There is NO Inheritance Tax (IHT) liability upon any assets passing from a deceased person's estate to their surviving spouse.
A widowed person can pass up to a total of £325,000 to their beneficiaries free of IHT. They may also use their deceased spouse’s available allowance of up to £325,000 in addition to this. Also, if someone is unlucky enough to have more than one deceased spouse, they may use as many additional allowances of £325,000 as they have predeceased spouses.
If a widowed person is passing their residential property to DIRECT descendants (children, grandchildren, etc.) then they have an individual maximum of £175,000 of RESIDENTIAL IHT tax-free allowance in addition to their basic IHT allowance as outlined above. They may also use their deceased spouse’s RESIDENTIAL allowance (provided their predeceased spouse co-owned the residential property alongside the deceased when the predeceased spouse died), but the tax-free allowances are capped at the value of the residential property at the point of the surviving spouse's death.
This means that a deceased widow with one predeceased spouse can pass up to £1 million of estate value free of IHT.
Single and divorced people have just one allowance of £325,000 and one additional RESIDENTIAL allowance of up to £175,000. Therefore, they may pass up to £500,000 of estate value free of IHT.
The benefit of the RESIDENTIAL allowance will diminish for estate values above £2 million.