What is Inheritance Tax (IHT)?
Inheritance Tax is a tax that may be charged on a person’s estate after they die.
An estate includes:
· Property
· Savings and investments
· Personal possessions
· Business interests
· Life insurance not written in to a Trust
In the UK the standard IHT rate is 40% on the part of the estate above any available allowances.
What is the Nil Rate Band (NRB)?
The Nil-Rate Band (NRB) is one of the foundations of Inheritance Tax planning, yet most people only hear about it when they start thinking about their will or their estate. Put simply, the NRB is the amount you can pass on when you die without paying any Inheritance Tax. At the moment, this allowance is £325,000, and it has been frozen for several years. If the total value of your estate is below this figure, no Inheritance Tax is due. If it is higher, only the amount above £325,000 may be taxed at 40%.
For many families, the home is the most valuable asset, and this is where the Residence Nil-Rate Band (RNRB) becomes important. This is an additional allowance of £175,000 that can apply when you leave a property you have lived in to your direct descendants — typically children, step-children, adopted children, or grandchildren. When the NRB and RNRB are combined, an individual can pass on up to £500,000 tax-free, provided the conditions for the RNRB are met.
Couples benefit even further. Married couples and civil partners can transfer any unused allowances to each other. This means that together, they can usually pass on up to £1 million without paying Inheritance Tax, as long as the family home goes to direct descendants. It’s a powerful relief, but one that works best when the estate has been structured with these rules in mind.
There are situations where the RNRB reduces. If an estate is worth more than £2 million, the RNRB begins to taper away, and for some larger estates it disappears entirely. This is why regular estate reviews are so important — especially for clients whose assets have grown over time or whose property values have increased significantly.
To put this into context, imagine someone with a home worth £400,000 and savings of £150,000. Their estate totals £550,000. If the home is left to their children, the combined NRB and RNRB may cover £500,000 of that amount, leaving only £50,000 potentially subject to Inheritance Tax. With thoughtful planning, even that remaining tax can often be reduced.
Many people assume Inheritance Tax is only a concern for the very wealthy, but with allowances frozen until at least 2028 and property prices continuing to rise, more families are being affected each year. Understanding the NRB helps clients make informed decisions, protect their home, and ensure their loved ones receive as much of their estate as possible.
The NRB and RNRB are therefore crucial components of the UK’s inheritance tax system.
Here is a simplified and use friendly guide to these rules:
Nil Rate Band (NRB): the NRB is the threshold below which no inheritance tax is charges. As of 2026, the NRB is £325,000.00 per person and is frozen until 2030. Estate valued below this amount are exempt from IHT.
Residence Nil Rate Band (RNRB): The RNRB is an additional allowance allowing the deceased to pass on their main residence to direct descendants. For 2026/27, the RNRB is £175,000.00 per person and is also frozen until 2030. Estate valued over £2 million ill have the RNRB tapered.
Transferability: both the NRB and RNRB can be transferred between spouses or civil partner, allowing couples to pass on up to £1 million without incurring IHT.
Planning: Effective estate planning can significantly reduce the estate exposure to IHT through gifting, trusts planning and proper Will planning.
Updated: the NRB and RNRB are currently frozen and are not expected to change until 2031.