What is the current inheritance tax nil-rate band?

The nil-rate band is £325,000 per person (2025/26), frozen at this level since 2009 and remaining frozen until at least 6 April 2030. Any estate value above this is taxed at 40% unless reliefs or exemptions apply. The nil-rate band (NRB) is the threshold below which an estate pays no inheritance tax. It has been fixed at £325,000 since 6 April 2009 and the government has confirmed it will remain at this level until at least 6 April 2030. This freeze means that as property values and asset prices rise over time, more estates are pulled into the IHT net — a phenomenon known as 'fiscal drag'. The NRB is per individual, so a single person can pass on £325,000 tax-free. For married couples and civil partners, unused NRB can be transferred to the surviving spouse. Relevant legislation: Inheritance Tax Act 1984, Section 8 (nil-rate band); Finance (No. 2) Act 2015 (freeze provisions). Example: An individual dies with an estate worth £500,000 and no spouse. The nil-rate band of £325,000 applies, so the first £325,000 is tax-free. The remaining £175,000 is taxed at 40%, giving an IHT bill of £70,000. If the estate was worth £325,000 or less, no IHT would be due. Common mistake: Assuming the nil-rate band increases with inflation. It has been frozen since 2009 and will remain frozen until at least 2030, meaning more estates are caught each year.

How does the residence nil-rate band (RNRB) work?

The RNRB provides an additional allowance of up to £175,000 when a main residence is passed to direct descendants (children or grandchildren). It is added to the standard nil-rate band, giving a maximum tax-free allowance of £500,000 per person. The residence nil-rate band (RNRB) was introduced on 6 April 2017. It provides an additional allowance of up to £175,000 (2025/26) on top of the standard nil-rate band of £325,000, giving a combined allowance of up to £500,000 per individual. To qualify: (1) The deceased must have owned a residence that was their home. (2) The residence must be passed to direct descendants — children, grandchildren, great-grandchildren, or their spouses/civil partners. (3) The residence does not have to be the home at the date of death — if the deceased downsized or sold their home after 8 July 2015, the RNRB may still be available (downsizing provisions). The RNRB tapers away for estates above £2 million. Relevant legislation: Inheritance Tax Act 1984, Section 8D-8F (residence nil-rate band); Finance (No. 2) Act 2015. Example: An individual dies leaving a family home worth £400,000 and other assets worth £100,000, total estate £500,000. The nil-rate band is £325,000 and the RNRB is £175,000, giving a combined allowance of £500,000. As the estate equals £500,000, no IHT is due. Without the RNRB, the IHT would be £70,000 (40% of the excess above £325,000). Common mistake: Assuming the RNRB applies to any property. It only applies to a main residence passed to direct descendants. A buy-to-let property or a home left to a sibling does not qualify.

What is the £2 million RNRB taper and how does it work?

The RNRB is reduced by £1 for every £2 of estate value above £2 million. This means estates worth £2.35 million or more (for an individual) lose the RNRB entirely, leaving only the standard £325,000 nil-rate band. The residence nil-rate band tapers away for high-value estates. For every £2 of estate value above £2 million, the RNRB is reduced by £1. The maximum RNRB is £175,000, so it is fully tapered away when the estate exceeds £2.35 million (£2 million + 2 × £175,000). This means that high-value estates — common in London where property values are high — lose the benefit of the RNRB. The taper applies to the total estate value before reliefs (but after exemptions). For married couples, the taper threshold is still £2 million per person, but the transferable RNRB can complicate the calculation. Relevant legislation: Inheritance Tax Act 1984, Section 8D(2)-(3) (taper provisions). Example: An individual dies with an estate worth £2.2 million, including a qualifying residence. The estate is £200,000 above the £2 million threshold. The RNRB is reduced by £100,000 (half of £200,000), from £175,000 to £75,000. The combined allowance is £325,000 (NRB) + £75,000 (RNRB) = £400,000. IHT is charged on £1.8 million at 40% = £720,000. Common mistake: Forgetting to account for the taper when planning for high-value estates. Many London families assume they have the full £500,000 allowance, but the RNRB may be partially or fully tapered away.

How much can a married couple pass on tax-free?

A married couple can potentially pass on up to £1 million tax-free (£325,000 NRB + £175,000 RNRB per person), provided the estate includes a qualifying residence passed to descendants and the estate is below the £2 million taper threshold per person. Married couples and civil partners can transfer unused nil-rate band and residence nil-rate band to the surviving spouse. If the first spouse leaves everything to the surviving spouse (using the spouse exemption), 100% of both allowances are unused and available for the second estate. The second estate then has: £325,000 × 2 = £650,000 NRB, plus £175,000 × 2 = £350,000 RNRB, giving a total of £1 million. However, the RNRB taper applies to the second estate — if the total estate exceeds £2 million, the RNRB (including the transferred portion) is tapered away. The RNRB taper threshold for the second estate is still £2 million, not £4 million, even though two RNRBs are being claimed. Relevant legislation: Inheritance Tax Act 1984, Sections 8A-8B (transferable NRB); Sections 8D-8F (RNRB including transferability). Example: A married couple owns a family home worth £700,000 and other assets worth £300,000. The first spouse dies leaving everything to the surviving spouse (no IHT due, spouse exemption). When the second spouse dies, the estate is £1 million. The combined allowances are £650,000 NRB + £350,000 RNRB = £1 million. As the estate is below £2 million, no taper applies. No IHT is due. Common mistake: Assuming the RNRB taper threshold doubles for married couples. The taper starts at £2 million for the second estate, even when claiming two RNRBs. A £2.5 million estate would lose most of the RNRB despite the combined allowance.

