Key takeaways
- The nil rate band has been £325,000 since the 2009 to 2010 tax year, and Budget 2025 fixed it, the residence nil rate band and the taper threshold to the end of 2030 to 2031.
- A qualifying estate can pass on £500,000 and a surviving spouse or civil partner up to £1,000,000, because both bands transfer as an unused percentage rather than a cash sum.
- Above the £2,000,000 taper threshold, every extra £2 of estate destroys £1 of residence nil rate band, so the marginal rate inside the taper zone is 60% rather than 40%.
- HMRC's own data puts the average effective rate at 19% for estates of £1.5 million to £2 million and 25% for those of £2 million to £7.5 million in 2023 to 2024.
- Taper relief cut the tax rate on a £400,000 gift made 6 to 7 years before death from 40% to 8%, saving £24,000. It never cut the value of the gift.
The short answer: £325,000 each, £175,000 more for a home left to your children, 40% above that
How much can you leave before inheritance tax bites? In the 2026 to 2027 tax year the answer starts at £325,000. GOV.UK puts it plainly: "There's normally no Inheritance Tax to pay if either: the value of your estate is below the £325,000 threshold" — or you leave everything above it to a spouse, civil partner or charity. Above the threshold, the standard rate is 40%. Leave 10% or more of the net estate to charity and the rate on some assets drops to 36%.
Two things push that headline number up. If your home passes to your children or grandchildren, a second allowance called the residence nil rate band adds up to £175,000. And if you're married or in a civil partnership, whatever your partner didn't use passes to you. Stack all of it and a surviving spouse's estate reaches £1,000,000.
Two things push it down, and they're the parts people get wrong. Above £2,000,000 the residence band tapers away, which creates a marginal rate of 60% inside the taper zone. And gifts made within 7 years of death eat the £325,000 band before the estate does — while taper relief reduces the tax on those gifts, never their value.
£325,000 since 2009, and frozen until April 2031
HMRC's threshold table runs back to 1914. The line that matters covers deaths from 6 April 2009 to 5 April 2031, at £325,000. HMRC's Budget 2025 measure states it flatly: "The NRB has been fixed at £325,000 since the tax year 2009 to 2010."
It didn't have to be. The default in the Inheritance Tax Act is annual uprating with the Consumer Prices Index. Parliament has switched that off four times over. HMRC's own measure records the sequence: Finance Act 2021 froze the thresholds to 2025 to 2026, Finance Act 2023 pushed that to 2027 to 2028, Finance Act 2025 to 2029 to 2030, and Budget 2025 added one more year. The measure's wording is that the bands "will be fixed at their current levels for the tax years up to and including 2030 to 2031".
Freezing a threshold while asset prices rise is a tax rise that needs no rate change. HMRC's estimate for the final year alone is modest — 2,100 extra taxpaying estates in 2030 to 2031, and 0.3 percentage points more of all UK deaths caught. The cumulative effect of a 22-year freeze is not modest, and it shows up in the statistics below.
The residence nil rate band is £175,000, but only for a home and only for direct descendants
The residence nil rate band — RNRB, in HMRC's shorthand — arrived in the 2017 to 2018 tax year at £100,000. It rose £25,000 a year to £175,000 in 2020 to 2021, and has sat there since.
Three conditions do the work. The estate must include an interest in a residence the deceased lived in at some point. That residence must pass to a direct descendant. And the relief is capped at the lower of the property's value and the band.
"Direct descendant" is narrower than "family". HMRC lists children, grandchildren and other lineal descendants, plus step-children, adopted children, fostered children and children under a guardianship appointed before they turn 18 — and the spouses of any of them. Then it says the quiet part out loud: "Direct descendants do not include nephews, nieces, siblings and other relatives who are not included in the list above."
The cap bites more often than people expect. In HMRC's worked example for 2020 to 2021, a flat worth £100,000 attracts only £100,000 of relief against a £175,000 band, and the unused £75,000 cannot be set against the rest of the estate. It survives only as a transfer to the surviving spouse's estate. Which is one reason treating your house as a portfolio asset gets awkward at death.
The residence band never applies to gifts, which changes the order of the sums
One asymmetry is easy to miss. GOV.UK states that "unlike the basic Inheritance Tax threshold, the residence nil rate band does not apply to gifts and lifetime transfers". The £175,000 is available against the estate and against nothing else.
