million, that extra £175,000 is lost altogether.
Why the Threshold Freeze Matters
While these tax-free amounts have stayed the same, house prices and the value of estates have gone up. As a result, more families, even those who wouldn’t consider themselves wealthy, are finding they’re liable for Inheritance Tax.
Last year, HMRC collected a record £7.5 billion from IHT. That figure is expected to grow, especially as more people are pulled into the tax bracket simply because of rising property values.
2025 Changes and Developments to Be Aware Of
Since April 2025, Inheritance Tax rules now look at how long you’ve lived in the UK, not just where you consider “home.” If you’ve lived here for 10 out of the last 12 years, your worldwide assets could now be taxed, even if you move abroad. This could affect British expats and foreign nationals.
If you own a business or farmland, you may still qualify for Business Relief or Agricultural Relief, which can reduce or even eliminate Inheritance Tax liability. While these reliefs remain in place for now, some policymakers have proposed tightening the rules. It’s important to stay informed, especially if your estate planning relies on these benefits.
How We Can Help
Our experienced Private Client team specialises in drafting Will’s, LPAs, trusts, probate, and tax planning. We take the time to understand your unique situation, whether you’re a young family writing your first Will, or someone with a complex estate and international interests. The goal is always to help you plan with confidence and leave a legacy that reflects your values.
We’re here not only to guide you through the legal complexities but to give you peace of mind that your loved ones will be looked after, whatever the future holds.
The Inheritance Tax thresholds may be unchanged in 2025, but the impact on families is evolving rapidly. With frozen allowances, rising asset values, and new rules on the horizon, there has never been a more important time to plan ahead. By reviewing your estate, making use of all available reliefs, and seeking expert advice, you can ensure that more of what you’ve built over your lifetime goes to the people you care about – not the taxman.
If you’d like to discuss your estate or update your Will, contact Howard & Over Solicitors today