The nil-rate bands
The two allowances that decide whether IHT is a problem at all.
Most estates in the UK never pay a penny of inheritance tax. Two allowances explain why.
The Nil-Rate Band (NRB)
£325,000 per person, frozen at that level to April 2030. Estates below this figure pay no IHT.
The Residence Nil-Rate Band (RNRB)
An extra £175,000 per person, available when your home (or the proceeds of one you used to own) passes to direct descendants — children, grandchildren, or step, adopted and foster equivalents.
Transferable allowances
On the first death of a married couple or civil partners, any unused NRB and RNRB transfer to the survivor. In practice this means a married couple can pass on up to £1 million tax-free (£325k × 2 + £175k × 2), provided they own a qualifying home and leave it to direct descendants.
The rate
Anything above the combined allowances is taxed at 40%, reduced to 36% if at least 10% of the net estate is left to charity.
Freezing bites
The bands are frozen; house prices and portfolios drift up. Every year, more estates cross the threshold not because they're wealthier in real terms, but because inflation quietly eats the allowance. Reviewing your position every few years is worth the diary entry.
If reading this raised a question about your own situation, get in touch.
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