The nil-rate band is the foundation of inheritance tax planning in England and Wales. It is the threshold below which no inheritance tax is charged on an estate.
What Is the Nil-Rate Band?
The nil-rate band (NRB) is currently set at £325,000 and has been frozen since 2009. Anything above the nil-rate band is taxed at 40%.
The Transferable Nil-Rate Band
If a person dies and does not use all of their nil-rate band — for example, because they leave their entire estate to their spouse — the unused portion can be transferred to the surviving spouse's estate.
The transferable nil-rate band applies even if the first spouse died many years ago — there is no time limit on claiming it.
The Residence Nil-Rate Band
The residence nil-rate band (RNRB) is an additional allowance of £175,000 per person, available when the family home is left to direct descendants. A couple can shelter up to £1 million from IHT.