How the £3,000,000 bill is worked out
Inheritance tax is charged at 40% on the part of an estate above the tax-free allowances. Everyone gets a nil-rate band of £325,000 (unchanged since 2009), and a home left to children or grandchildren adds a residence nil-rate band of £175,000. Both are 2025/26 figures and frozen — the Autumn Statement 2025 extended the freeze to 2030/31 — and the RNRB tapers away for estates over £2 million (GOV.UK / M&G adviser guidance). For a £3,000,000 estate the three standard situations look like this:
| Scenario | Tax-free allowance | Taxable amount | IHT due (40%) | Effective rate |
|---|---|---|---|---|
| Single, no home to descendants | £325,000 | £2,675,000 | £1,070,000 | 35.7% |
| Single, home left to children | £325,000 | £2,675,000 | £1,070,000 | 35.7% |
| Widowed second death, full transferred allowances | £650,000 | £2,350,000 | £940,000 | 31.3% |
Assumes the home is worth at least the residence band, passes outright to direct descendants, no gifts in the previous 7 years and no reliefs. For your own numbers use our interactive inheritance tax calculator.
£3 million: the taper has finished its work
By £3 million the residence nil-rate band is fully tapered away in every scenario — single or couple, home or no home. What remains is the arithmetic of the ordinary nil-rate bands: a single person pays £1,070,000 (nearly 36% of the whole estate) and a couple's second death £940,000. The taper zone is behind you; every additional pound is now taxed at a flat 40 pence.
Estates of this size are usually a portfolio problem, not a house problem: the home is a minority asset and the plan revolves around investments, business interests and pensions. The standard levers — seven-year gifts, gifts from surplus income, Business Relief, the 36% charity rate, insurance in trust — all still work, but the numbers justify bespoke advice, particularly with unused pension funds joining the estate from 6 April 2027 under the Finance Act 2026. One perspective worth keeping: the ONS puts the median 65 to 74 household's net worth at about £502,500 — a £3 million estate is roughly six typical households' entire wealth.
Married couples and civil partners
Nothing passing between spouses or civil partners is taxed, whenever it happens. More importantly, whatever fraction of the £325,000 and £175,000 bands the first death leaves unused transfers to the survivor. A couple who simply leave everything to each other and then to the children therefore arrive at the second death with up to £1,000,000 of allowances — which is why the couple's bill on this page (£940,000) differs so much from the single figure (£1,070,000). Unmarried partners receive neither the exemption nor the transfer, regardless of how long they have been together.
Ways to shrink the bill
Gifts and the 7-year rule. Assets given away more than seven years before death leave the estate entirely; between three and seven years, taper relief reduces the tax charged on the gift itself. Smaller reliefs work immediately: £3,000 a year of exempt gifts, £250 small gifts per recipient, wedding gifts, and — most underused — regular gifts out of genuine surplus income.
The 36% charity rate. Leave at least 10% of your net estate to charity and the IHT rate on the rest drops from 40% to 36%. On this estate (taking the simple no-RNRB case), a £267,500 donation would cut the tax from £1,070,000 to £866,700 — the charity receives £267,500 while your other beneficiaries give up only £64,200. The taxman funds most of the gift.
Pensions — the rules change in April 2027. Unused pension funds and death benefits currently sit outside most estates, but from 6 April 2027 they are included for IHT (legislated in the Finance Act 2026). If your estate plan leans on a large untouched pension, re-run the numbers on the new basis — our pension pot income pages cover the drawdown side.
The £2 million taper — a 60% marginal zone
Because this estate exceeds £2,000,000, the residence nil-rate band is reduced by £1 for every £2 above that line. At £3,000,000, a single person's RNRB falls from £175,000 to £0, and a couple's combined £350,000 falls to £0. While the taper is eating the band, every extra £1 of estate costs 60p — 40p of tax on the pound itself plus 20p from the shrinking allowance. It is the estate-tax twin of the 62% income tax trap between £100,000 and £125,140, and it rewards the same medicine: reduce the measured total. Lifetime gifts lower the estate value used for the taper test even before the seven-year clock finishes.
Frequently asked questions
How much inheritance tax is due on a £3,000,000 estate?
It depends on who inherits. A single person leaving a home to children or grandchildren pays £1,070,000 (allowances of £325,000). Without the residence nil-rate band the bill is £1,070,000. On a widowed second death with full transferred allowances it is £940,000. Rates and bands are 2025/26 and frozen.
Do I pay inheritance tax if everything goes to my spouse?
No. Transfers between spouses and civil partners are exempt from IHT entirely, and any unused nil-rate band and residence nil-rate band transfer to the survivor — giving the couple up to £1,000,000 of combined allowances on the second death.
What is the residence nil-rate band?
An extra £175,000 allowance (2025/26, frozen) available when a home you lived in passes to direct descendants — children, grandchildren, step and adopted children. It is capped at the home's value and tapers away at £1 for every £2 the estate exceeds £2 million.
Why is the marginal rate 60% above £2 million?
Each £1 of estate above £2 million suffers 40p of IHT and also removes 50p of residence nil-rate band, which adds another 20p of tax — a combined 60p per £1 until the RNRB is fully gone (£2.35m for a single person, £2.7m for a couple with transferred RNRB).
Model your own estate, gifts and reliefs
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