A person dies in 2026/27 leaving an estate of £780,000, including a home worth £400,000, all passing to their children. They made no lifetime gifts and were not married at death. Assume a nil rate band of £325,000, a residence nil rate band of £175,000 and an IHT rate of 40%. What is the inheritance tax?
Answer and explanation
Correct answer: A. £112,000
- Step 1: The home passes to direct descendants, so the residence nil rate band is available.
- Step 2: Total nil rate bands = £325,000 + £175,000 = £500,000.
- Step 3: Taxable estate = £780,000 - £500,000 = £280,000. Tax = £280,000 × 40% = £112,000.
Answer
£112,000.
Why not the others: £182,000 ignores the residence nil rate band. £312,000 applies the 40% rate to the whole estate and allows no nil rate band. No tax would be due only if the estate passed to a spouse or civil partner or the estate were below the nil rate bands; this one is above them.
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