Inheritance Tax: The £2 Million 'Home Allowance' Trap

General information only — not legal or tax advice. For guidance specific to your circumstances, please speak with a qualified estate planning professional.

The Allowance That Can Quietly Disappear

In our previous article, we explained how the £175,000 per person Residence Nil Rate Band works — and how for most homeowners with a straightforward Will, it's already protected.

But there's a group of homeowners for whom that allowance starts to quietly disappear — and most of them have no idea it's happening.

If your estate, or your combined estate as a couple, is approaching or has passed £2 million, this article is for you.

How the Tapering Works

The Residence Nil Rate Band doesn't simply switch off at £2 million. Instead, it tapers — but the mechanism is surprisingly unforgiving.

For every £2 your estate exceeds £2 million, you lose £1 of your home allowance.

Here's what that looks like in practice:

• Estate worth £2.2 million — you've exceeded the threshold by £200,000, so your allowance reduces by £100,000. Instead of £175,000, you're left with just £75,000. At 40% inheritance tax, that's an extra £40,000 your family pays unnecessarily.

• Estate worth £2.35 million or above — the allowance is gone entirely for an individual.

• For a married couple — both allowances are wiped out once the combined estate reaches £2.7 million.

These thresholds are frozen until 2030. Property values have risen significantly over the past decade, and what felt like a comfortable distance from £2 million a few years ago may not feel quite so comfortable today.

What Counts Towards the £2 Million?

This is where many people are caught off guard. The £2 million threshold isn't just your property — it's the total net value of your estate. That includes:

• Your home

• Savings and investments

• ISAs

• Business interests

• Any other assets you own

It's worth taking stock of the full picture, particularly if property values in your area have risen sharply in recent years.

What Can Be Done About It?

The good news is that this isn't a problem without solutions. There are legitimate, well-established estate planning strategies that can help bring an estate back below the threshold — or at least reduce the impact of tapering.

These might include making use of gifting rules, reviewing how assets are held between spouses, or exploring whether certain reliefs apply to your situation.

The important point is this: the earlier you look at it, the more options you have available. Waiting until later in life can close doors that would otherwise be open.

What Should You Do Next?

If your estate is approaching or has exceeded £2 million, a straightforward conversation with an estate planning professional is a sensible starting point.

At Westwood Estate Planning, we offer a free, no-obligation 15-minute chat to help you understand where you stand. No jargon, no pressure — just a plain English conversation so you can feel informed and confident about your family's future.

Book your free 15-minute chat here: https://calendly.com/westwoodep/chat