The nil-rate band: £325,000
Every individual has a £325,000 nil-rate band (NRB). Anything you leave above that is taxed at 40% — unless it qualifies for an exemption or relief. The £325,000 figure has been frozen since 2009 and the government has confirmed it stays frozen until April 2028.
Anything you leave to a UK-domiciled spouse or civil partner is 100% exempt regardless of value. On the first death, any unused NRB transfers to the survivor, who can then use up to £650,000 on their own death.
The residence nil-rate band: up to £175,000
Introduced in 2017, the residence nil-rate band (RNRB) adds up to £175,000 of extra allowance, but it only applies if:
- You leave your main home (or proceeds from downsizing) to direct descendants — children, grandchildren, step-children, adopted or foster children
- Your estate is worth £2 million or less — above that, the RNRB tapers by £1 for every £2 of excess
- Estates over £2.35 million lose the RNRB completely
The £1 million couple's allowance — how it works
Combine both allowances for a married couple or civil partners:
- £325,000 NRB × 2 = £650,000
- £175,000 RNRB × 2 = £350,000
- Total combined allowance = £1,000,000
Worked example: £900,000 estate, married couple
Mary and John own their Bristol home worth £550,000 plus £350,000 of savings and investments — £900,000 total. John dies first and leaves everything to Mary (spouse exemption = no IHT, full NRB and RNRB transferred).
Mary later dies leaving the estate to their two children. Her allowances: £650,000 NRB + £350,000 RNRB = £1,000,000. The £900,000 estate is fully covered. IHT bill: £0.
Without the RNRB (e.g. no children, or the home left to a niece): allowance is £650,000, taxable amount is £250,000, IHT bill is £100,000.
Common ways families lose the £1m allowance
Knowing the threshold isn't enough — many families overpay because of avoidable mistakes:
- Not leaving the home to direct descendants — losing the £175,000 RNRB each
- Estate value exceeding £2m, tapering away the RNRB
- Failing to claim the transferred NRB on second death (it isn't automatic)
- Outdated wills that don't reflect current allowances
- Holding life insurance outside a trust, inflating the estate