What happens if I downsize or sell my home before death?

If you downsize or sell your main residence on or after 8 July 2015, the residence nil-rate band may still be available under the 'downsizing' provisions. The RNRB can be applied to other assets in the estate, up to the value of the lost RNRB. The downsizing provisions were introduced to prevent people from losing the RNRB simply because they downsized or sold their home before death. If the deceased sold their home or moved to a smaller property on or after 8 July 2015, the RNRB may still be available. The RNRB is applied to other assets in the estate (not just the residence), up to the value of the RNRB that would have been available if the home had been retained. This means that downsizing does not result in a loss of the RNRB. The executors must claim the downsizing RNRB on the IHT return, and must provide details of the former residence and the disposal. Relevant legislation: Inheritance Tax Act 1984, Section 8DA (downsizing provisions); Finance (No. 2) Act 2015. Example: An individual downsizes in 2020, selling their £600,000 home and buying a £300,000 flat. On death in 2025, the estate is worth £500,000 (including the £300,000 flat). The RNRB of £175,000 is still available, but only £125,000 can be applied (because the flat is worth £300,000, and the RNRB cannot exceed the residential property in the estate). The remaining £50,000 of RNRB may be available under the downsizing provisions, applied to other assets. Common mistake: Failing to claim the downsizing RNRB. Executors must actively claim it on the IHT return, providing details of the former home and disposal. Without a claim, the RNRB is lost.

When will the nil-rate band and RNRB increase?

Both the nil-rate band (£325,000) and the residence nil-rate band (£175,000) are frozen until at least 6 April 2030. There are no planned increases before that date, meaning more estates will be caught by IHT as asset values rise. The nil-rate band has been frozen at £325,000 since 6 April 2009. The residence nil-rate band was set at £175,000 from 6 April 2020 and is also frozen. The government has confirmed that both allowances will remain frozen until at least 6 April 2030. This freeze is significant because it means that as property values, investment values, and inflation rise over time, more estates are pulled into the IHT net. This is known as 'fiscal drag' — the threshold stays the same in nominal terms but falls in real terms. It is estimated that the freeze will bring hundreds of thousands of additional estates into the IHT net over the freeze period. Relevant legislation: Finance (No. 2) Act 2015 (RNRB freeze); Finance Act 2021 (NRB and RNRB freeze extended to 2030). Example: In 2009, when the NRB was last set at £325,000, only about 3% of estates paid IHT. By 2025, with property values having risen significantly and the NRB unchanged, an estimated 7-8% of estates pay IHT. By 2030, this proportion is expected to be even higher. Common mistake: Assuming the allowances increase with inflation or property values. The freeze is in nominal terms, meaning the real value of the allowances decreases each year, pulling more estates into the IHT net.

IHT Advisory › Allowances

Nil-Rate Band & Residence Nil-Rate Band

The nil-rate band and residence nil-rate band are the foundation of IHT planning. Understand how they interact, the £2 million taper, and how married couples can pass on up to £1 million tax-free.

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The nil-rate band (NRB) and residence nil-rate band (RNRB) are the two main allowances that determine how much of an estate is free from inheritance tax. Both have been frozen until at least 2030, meaning more estates are caught in the IHT net each year as property values and asset prices rise. Understanding how these allowances work — both individually and for married couples — is the first step in effective IHT planning.

The Standard Nil-Rate Band

The nil-rate band is the amount of an estate that is taxed at 0% for inheritance tax purposes. It has been set at £325,000 since 6 April 2009 and is frozen at that level until at least 6 April 2030. Any part of the estate above the NRB is taxed at 40%, unless reliefs (such as BPR or APR) or exemptions apply. The NRB is per individual, so a single person can pass on £325,000 tax-free.

The Residence Nil-Rate Band (RNRB)

The residence nil-rate band was introduced on 6 April 2017 and provides an additional allowance of up to £175,000 when a main residence is passed to direct descendants (children, grandchildren, or their spouses/civil partners). The RNRB is also frozen at £175,000 until at least 2030. Not all estates qualify for the RNRB — the property must be a residence that was the deceased's home, and it must be passed to direct descendants.

The £2 Million Taper

The RNRB tapers away for estates worth more than £2 million. For every £2 of estate value above £2 million, the RNRB is reduced by £1. This means that estates worth £2.35 million or more lose the RNRB entirely (for an individual), reducing the effective allowance back to the standard NRB of £325,000. This taper affects many London families where property values alone exceed £2 million.

Married Couples and Transferable Allowances

When the first spouse dies, any unused NRB and RNRB can be transferred to the surviving spouse. This means that a married couple can potentially have a combined allowance of £1 million (£325,000 NRB + £175,000 RNRB per person = £1 million). However, the transfer is based on the percentage unused at the first death, not a fixed amount. If the first spouse left everything to the surviving spouse (using the spouse exemption), 100% of both allowances are available to the second estate.

Key Points

What You Need to Know

The nil-rate band is £325,000 per person, frozen until at least 2030
The residence nil-rate band adds up to £175,000 for main residences passed to descendants
The RNRB tapers away by £1 for every £2 of estate value above £2 million
Married couples can transfer unused allowances, potentially giving a combined £1 million
Estates above £2.35 million (individual) lose the RNRB entirely

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