The nil rate band is the cornerstone of inheritance tax planning in England and Wales. Understanding how the £325,000 threshold works — and how to maximise it through the residence nil rate band and spousal transfers — can protect hundreds of thousands of pounds from HMRC.
Six key facts every person with an estate in England and Wales should understand about the nil rate band.
Every individual has a nil rate band of £325,000. This is the amount of your estate that can pass free of inheritance tax. Anything above this threshold is taxed at 40%.
An additional allowance of up to £175,000 applies when you leave your main home to direct descendants (children, grandchildren). This is on top of the standard £325,000 NRB.
If a spouse or civil partner does not use all of their NRB on first death, the unused percentage can be transferred to the surviving spouse — potentially doubling the threshold to £650,000.
Married couples and civil partners who leave their home to direct descendants can combine both NRBs and both RNRBs — protecting up to £1 million from inheritance tax.
The residence nil rate band is tapered for estates worth more than £2 million. For every £2 above the £2 million threshold, the RNRB is reduced by £1 — disappearing entirely at £2.35 million.
The nil rate band has been frozen at £325,000 since 2009 and is set to remain frozen until at least April 2030. As house prices and asset values rise, more estates are being drawn into the IHT net.
Current nil rate band and residence nil rate band allowances for 2025/26 — frozen until at least April 2030.
| Allowance | Amount |
|---|---|
| Standard Nil Rate Band (per person) | £325,000 |
| Residence Nil Rate Band (per person) | £175,000 |
| Combined NRB + RNRB (per person) | £500,000 |
| Transferable NRB (married couples) | £650,000 |
| Transferable NRB + RNRB (married couples) | £1,000,000 |
Figures correct for the 2025/26 tax year. Both bands are frozen until at least April 2030.
The nil rate band is applied in a specific order when calculating the IHT due on an estate.
Value the Estate
Add up all assets (property, savings, investments, personal possessions) and deduct debts, funeral expenses, and any charitable legacies. This gives the net taxable estate.
Apply the Nil Rate Band
The first £325,000 of the net estate is covered by the NRB and taxed at 0%. If the deceased was a surviving spouse who inherited an unused NRB, this can be up to £650,000.
Apply the Residence Nil Rate Band (if eligible)
If the deceased owned a qualifying home and left it to direct descendants, apply the RNRB (up to £175,000, or up to £350,000 for a surviving spouse with a transferred RNRB).
Calculate IHT on the Remainder
Any estate value above the combined NRB and RNRB is taxed at 40%. If at least 10% of the net estate is left to charity, the rate reduces to 36%.
The RNRB is a valuable additional allowance, but it comes with conditions. Not every estate qualifies.
The RNRB applies to a property that has been your main home at some point. It does not apply to buy-to-let properties or investment properties that you have never lived in.
The property must be left to direct descendants — children (including stepchildren, adopted children, and foster children), grandchildren, or their spouses and civil partners. Siblings, nieces, nephews, and friends do not qualify.
The RNRB is reduced by £1 for every £2 that the net estate exceeds £2 million. An estate worth £2.35 million or more receives no RNRB at all.
If you sold a larger home after 8 July 2015 and moved to a smaller property (or into care), the "downsizing addition" protects the RNRB you would have received on the original property.
Unmarried Partners Cannot Transfer the NRB
The transferable nil rate band is only available to married couples and civil partners. Cohabiting partners — regardless of how long they have lived together — cannot transfer their NRB to each other. This is one of the most significant financial disadvantages of not formalising a relationship. If you are cohabiting, a carefully drafted will and IHT planning strategy is essential.
Gifts made in the 7 years before death can reduce the nil-rate band available to your estate — a critical planning consideration.
Failed Potentially Exempt Transfers (gifts made within 7 years of death) are added to the estate and the NRB is applied to them first — oldest gifts first. This can reduce the NRB available to the rest of the estate.
Chargeable Lifetime Transfers (gifts into trusts) made in the 7 years before death are also cumulated with the estate and reduce the available NRB. This is known as the "7-year cumulation principle".
Your executors must report all gifts made in the 7 years before death on Form IHT400. Without records, HMRC may challenge the estate and the full NRB may not be available.
Transferable Nil Rate Band
How to claim the unused NRB from a deceased spouse.
Residential Nil Rate Band
The additional £175,000 allowance for family homes.
Potentially Exempt Transfers
How PETs interact with the nil rate band.
Spousal Exemption & IHT
The unlimited spouse exemption and how it works.
Our wills and estates solicitors can help you structure your estate to make the most of the nil rate band, residence nil rate band, and spousal transfers — potentially saving your family hundreds of thousands in inheritance tax.
Speak to a wills and estates solicitor today. Sensitive, professional advice — costs explained clearly before any work begins.
No obligation — talk through your options first. Chester, Cheshire & North Wales.
Transferable Nil Rate Band
How to claim the unused NRB from a deceased spouse.
Residential Nil Rate Band
The additional £175,000 allowance for family homes.
Potentially Exempt Transfers
How PETs interact with the nil rate band.
Spousal Exemption & IHT
The unlimited spouse exemption explained.
Inheritance Tax Explained
A complete overview of how inheritance tax works.
Tax Planning
Comprehensive IHT planning strategies for your estate.
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