Nil-rate bands: how the IHT allowances actually work

Inheritance Tax is charged at 40% on the value of your estate above your available allowances. Understanding those allowances is where most planning starts.

The nil-rate band (NRB): £325,000

Everyone gets this. If your estate is worth £325,000 or less, there's no IHT to pay.

The residence nil-rate band (RNRB): up to £175,000

An extra allowance if you leave your main residence to direct descendants (children, grandchildren, step-children). It tapers away by £1 for every £2 your estate is over £2 million.

Transferable allowances

Anything unused when the first spouse or civil partner dies transfers to the survivor as a percentage. In practice this means a married couple leaving a home to their children can often pass on £1 million tax-free (£325k × 2 + £175k × 2).

What this means for you

Many estates that look "IHT-liable" actually aren't, once you apply the full set of allowances. Others quietly cross the £2 million threshold and start losing the RNRB without realising.

This is why the numbers matter — a proper calculation is nearly always the first step.