Most families dealing with a death do the arithmetic once, early, and act on the answer. The house is worth £420,000, there is £60,000 elsewhere, the threshold is "£500,000 because of the home allowance" — so the estate is under, no inheritance tax is due, and no form is needed.
The first two conclusions may well be right. The third is wrong, and it is wrong in a way that can cost the family the allowance they just relied on.
What HMRC actually tells agents
From HMRC's own Agent Update, stated without hedging:
agents should not take the residence nil rate band (RNRB) and any brought-forward (transferable) allowance into account when they consider if the estate is an excepted estate
Read that against how the threshold is usually described. People are told their tax-free amount is £500,000 with a home passing to children, or £1 million for a couple. Both come from the residence nil-rate band, and both figures are real — but neither is the figure that decides whether you have to file.
The excepted estates test runs on the basic nil-rate band alone.
Why that is not a technicality
Here is the part that turns a paperwork question into a money question.
The residence nil-rate band, the transferred nil-rate band and the downsizing addition are not automatic. Each one has to be claimed, and the claim is made on a full inheritance tax account.
So the family that reasons "we are under £500,000 once the home allowance is counted, therefore no form" has done something circular: they have used an allowance to excuse themselves from the very filing required to claim it.
The two routes an estate can take
Low value excepted estate. For deaths on or after 1 January 2022:
| Condition | Limit |
|---|---|
| Gross value of the estate | Not more than the nil-rate band |
| Trust assets | Gross value not more than £250,000, held in a single trust |
| Foreign assets | Gross value not more than £100,000 |
| Specified transfers (lifetime gifts) | Chargeable value not more than £250,000 |
| Gifts with reservation | None |
Exempt excepted estate. For estates that are far larger but almost entirely exempt:
| Condition | Limit |
|---|---|
| Gross value of the estate | Not more than £3,000,000 |
| Trust assets | Not more than £1,000,000 |
| Foreign assets | Not more than £100,000 |
| Specified transfers | Not more than £250,000 |
| Exemptions that count | Spouse or civil partner, and charity. Only these. |
| Net chargeable value | Must still be within the nil-rate band |
| Gifts with reservation | None |
The £3 million figure surprises people, and the qualification is what makes it work: the estate is large, but nearly all of it is passing to a surviving spouse or to charity, so almost nothing is chargeable.
Note what is absent from the second table. Business and agricultural property relief are not on the list — an estate relying on the £2.5 million APR/BPR allowance is not exempt for this purpose, because relief is not the same thing as exemption.
Domicile no longer decides it
For deaths on or after 6 April 2025, the question is whether the deceased was a long-term UK resident immediately before death. Domicile governs deaths before that date.
That is a genuine change of test rather than a change of wording, and it matters for anyone with a life abroad. Where a spouse exemption is being relied on, both spouses have to meet the residence test.
The gift that quietly disqualifies you
Both routes require that the deceased had not made a gift with reservation of benefit.
That is not an obscure condition. The classic case — transferring the family home to the children and carrying on living in it — is one of the most common arrangements in British estate planning, and it forces a full account regardless of how modest the estate looks.
Worth checking before concluding anything, because the arrangement is usually years old and nobody thinks of it as a gift any more.
What to actually check
- Redo the threshold test using the basic nil-rate band only. Take the home allowance back out and see whether the answer changes.
- Is anyone relying on the residence band, a transferred band or the downsizing addition? If so, a full account is how they are claimed, not an optional extra.
- Did the deceased give anything away and keep using it? That disqualifies both routes.
- Are there trust assets or foreign assets? Each has its own ceiling, and trust assets must sit in a single trust for the low value route.
- Was the death on or after 6 April 2025? Then long-term residence, not domicile, is the test.
- Is the estate large but passing to a spouse or charity? The exempt route may apply even well into seven figures.
Deciding not to file is a decision, not the absence of one, and it is made under a deadline by people who have just had a bereavement. Nothing here is advice about a particular estate: the conditions have more detail than an article can carry, and getting it wrong costs an allowance rather than an argument. A probate solicitor will settle it in one conversation, and that is the conversation to have before the threshold arithmetic gets done twice.
Sources
- GOV.UK — Agent Update: issue 146 (opens in a new tab)
- HMRC IHTM06012 — Rules about excepted estates: low value excepted estates (opens in a new tab)
- HMRC IHTM06013 — Rules about excepted estates: exempt excepted estates (opens in a new tab)
- HMRC IHTM10021 — IHT400: introduction (opens in a new tab)
- GOV.UK — Inheritance Tax account (IHT400) (opens in a new tab)
This article is general information for a United Kingdom audience and describes the inheritance tax rules of England and Wales. It is not financial, tax or legal advice. Whether a particular estate is excepted depends on conditions beyond those summarised here, and the consequences of getting it wrong fall on the personal representatives personally. Take advice from a probate solicitor. Last reviewed 26 September 2026.
