How does the nil-rate band work, and how do you use it well?
The nil-rate band is the first £325,000 of an estate, taxed at 0%, with the excess charged at 40%. It has been frozen at that figure since April 2009, which means every year of house price and asset growth pulls more estates into the charge without any rate changing.
- The band: £325,000 per person, above which the rate is 40%.
- The freeze: unchanged since April 2009 and announced as frozen for years to come.
- What is added: the residence nil-rate band, and any unused band inherited from a late spouse.
- What reduces it: chargeable gifts made in the seven years before death come off it first.
01 What the band is and how it is applied
Every individual has a nil-rate band of £325,000. Transfers up to that amount are charged at 0% and anything above it at 40% on death. The band applies to the whole estate — property, investments, cash, personal possessions and, in most cases, the value of certain gifts made before death.
The freeze is the significant fact about it. £325,000 has been the figure since April 2009, so its real value has fallen by roughly a third while UK house prices rose. That is the mechanism pulling ordinary estates, particularly in the South East, into a tax originally aimed at large ones.
Transfers between spouses and civil partners are exempt without limit, so the first death in a married couple usually produces no charge at all and no use of the band — which is what makes the transferable band so important.
Source: Inheritance Tax
02 Gifts use the band first
Chargeable gifts made within seven years of death are set against the nil-rate band before the estate is, and this ordering catches people out. Someone who gave £200,000 to a child four years before dying has £125,000 of band left for a £600,000 estate, not £325,000.
That is also why taper relief so often turns out to be worth nothing. Taper reduces the tax on a gift, not the value of the gift, and it only applies where the gift itself exceeds the nil-rate band. On a £200,000 gift inside a £325,000 band there is no tax on the gift to taper — the cost lands on the estate instead.
So the seven-year rule is best understood as a rule about the band rather than a rule about the gift.
Source: Inheritance Tax on gifts
03 The bands you can add
Two additions matter more than anything you can do to the basic band. The residence nil-rate band adds up to £175,000 where a home passes to direct descendants, and any unused proportion of a late spouse's nil-rate band transfers to the survivor. Together they take a married couple's potential threshold to £1 million.
Neither is automatic. Both are claimed by the personal representatives on the relevant form, and both can be lost by leaving them unclaimed — which is a real risk where the first death was decades earlier and the paperwork has gone.
That combination is why most estate planning starts with the bands rather than with gifts or trusts. Using what is already available is cheaper, simpler and more certain than any arrangement.
Shows: the Inheritance Tax on an estate after the bands available to it. Ignores: gifts made within seven years, business and agricultural relief, trusts, and the residence band taper above £2 million.
On the defaults above, the worked example shows £0. The estate is within the bands available to it, so no Inheritance Tax arises.
Source: Passing on a home
The nil-rate band is the part of Inheritance Tax planning with the least to do and the most attention. It is a fixed number you cannot influence. Where the money actually is, for most families, is in claiming the transferable band from a spouse who died years ago and in making sure the residence band is not lost through how the will is written. Both are free, both are forms, and both get missed. Start there before anyone mentions a trust.
FAQ
Has the nil-rate band ever risen?
Not since April 2009, when it reached £325,000. It has been frozen since, and the freeze has been extended more than once, which means asset growth alone pulls more estates into the charge each year.
Do gifts reduce the band?
Chargeable gifts made in the seven years before death are set against the band before the estate is, so a large gift can leave much less band available for what remains. This ordering is why taper relief is often worth nothing in practice.
Is there any Inheritance Tax between spouses?
No. Transfers between spouses and civil partners are exempt without limit, so the first death in a married couple normally produces no charge — and leaves the whole band available to transfer to the survivor.
Sources
Regulator references
- Inheritance Tax · GOV.UK · 2025The nil-rate band, the 40% rate and what forms part of the estate.Last verified: 2026-09-07
- Inheritance Tax on gifts · GOV.UK · 2025The seven-year rule, taper relief and the annual exemption.Last verified: 2026-09-07
- Passing on a home · GOV.UK · 2025The residence nil-rate band and the taper that removes it on large estates.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.