UK IHT Nil-Rate Band Explained

The nil-rate band is the fundamental allowance in UK inheritance tax. Estates valued below the band pay no IHT; estates valued above the band pay 40 percent on the excess. Although the band's nominal value has been frozen at 325,000 pounds per individual since 6 April 2009, its practical importance has grown over time as property prices and investment values have risen. The transferable element of the band between spouses and civil partners has become one of the most important planning levers for UK families with assets at or above the threshold.

This article explains how the nil-rate band works in detail, how the transferable element is claimed, how the band interacts with lifetime gifts and with the residence nil-rate band, and where planning levers can preserve or extend the band's effect.

The standard nil-rate band

Each UK individual has a standard nil-rate band of 325,000 pounds. The band applies to the value of the estate at death (less debts and reasonable funeral expenses) and to lifetime gifts within the seven years before death that are not covered by another exemption.

If the total of the estate plus the chargeable lifetime gifts in the seven-year window is at or below 325,000 pounds, no IHT is payable. Above the band, 40 percent applies to the excess.

The freeze

The 325,000 pound figure has been in place since 6 April 2009. Successive governments have extended the freeze; the band is currently frozen at this level under fiscal announcements through to at least 2028. The effect of the freeze is fiscal drag: as estate values rise with property and investment growth, more estates exceed the band and become subject to IHT even though the headline rate has not changed.

The transferable nil-rate band

One of the most important provisions in UK IHT is the transferability of unused nil-rate band between spouses and civil partners. When the first spouse or civil partner dies, any unused portion of their nil-rate band can be transferred to the survivor and used in addition to the survivor's own band on the second death.

How transfer works

If the first spouse left everything to the surviving spouse (the most common scenario, because the spouse exemption means no IHT is payable on the first death), 100 percent of the first spouse's nil-rate band is unused. On the second death, the survivor has effectively two nil-rate bands: their own (325,000 pounds) and the transferred 100 percent of the first spouse's band (another 325,000 pounds), totalling 650,000 pounds.

If the first spouse used part of their nil-rate band (for example, by leaving 100,000 pounds to a child rather than to the survivor), the transferable percentage is reduced. The transferred portion is calculated as a percentage of the first spouse's unused band at the time of their death, applied to the survivor's nil-rate band at the date of the survivor's death.

The percentage approach

The transfer is calculated as a percentage rather than a fixed sum. This means the survivor benefits from any increase in the nil-rate band between the two deaths (though there has not been an increase since 2009). It also means the calculation must be done carefully where the first spouse's estate used a partial proportion of their band.

Claiming the transfer

The transferable nil-rate band is not automatic. The executor of the survivor's estate must claim it on the IHT return (form IHT402) and provide evidence of the first spouse's death and the unused proportion. Where the first spouse died many years before, the executor may need to obtain a copy of the death certificate, the will, and probate records to support the claim.

Multiple marriages

The transferable nil-rate band can be claimed from up to one previous spouse or civil partner. Where an individual has been married more than once and inherited band from each, the total claim is capped at one full nil-rate band (so the survivor cannot stack multiple transferred bands).

How lifetime gifts interact

Lifetime gifts within the seven years before death are added back into the estate for IHT purposes and use up the nil-rate band before the death estate is taxed. The chronological order matters: the earlier gifts use the band first.

An example

Consider an individual who made a 200,000 pound gift to their child 5 years before death and died with a 600,000 pound estate. The gift is a potentially exempt transfer (PET) that becomes chargeable because the donor did not survive seven years. The chargeable gift uses 200,000 pounds of the 325,000 pound nil-rate band, leaving 125,000 pounds available for the death estate. The remaining 475,000 pounds of the death estate is taxed at 40 percent, giving an IHT charge of 190,000 pounds on the death estate. The gift itself is taxable at 40 percent above its share of the band; in this example, the gift is within the band so no IHT charge applies to the gift on top of the death estate calculation.

Taper relief

Taper relief reduces the IHT rate on lifetime gifts made between 3 and 7 years before death, on a sliding scale. Taper only benefits gifts large enough to exceed the nil-rate band on their own; smaller gifts (like the 200,000 pound gift above, which fits within the band) do not benefit from taper.

