What This Guide Covers
- Why frozen tax thresholds are pulling ordinary family estates into inheritance tax for the first time
- How the nil-rate band, residence nil-rate band and £2 million taper actually work
- What happens if the estate owes tax but the money is tied up in the property
- What executors should do now to avoid missing the six-month payment deadline
If you're administering an estate and assumed inheritance tax was something that only applied to the very wealthy, it's worth checking the numbers again. HMRC collected £2.3 billion in inheritance tax between April and June 2026 alone — £96 million more than the same period last year — and a growing share of that is coming from estates that, a decade ago, would never have been anywhere near the threshold. If the estate you're dealing with includes a family home, this guide explains why, and what it means for you as executor.
Why Inheritance Tax Is Catching More Families Off Guard
The core problem is straightforward: property values have kept rising, but the tax-free thresholds have not moved. The nil-rate band has been frozen at £325,000 since 2009, and that freeze has now been extended to 2031. When a threshold stays fixed for over two decades while house prices climb, more and more ordinary family homes end up pushing an estate over the line — not because the family was wealthy, but because the property was.
HMRC's own projections show inheritance tax receipts reaching £14.5 billion by 2030/31. That is not a forecast built on more billionaires dying. It is a forecast built on more ordinary estates being drawn into the tax net every year.
How the Frozen Thresholds Actually Work
The Nil-Rate Band
Every estate has a tax-free allowance of £325,000 before inheritance tax applies at 40% on the excess.
The Residence Nil-Rate Band
If the main home is left to children or grandchildren, an additional £175,000 allowance applies on top of the nil-rate band. Combined, this means a single person can pass on up to £500,000 tax-free, and a married couple or civil partnership can pass on up to £1 million tax-free, provided the family home forms part of the estate and passes to direct descendants.
The £2 Million Taper
This is where many “ordinary” estates get caught out. If the total estate is worth more than £2 million, the residence nil-rate band is tapered away at a rate of £1 for every £2 over that threshold, and it disappears completely once an individual's estate reaches £2.35 million (£2.7 million for a married couple). In London and the South East in particular, a family home combined with savings, pensions and other assets can reach that level without anyone in the family thinking of themselves as especially wealthy.
What Happens If the Estate Owes Tax But the Money Is Tied Up in the House
This is the situation we see most often, and it catches executors out because the deadlines don't wait for probate to finish.
The Six-Month Deadline
Inheritance tax must normally be paid within six months of the end of the month of death — often before the Grant of Probate has even been issued, and long before a property sale can realistically complete. Interest is charged on anything unpaid after that point.
Paying in Instalments Over 10 Years
For qualifying assets like land and property, HMRC allows the tax to be spread over 10 annual instalments rather than paid in one lump sum, which can relieve the immediate pressure. The first instalment is still due at the six-month deadline, and interest continues to accrue on the outstanding balance. Importantly, if the property is sold before the ten years are up, the remaining balance falls due immediately — so this option buys time, but doesn't remove the underlying obligation.
Selling to Clear the Bill
For many executors, the most straightforward route is to sell the property and use part of the proceeds to settle the tax bill directly, often through HMRC's Direct Payment Scheme, which allows Inheritance Tax to be paid straight from the deceased's assets before probate is finalised, or by bridging the gap with a short-term facility secured against the property.
What Executors Should Do Now
Before assuming an estate falls comfortably below the threshold, add up the full picture: the property at current market value, savings, investments, pensions where relevant, and any other assets, then check whether the nil-rate band and residence nil-rate band genuinely cover it once the £2 million taper is factored in. If there's a shortfall, decide early whether instalments, a bridging arrangement, or a sale is the right route — leaving it until the six-month deadline is close removes options rather than creating them.
If the estate you're administering includes a property and you need clarity on your options — including a fast, no-obligation cash offer if a sale is the right route — we're here to help, with a free probate solicitor consultation included at no extra cost.