Inheritance tax thresholds explained: how the bands work
Most estates pay no inheritance tax, and the reason is the two thresholds and the ability to transfer them between spouses. This sets out how they combine and where they are lost.
By Robert Festenstein, Head of Legal
Updated 21 September 2026
6 min read
The short version
- The nil rate band is £325,000 and the residence nil rate band is £175,000, both fixed at those levels until the end of 2030 to 2031.
- Anything unused on the first death transfers to a surviving spouse or civil partner as a percentage, so a couple can reach £1 million between them.
- The residence band only applies where a home, or its replacement value, passes to children, grandchildren or other direct descendants.
- The residence band reduces by £1 for every £2 by which the estate exceeds £2 million, so it disappears entirely above £2.35 million.
- Inheritance tax is charged at 40% above the thresholds, falling to 36% where at least 10% of the net estate passes to charity.
- Tax is due six months after the end of the month of death, and interest runs from then whether or not the grant has been issued.
The nil rate band
Every estate has a nil rate band of £325,000. Value up to that figure carries no inheritance tax, and value above it is taxed at 40%.
The band has stood at £325,000 since April 2009 and is fixed there until the end of the 2030 to 2031 tax year, after which the legislative default is for it to rise with the Consumer Prices Index.
The band is not applied to the estate alone. Gifts made in the seven years before death are brought back and set against it first, in date order, so somebody who gave away £150,000 four years before dying leaves only £175,000 of band for everything else.
Two exemptions sit outside the band entirely and are applied before it. Anything passing to a husband, wife or civil partner who is a long-term UK resident is exempt without limit, and so is anything passing to a registered charity.
The residence nil rate band
A second band of £175,000 is available where a residence passes on death to direct descendants. It is also fixed until the end of 2030 to 2031.
Three conditions have to be met. The property must have been the deceased's residence at some point, so a buy-to-let they never lived in does not qualify. It must pass to a direct descendant, which covers children, grandchildren and remoter descendants, step-children, adopted children, foster children and children the deceased was guardian or special guardian of, plus the husband, wife or civil partner of any of them. And the band is capped at the value of the property, so a home worth £120,000 gives £120,000 of band and not £175,000.
Nephews, nieces, brothers, sisters and other relatives are outside the definition. A person with no children cannot use this band at all, which is a common source of surprise.
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Transferring an unused band
Where somebody dies leaving everything to their husband, wife or civil partner, the transfer is exempt and none of their nil rate band is used. That unused band is not lost.
It transfers to the survivor's estate, and it transfers as a percentage and not as a cash amount. Somebody who used none of their band passes across 100% of it, which is applied at the rate in force when the survivor dies. A first death in 2001, when the band was £242,000, still transfers 100% and is worth £325,000 today.
The same applies to the residence nil rate band, and it can be claimed even where the first death occurred before the residence band was introduced in April 2017.
The claim is made by the survivor's executors, on forms IHT402 and IHT436, within two years of the end of the month of death. It requires evidence from the first estate: a copy of the will, the grant, and the inheritance tax account if one was filed. Keeping those documents after a first death is what makes the claim straightforward, and families who dispose of them create work and risk for their executors.
How a couple reach £1 million
The frequently quoted million pound figure is the sum of four bands, and it is only available in specific circumstances.
Two nil rate bands of £325,000 make £650,000. Two residence bands of £175,000 make £350,000. Together that is £1 million, and it requires a married couple or civil partners, a home worth at least £350,000 at the second death, direct descendants inheriting that home, an estate below the £2 million taper threshold, and no significant gifts in the seven years before either death eating into the bands.
Take it apart and it fails quickly. An unmarried couple cannot transfer anything between them, so they have £325,000 plus a residence band each, with nothing carried across. A person with no children has no residence band at all, so a widow with no children has £650,000 and nothing more. A couple whose estate reaches £2.4 million have lost both residence bands entirely to the taper.
The £2 million taper
The residence nil rate band is reduced by £1 for every £2 by which the net estate exceeds £2 million. Since the band is £175,000, it is extinguished once the estate reaches £2.35 million.
The taper is tested on the whole estate before reliefs, which produces an outcome that catches business owners in particular: business relief and agricultural relief are applied after the taper test, so an estate holding £1.5 million of business assets that attract relief can still lose the residence band because the gross figure crosses £2 million.
Where both bands are being transferred, the taper is applied to each estate on its own figures, so a first death below £2 million preserves a full band to transfer even if the survivor's estate is above it.
The effective marginal rate in the taper zone is severe. Between £2 million and £2.35 million, each extra £2 of estate loses £1 of band, which is taxed at 40%, adding 20 pence of tax on top of the 40 pence already due. For a couple with two residence bands in play the effect doubles.
Downsizing and selling the home
A person who sells their home and moves into something smaller, or into care, would otherwise lose the residence band. A downsizing addition preserves it.
