Inheritance Tax Threshold UK

The Nil-Rate Band

The nil-rate band (NRB) is the amount you can leave in your estate without paying Inheritance Tax. For 2026-27, it's £325,000.¹

This threshold has been frozen since 2009. The government extended the freeze until at least 2028, meaning more estates are being pulled into IHT as house prices rise.

Anything above the nil-rate band is taxed at 40%. For example, if your estate is worth £500,000:

• First £325,000: tax-free (nil-rate band)
• Remaining £175,000: taxed at 40% = £70,000 IHT

The Residence Nil-Rate Band

The residence nil-rate band (RNRB) is an additional allowance introduced in 2017. For 2026-27, it's £175,000.²

You only get this allowance if:

• You leave your main residence to your children, grandchildren, or step-children (direct descendants)
• Your estate is worth less than £2 million (the RNRB tapers away above this threshold)

Combined with the nil-rate band, a single person can leave up to £500,000 tax-free if they pass on their home to direct descendants.

Transferring Between Spouses

Anything you leave to your spouse or civil partner is completely exempt from IHT, no matter how much it's worth.³

When the first spouse dies, any unused nil-rate band and residence nil-rate band transfers to the surviving spouse. This means a married couple can pass on up to:

• Nil-rate band: £325,000 × 2 = £650,000
• Residence nil-rate band: £175,000 × 2 = £350,000
• Total: £1 million tax-free

This only works if the first spouse left everything to the second spouse or used less than their full allowances. The executor of the second spouse's estate claims the transferred allowance when they die.

Tapering for Large Estates

The residence nil-rate band reduces by £1 for every £2 your estate is worth above £2 million.⁴

For example, if your estate is worth £2.4 million:

• Excess over £2m: £400,000
• RNRB reduction: £400,000 ÷ 2 = £200,000
• Your RNRB is reduced to: £175,000 - £175,000 = £0 (fully tapered away)

The nil-rate band is not tapered. It always applies regardless of estate size.

What Counts Towards Your Estate?

Your estate includes:

• Property and land
• Savings and investments (except ISAs, which are exempt up to the thresholds above)
• Business assets
• Personal possessions (cars, jewellery, furniture)
• Life insurance payouts (unless written in trust)

Debts, funeral costs, and some reliefs (like Business Property Relief) reduce the value of your estate before IHT is calculated.

Gifting to Reduce IHT

Gifts made more than seven years before you die are exempt from IHT. Gifts made within seven years are potentially exempt transfers (PETs) and may be taxed on a sliding scale if you die within that period.

Learn more: Inheritance tax gift rules