What Estate Tax Exemptions Can You Claim in the UK? A Guide to Inheritance Tax-Free Allowances in 2025

Belgravia Capital
May 31
4 min read

In the UK, estate tax - more commonly known as inheritance tax (IHT) - applies to the value of a deceased person’s estate over a certain threshold.

But there’s good news: several powerful exemptions exist that can significantly reduce or eliminate the tax due.

If you’re asking:

“What estate tax exemption can I claim?”

You’re not alone, and the answer can make a substantial difference to your family’s financial future.

At Belgravia Capital Wealth Management, we help families understand and apply all available inheritance tax exemptions.

In this article, we break down the current estate tax exemptions in 2025 and show how to structure your estate to benefit from them.

What Is the Estate Tax in the UK?

In the UK, estate tax is officially called inheritance tax.

It’s charged at 40% on the value of an estate above certain thresholds, after debts, funeral costs, and any allowable reliefs are deducted.

The tax is paid by the estate itself before assets are distributed to beneficiaries, not by the recipients.

The Main Inheritance Tax Exemptions in 2025

Nil-Rate Band (NRB) – £325,000

Every individual in the UK has a £325,000 tax-free allowance. This is known as the nil-rate band.

The first £325,000 of your estate is exempt from inheritance tax.
The allowance has been frozen since 2009 and will remain so until at least April 2030.

If your estate is valued below £325,000, no IHT is due.

Residence Nil-Rate Band (RNRB) – £175,000

If you pass on your main home to your direct descendants (e.g. children or grandchildren), you may claim an additional £175,000 exemption.

This is known as the residence nil-rate band and can be used in addition to the standard NRB.

To qualify, you must own or part-own your home
The home must be passed to children or grandchildren
The full RNRB is only available to estates below £2 million. Above this, the allowance is tapered by £1 for every £2 of value over £2 million, meaning it disappears entirely at £2.35 million

Together, the NRB and RNRB allow an individual to pass on up to £500,000 tax-free.

Combined Exemption for Married Couples – Up to £1 Million

Married couples and civil partners can combine their allowances:

If the first partner dies and leaves everything to their spouse, no tax is due
Their unused exemptions are passed on to the survivor
When the second partner dies, their estate can claim up to:
- £325,000 x 2 (NRB) = £650,000
- £175,000 x 2 (RNRB) = £350,000
- Total tax-free exemption = £1 million

This is the most generous exemption available, but it requires careful planning to make sure both sets of allowances are preserved and claimed properly.

Spouse or Civil Partner Exemption – Unlimited

If you leave your estate to your UK-domiciled spouse or civil partner, there is no inheritance tax to pay - regardless of the estate’s size.

This unlimited exemption allows you to transfer your full estate without triggering tax, and ensures your unused NRB and RNRB can be carried forward.

If your spouse is non-UK domiciled, the exemption is limited to £325,000, unless they elect to be treated as UK-domiciled.

Charity Exemption - 100%

Any part of your estate left to a UK-registered charity is fully exempt from inheritance tax.

Additionally, if you leave at least 10% of your net estate to charity, the IHT rate on the remainder of your estate may be reduced from 40% to 36%.

This is a popular strategy for reducing tax while supporting causes you care about.

6. Gifts and Gifting Exemptions

Certain lifetime gifts are exempt from inheritance tax if made under specific rules:

Annual Exemption – £3,000 per person

You can give away £3,000 tax-free each year
Unused exemption can be carried forward for one tax year

Small Gifts Exemption – £250 per recipient

Unlimited small gifts of up to £250 can be made to different people annually
Can’t be combined with the £3,000 exemption for the same person

Wedding Gifts

£5,000 to a child
£2,500 to a grandchild or great-grandchild
£1,000 to others

Gifts from Surplus Income

If you have income that exceeds your needs, regular gifts made from this income are exempt
Must not affect your standard of living and must be well documented

7-Year Rule for Larger Gifts

Gifts made more than 7 years before your death are fully exempt
Gifts within 7 years may be taxed on a sliding scale known as taper relief

Business and Agricultural Reliefs (Subject to Caps from 2026)

While not technically “exemptions,” Business Property Relief (BPR) and Agricultural Property Relief (APR) offer significant reductions to the taxable value of your estate.

Current relief (until April 2026):

Up to 100% relief on qualifying assets (businesses, farmland, AIM shares)

From April 2026:

A combined £1 million lifetime cap per individual will apply to BPR and APR
Excess value will receive only 50% relief
This will significantly increase IHT exposure for business owners and landowners

These reliefs require careful qualification and documentation to apply.

Life Insurance in Trust – Outside Your Estate

A whole - of - life policy written in trust does not form part of your estate and pays out tax-free.

This is not a formal exemption, but it is a powerful strategy to ensure liquidity for IHT bills without increasing the size of the taxable estate.

How to Make Sure You Use All Available IHT Exemptions

Even with generous exemptions in place, many estates pay more tax than necessary because:

Wills aren’t updated or properly structured
Spousal allowances aren’t transferred
Gifts aren’t recorded or exceed the thresholds
Assets are held jointly or inefficiently

With professional planning, you can structure your estate to claim every available exemption and pass more of your wealth to your loved ones, not HMRC.

How Belgravia Capital Wealth Management Can Help with Inheritance Tax Planning

We help individuals, couples, and families:

Assess their full IHT exposure
Maximise their use of nil-rate bands and exemptions
Create structured gifting and trust plans
Plan around the 2026 changes to BPR and APR
Draft or update tax-efficient wills

Our expert estate planning advice ensures you legally reduce or eliminate inheritance tax wherever possible.

Conclusion: What Estate Tax Exemption Can You Claim?

In the UK, exemptions exist to ensure that your estate isn’t taxed unnecessarily, but only if you know about them and use them effectively.

Whether you’re passing on a family home, gifting during your lifetime, or structuring your estate with your spouse, there are opportunities to reduce tax - but they require action.