Current Thresholds
Inheritance Tax is charged at 40% on the value of your estate above the available thresholds. There are two main allowances, and both are frozen until at least 2028.
Nil Rate Band — £325,000
- Every individual has a £325,000 nil rate band.
- It has been frozen at this level since 2009 and will remain so until at least April 2028.
- Any unused nil rate band can be transferred to a surviving spouse or civil partner.
Residence Nil Rate Band — £175,000
- An additional £175,000 allowance when you leave your main home to direct descendants (children, grandchildren).
- Also transferable between spouses, even if the first to die did not own a property.
- Does not apply if you leave your home to a sibling, niece/nephew, or a trust (with limited exceptions).
Combined Couple Allowance
| Allowance | Individual | Couple |
|---|---|---|
| Nil rate band | £325,000 | £650,000 |
| Residence nil rate band | £175,000 | £350,000 |
| Total | £500,000 | £1,000,000 |
Residence Nil Rate Band Taper
If the net value of your estate exceeds £2 million, the residence nil rate band is reduced by £1 for every £2 above that threshold. For estates worth £2.35 million or more, the residence nil rate band is lost entirely.
The standard nil rate band (£325,000) is not affected by the taper.
April 2027: Pensions Brought Into Scope
From April 2027, unused pension funds will be included in the value of your estate for Inheritance Tax purposes. This is a significant change that could push many estates above the nil rate band for the first time. If you have large pension pots, it is worth reviewing your estate plan now.