The most important number in inheritance tax, and why more families are crossing it without realising.
AFTER READING THIS, YOU WILL UNDERSTAND
- Exactly what the nil rate band is, what it covers, and how it is applied to your estate
- Whether additional allowances could increase your threshold, and by exactly how much
- Why more estates are crossing the nil rate band now, and what that means for your family
This article is for anyone who owns property, has savings, or wants to understand what their family might face when they die. You do not need to be wealthy for this to matter.
The nil rate band is currently £325,000 and has been frozen since 2009. As house prices have risen, more families are crossing it without realising. Understanding where you stand is the first step.
This guide explains exactly how the nil rate band works, what can increase it, and why the rules are more flexible than most people think.
It takes about five minutes to read. By the end, you will know whether your estate is likely to be affected and what questions to ask.
What the nil rate band actually is
The nil rate band is the amount of your estate that is completely free from inheritance tax. In 2026/27, this is £325,000.
Your estate is calculated as the net value of everything you own when you die: your home, savings, investments, and possessions, minus any debts. If that net value comes to less than £325,000, no inheritance tax is due at all.
If your estate is worth more than £325,000, the portion above that threshold is taxed at 40%. The nil rate band itself is not taxed. Only the amount that exceeds it.
A worked example:
- Your estate is valued at £500,000 when you die. The nil rate band is £325,000. The taxable portion is £175,000. At 40%, the inheritance tax bill is £70,000, paid by your estate before anything reaches your family.
Is there anything that can increase the nil rate band?
Yes. There are two important additions that can increase the amount you can pass on tax-free.
The residence nil rate band and your main residence
If you own a home and you are leaving it to your children or grandchildren, you may be entitled to an additional allowance called the residence nil rate band, sometimes referred to as the RNRB. It is currently worth £175,000.
Combined with the standard nil rate band, the RNRB means your estate could be worth up to £500,000 before any inheritance tax becomes due.
There are conditions. The property must be your main residence, and it must pass to direct descendants, meaning children, grandchildren, or their spouses. The allowance also begins to taper for estates worth more than £2 million, reducing by £1 for every £2 above that threshold.
Also known as the additional nil rate band
You may also hear the residence nil rate band referred to as the additional nil rate band. Both terms refer to the same allowance. The additional nil rate band is the name used in some official HMRC guidance.
Married couples and civil partners: transferring the unused nil rate band
When a married person or civil partner dies and leaves everything to their surviving partner, their nil rate band is not used up.
That unused allowance does not disappear. It transfers to the surviving spouse or civil partner automatically, and they can use it when they themselves die.
This means a spouse or civil partner effectively inherits their partner’s threshold, adding it to their own.
Together, a couple could potentially pass on up to £650,000 using their combined nil rate bands alone, or up to £1,000,000 if the residence nil rate band applies to both.
This is not a planning technique or a loophole. It is exactly how the rules are designed to work, and personal representatives dealing with an estate can claim the transfer as part of the probate process.
A couples example:
- A husband dies, leaving everything to his wife. His nil rate band is unused. His wife later dies with an estate of £900,000, including their family home, which passes to their children. Her combined threshold is £1,000,000 (both nil rate bands plus both residence nil rate bands). No inheritance tax is due.
Why has the nil rate band not increased for so long?
The nil rate band has been frozen at £325,000 since 2009 and is not expected to increase until at least 2031.
Over the same period, house prices across much of the UK have risen significantly. Estates that would have sat comfortably below the threshold a decade ago are now approaching it or crossing it.
Not because the people who own them have become dramatically wealthier. Simply because the threshold has stayed still while the value of their property has moved upward.
This effect is sometimes called fiscal drag. It is why inheritance tax is no longer only a concern for the very wealthy.
Does the nil rate band apply to everything I own?
The nil rate band applies to the total net value of your taxable estate. Not every asset is included.
Assets passed directly between spouses or civil partners are exempt from inheritance tax entirely, whether transferred during your lifetime or on death. Gifts to registered charities are also exempt. These exemptions are reported through inheritance tax returns submitted to HMRC after death.
From April 2027, most unspent pension funds will be included in the value of your estate for inheritance tax purposes.
This is one of the most significant changes to inheritance tax in a generation. Many families have not yet accounted for it in their planning.
A final point worth holding onto: tax rules and reliefs depend on individual circumstances and may change over time. Everything described here reflects the rules as they stand in 2026/27.
KEY TAKEAWAYS
- The nil rate band is £325,000 in 2026/27. Estates below this pay no inheritance tax.
- The residence nil rate band adds a further £175,000 if you leave your home to direct descendants, giving a potential threshold of £500,000.
- Married couples and civil partners can combine unused allowances, potentially passing up to £1,000,000 tax-free.
- The nil rate band has been frozen since 2009, which means rising house prices are pulling more estates into the taxable zone.
- From April 2027, most unspent pension funds will be included in your estate for inheritance tax purposes.
- The rules are more flexible than they appear. The earlier you understand your position, the more options are available to you.
QUESTIONS TO ASK YOUR FINANCIAL ADVISER
- What is the total value of my estate today, and does it currently fall above or below the nil rate band?
- Does the residence nil rate band apply to my situation, and are there any conditions that might affect whether I can use it?
- Can I benefit from my late partner’s unused nil rate band, and how is that claimed?
- How does the April 2027 pension change affect my estate, and should I be adjusting my planning now?
- Are there straightforward things I could be doing to reduce my estate’s exposure to inheritance tax?
What does this mean for your family’s financial future?
The nil rate band sounds simple in principle. In practice, how it applies to your estate depends on your specific assets, your family situation, and decisions you may not have made yet.
A short conversation tells you far more than an hour of reading. You will leave knowing exactly where your estate stands and what, if anything, you should be thinking about.
Book a no-obligation chat with one of our inheritance tax planning specialists today. Just an honest conversation about your estate and what is possible.