Interaction with the residence nil-rate band

The residence nil-rate band is a separate additional allowance of up to 175,000 pounds per individual that applies where a qualifying main residence is left to direct descendants. The standard nil-rate band and the residence nil-rate band are claimed in addition to each other; they are not mutually exclusive.

For a couple with both bands fully available, the combined IHT-free amount is 1 million pounds (650,000 standard + 350,000 residence). For an individual with the standard band only, the IHT-free amount is 325,000 pounds. Where the residence nil-rate band tapers away above a 2 million pound estate, the standard nil-rate band continues to apply.

Lifetime gifts into trust

Lifetime gifts into most trusts are chargeable lifetime transfers (CLTs) rather than potentially exempt transfers. CLTs are subject to an immediate 20 percent IHT charge to the extent they exceed the available nil-rate band at the time of the gift. If the donor dies within seven years, a further charge can apply to bring the total to the death rate.

Because CLTs use up the nil-rate band at the time of the gift (not at death), they can affect IHT planning for many years. Multiple CLTs in successive seven-year cycles can be used to refresh the nil-rate band, but the structure is complex and benefits from regulated tax advice.

The post-April 2025 residence-based regime

From 6 April 2025, the UK replaced the domicile-based IHT framework with a residence-based regime. The nil-rate band itself is unchanged: 325,000 pounds remains the standard band for all individuals exposed to UK IHT, whether long-term UK resident or not. The change is in the scope of the IHT charge (worldwide for long-term residents, UK-situated only for non-long-term residents), not in the band's value.

The spouse exemption (which interacts directly with the transferable nil-rate band) is now governed by the long-term resident status of each spouse. Where one spouse is long-term UK resident and the other is not, the spouse exemption is capped unless the non-long-term-resident spouse elects to be treated as long-term resident.

Planning levers around the nil-rate band

The most common planning levers around the nil-rate band are:

• Use of the spouse exemption to preserve the first spouse's nil-rate band for transfer on the second death
• Use of will trusts to capture the first spouse's nil-rate band where the survivor's estate is expected to be large
• Lifetime gifting outside the seven-year window to permanently reduce the estate
• Use of the annual exemption (3,000 pounds per year) and other lifetime exemptions to reduce the estate over time
• Use of business relief or agricultural relief on qualifying assets (these reliefs reduce the value of the assets for IHT and so reduce the demand on the nil-rate band)

Common pitfalls

The most common pitfall is failing to claim the transferable nil-rate band from a deceased spouse. The transfer is not automatic; the survivor's executor must claim it on IHT402 with evidence. Long delays between deaths can make the evidence harder to obtain.

A second pitfall is structuring the first spouse's will to leave assets to children up to the nil-rate band, in the belief that this 'uses' the band efficiently. In most cases, leaving everything to the spouse (where the spouse exemption applies in full) and then claiming the transferred band on the second death achieves the same outcome with more flexibility.

The freeze through to 2030 and fiscal drag

The standard nil-rate band of 325,000 pounds has been frozen at this level since 6 April 2009. The Autumn Statement 2022 confirmed the freeze through to April 2028; the Autumn Budget 2024 extended it further, currently committing the freeze through to at least 2030. The freeze has continued through periods of high inflation and significant property price growth, with the practical effect that more estates exceed the threshold each year and become subject to IHT.

This effect, called fiscal drag, is one of the principal sources of expected growth in UK IHT receipts over the next decade. The Office for Budget Responsibility's fiscal projections include continued growth in IHT receipts driven principally by the frozen thresholds rather than any rate increase. For families with estates approaching the band, the fiscal drag effect means that the IHT planning question becomes more relevant over time even if the family's circumstances do not change.

The transferable nil-rate band claim process

The transferable nil-rate band is not automatic on the second death. The executor of the survivor's estate must claim it on form IHT402, submitted with the IHT400. The form requires evidence of the first spouse's death and of the unused proportion of their nil-rate band. The proportion is calculated as a percentage of the first spouse's nil-rate band at the time of their death; the transferable amount on the second death is that percentage applied to the survivor's nil-rate band at the second death.