Where a residence was disposed of on or after 8 July 2015, and a lower value residence or no residence is held at death, the estate can claim an addition equal to the band that has been lost, provided that at least as much value passes to direct descendants in some other form. The claim is made on form IHT435 and needs evidence of the former property's value at the date of disposal.
The practical lesson is to keep the completion statement and a record of the sale price when an elderly relative sells a house. Reconstructing it years later, when the executors need the figure, is avoidable work.
The reduced rate for charitable gifts
Where 10% or more of the net estate passes to charity, the rate of inheritance tax on the rest of that estate falls from 40% to 36%.
The 10% is measured against the baseline amount, which is the estate after deducting liabilities, reliefs and exemptions and the available nil rate band, and before deducting the charitable gift itself. Estates are divided into components for this purpose, and the election can be made for one component or merged across several.
Because the reduction applies to the whole of the relevant component, an estate that is just short of 10% can increase the gift and leave the family better off in cash terms as well as increasing what the charity receives. Where the gift is well below 10%, raising it to the threshold costs the family money. The arithmetic has to be run on the actual figures.
The common ways the bands get lost
Four patterns account for most of the avoidable tax.
Leaving the home to somebody other than a descendant. A will giving the house to a sibling, a nephew or a friend forfeits the residence band even though everything else about the estate qualifies.
A discretionary trust of the residue including the home. Where a home passes into a fully discretionary trust, it has not passed to a direct descendant for these purposes, and the band is lost. A trust giving a named descendant an immediate interest can preserve it.
Failing to claim a transferable band. The claim is not automatic, and executors who do not know a first spouse died decades earlier may never make it. The documents from the first estate are the evidence.
Gifts made shortly before death. Anything given away within seven years uses the nil rate band first, so a gift intended to reduce the estate can leave less band available for the rest of it.
Reporting, deadlines and interest
Inheritance tax is due at the end of the sixth month after the month of death. A death in March means payment by the end of September, and interest runs from that date whether or not the grant has been issued or the assets have been released.
That produces a real difficulty for executors, because banks will generally release nothing substantial before the grant, and the grant is not issued until the tax has been paid. Two routes exist: the direct payment scheme, under which participating banks pay the tax straight to HMRC from the deceased's accounts, and paying tax on land and some other qualifying property by ten annual instalments.
Many estates do not need a full account at all. An excepted estate, broadly one below the threshold or one passing entirely to a spouse or charity within specified limits, is reported through the probate application, with no full IHT400 required. Where a transferable nil rate band is being claimed to bring an estate below the threshold, the conditions for an excepted estate have to be checked and never assumed.
Frequently asked questions
What is the inheritance tax threshold?
The nil rate band is £325,000, and value above it is taxed at 40%. A further residence nil rate band of £175,000 is available where a home passes to children, grandchildren or other direct descendants. Both are fixed at those levels until the end of the 2030 to 2031 tax year. Anything passing to a husband, wife or civil partner who is a long-term UK resident, or to a registered charity, is exempt without limit.
How do a couple get to £1 million?
Two nil rate bands of £325,000 give £650,000, and two residence bands of £175,000 give £350,000. It requires a married couple or civil partners, a home worth at least £350,000 passing to direct descendants at the second death, an estate under the £2 million taper threshold, and no substantial gifts in the seven years before either death. An unmarried couple cannot transfer anything between them, and a person with no children has no residence band.
Can I use my late husband or wife's allowance?
Yes. Anything unused on the first death transfers to the survivor as a percentage of the band, applied at the rate in force when the survivor dies, so a first death in 2001 where everything passed to the spouse still transfers 100%. The same applies to the residence band, even where the first death was before April 2017. Executors claim it on forms IHT402 and IHT436 within two years of the end of the month of death, using documents from the first estate.
What happens if my estate is over £2 million?
The residence nil rate band reduces by £1 for every £2 above £2 million, so it is gone completely at £2.35 million. The test uses the estate before business and agricultural relief, so an estate holding substantial business assets can lose the band even though little tax is ultimately payable on those assets. In the taper zone each extra £2 of estate effectively costs an extra 20 pence of tax on top of the 40% already due.
Do I lose the residence band if I sell my house?
Not necessarily. Where you disposed of a residence on or after 8 July 2015 and hold a lower value one or none at death, a downsizing addition can replace the band you lost, provided at least as much value passes to direct descendants in another form. The claim is made on form IHT435 and needs evidence of the former property's value at the date of disposal, so keep the completion statement.
How does leaving money to charity reduce the rate?
Where 10% or more of the net estate passes to charity, the rate on the rest of that component falls from 40% to 36%. The 10% is measured against a baseline: the estate after liabilities, reliefs and exemptions and the available nil rate band, before deducting the charitable gift. An estate just short of 10% can often increase the gift and leave the family with more in cash terms, but where the gift is well below 10% it costs them money.
Sources & further reading
This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 21 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).
A solicitor with more than two decades' experience in commercial law, dispute resolution, insolvency and judicial review. Robert acts for businesses, directors and individuals on the matters that carry real consequence — and leads AD Solicitors.
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