Where the first spouse died many years before, the survivor's executor may need to obtain a copy of the death certificate, the will (if any), probate records, and evidence of the assets passing on the first death. HMRC accepts reasonable evidence; in some cases the executor can rely on a sworn statement where original records cannot be found. Long delays between deaths increase the documentation challenge but do not affect the underlying entitlement.

The combined 1 million pound allowance for couples

The standard nil-rate band combined with the RNRB, both fully available and both transferable between spouses, delivers a combined IHT-free threshold of up to 1 million pounds for a couple: 650,000 pounds combined and transferable standard plus 350,000 pounds combined and transferable RNRB (where the RNRB conditions are met). Estates below the threshold typically pay no IHT after the second death; estates above pay 40 percent on the excess, subject to any further reliefs.

Worked examples by family composition

To make the band mechanics concrete, consider four illustrative cases.

Case one: an unmarried individual with no children, 600,000 pounds of assets, leaving everything to a sibling and a friend. The standard nil-rate band of 325,000 pounds is available; the RNRB is not (no direct descendants). The chargeable estate is 275,000 pounds, taxed at 40 percent, giving 110,000 pounds of IHT.

Case two: a married couple with 1.5 million pounds of combined assets, two adult children, family home included. On the first death, everything passes to the survivor under the spouse exemption. On the second death, the combined 1 million pound nil-rate bands apply; the remaining 500,000 pounds is taxed at 40 percent, giving 200,000 pounds of IHT.

Case three: a divorced person with 700,000 pounds of assets including the family home worth 400,000 pounds, two adult children. The standard nil-rate band of 325,000 pounds and the RNRB of 175,000 pounds apply (no transferable bands from a deceased spouse). The chargeable estate is 200,000 pounds, taxed at 40 percent, giving 80,000 pounds of IHT.

Case four: a surviving spouse with 900,000 pounds of assets, two adult children, family home worth 500,000 pounds, where the deceased spouse left everything to the survivor under the spouse exemption. On the survivor's death, the combined 1 million pound nil-rate bands apply (assuming the deceased spouse's bands were unused and transferable). The estate is below 1 million pounds, so no IHT applies.

Important: This article is for general information and does not constitute regulated financial advice or legal advice. UK inheritance tax rules, allowances, and the post-6 April 2025 residence-based regime are subject to legislative change. Tax advice from a qualified adviser is essential where the estate is at or near the IHT threshold or where business, agricultural, or cross-border interests are involved.

Frequently asked questions

What is the UK IHT nil-rate band in 2026?

The standard nil-rate band is 325,000 pounds per individual. It has been at this level since 6 April 2009 and is currently frozen at this level under fiscal announcements through to at least 2028. The freeze means more estates exceed the band over time as property and investment values rise.

Can my spouse use my unused nil-rate band when they die?

Yes. Any unused proportion of the first spouse's nil-rate band can be transferred to the surviving spouse or civil partner and used in addition to the survivor's own band on the second death. The transfer is claimed by the survivor's executor on form IHT402 with supporting evidence.

Is the transferable nil-rate band claimed automatically?

No. The executor of the survivor's estate must claim the transferred band on IHT402 and provide evidence of the first spouse's death and unused proportion. Where the first spouse died many years before, the executor may need to obtain historical records to support the claim.

How does the nil-rate band interact with lifetime gifts?

Lifetime gifts within seven years before death are added back into the estate for IHT and use up the nil-rate band before the death estate is taxed. The chronological order matters: the earlier gifts use the band first. Taper relief reduces the IHT rate on large gifts made between 3 and 7 years before death.

Is the nil-rate band different for couples?

The nil-rate band itself is the same for each individual: 325,000 pounds. The advantage couples have is the transferable band: when the first spouse dies, their unused band transfers to the survivor, doubling the effective threshold for the second death where the first spouse left everything to the survivor.

How does the residence-based IHT regime affect the nil-rate band?

The nil-rate band's value is unchanged by the April 2025 reform. What changed is the scope of the IHT charge: worldwide assets for long-term UK residents, UK-situated only for non-long-term residents. The band continues to apply to whatever is in scope.