HMRC's example runs the order. A man dies in 2020 to 2021 leaving his granddaughter a house worth £500,000 and other assets worth £250,000, having given £700,000 away in the previous 7 years. The gifts absorb the whole £325,000 nil rate band, so £375,000 of them is taxable. The estate of £750,000 still gets the £175,000 residence band, leaving £575,000 taxable.
Both bands transfer between spouses as a percentage, not as a sum
This is the mechanism most often described wrongly. When the first of a married couple dies, what passes to the survivor isn't a leftover amount of money. It's a leftover percentage.
Take HMRC's example. Carole dies leaving £600,000, of which £130,000 goes to her children and the rest to her husband Simon. The threshold at the time was £325,000, so the children's legacy used 40% of it and left 60% unused. Simon's estate gets his own £325,000 plus 60% of £325,000, or £520,000.
The percentage rule matters because it re-prices the inherited allowance at the second death. HMRC's second example makes the point. David died when the threshold was £250,000 and left 80% of it unused, so Mark's estate gets £325,000 plus 80% of £325,000 — £585,000, rather than the smaller cash figure that went unused first time round.
The residence band transfers the same way, and separately. GOV.UK is explicit: "As the residence nil rate band and basic Inheritance Tax threshold are not linked, the percentages transferred can be different." A claim can even be made where the first death happened before April 2017, when the residence band didn't exist. Each transfer is capped at 100%, however many previous marriages are involved, and the nil rate band claim has to reach HMRC within 2 years of the second death.
Fully stacked, that gets a surviving spouse to £650,000 of nil rate band and £350,000 of residence band. HMRC's measure states the result: qualifying estates "have been able to pass on up to £500,000 and if the NRB and RNRB remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to £1 million without an IHT liability."
Above £2,000,000 the marginal rate is 60%, not 40%
Here's the arithmetic almost nobody is shown. The residence band tapers by £1 for every £2 by which the estate exceeds £2,000,000. HMRC's manual puts the taper threshold at £2,000,000 and works an example: an estate of £2,350,000 in the tax year 2020/21 saw a single residence band "'tapered' by £175,000 to nil". The test uses the estate "after liabilities, but before taking into account any exemptions or reliefs" — a wider number than most people carry in their heads.
Now put a figure on what that costs. Take a widow or widower in 2026 to 2027 with both bands doubled up — £650,000 of nil rate band and £350,000 of residence band, £1,000,000 in all.
- Estate of £2,000,000. Allowances £1,000,000. Taxable £1,000,000. Tax at 40% is £400,000.
- Estate of £2,700,000. The £700,000 excess tapers the residence band away completely. Allowances £650,000. Taxable £2,050,000. Tax at 40% is £820,000.
An extra £700,000 of estate produced an extra £420,000 of tax. That is a marginal rate of 60%. The mechanism is plain enough: each extra £2 adds £2 to the taxable estate and destroys £1 of allowance, so £3 becomes taxable for every £2 gained. Multiply 40% by 1.5 and you get 60%. HMRC's statistics commentary confirms where the zone ends: "as soon as an estate is worth £2.7 million or more, no RNRB can be used."
The aggregate data shows the step. In the 2023 to 2024 tax year the average effective rate across all taxpaying estates was 13%, against a headline rate of 40%. It was far from flat. The chart plots the curve: 4% for estates of £300,000 to £400,000, 12% at £1 million to £1.5 million, 19% at £1.5 million to £2 million, then 25% for the 3,156 estates valued between £2 million and £7.5 million. The jump from 19% to 25% is where the taper lives.
Above £7.5 million the average rate falls back, to 23% and then 18%, because the largest estates make heavier use of business and agricultural relief. The taper zone is the most expensive band in HMRC's table, and it isn't the richest one.
Taper relief cuts the tax on a gift, not the value of the gift
Ask ten people what the 7 year rule does and most describe a sliding scale on the gift itself: hand over £400,000, survive six years, and only a fifth of it counts. That is not what happens.
HMRC's Inheritance Tax Manual is unusually blunt. "Although we use the term taper relief it is not strictly a relief as defined elsewhere in the Inheritance Tax Act. Instead it takes the form of a percentage reduction in the tax which would otherwise be payable on the transfer." Then, in one line: "Taper relief does not reduce the capital value of the transfer."
The consequence catches people out. If no tax was due on the gift in the first place, there is nothing for taper relief to reduce. Gifts are set against the nil rate band before the estate is, and that band is £325,000. GOV.UK spells out the condition: "Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold."
Work a £400,000 gift through properly on 2026 to 2027 figures, with no other gifts and no exemptions claimed.
- The £325,000 nil rate band covers the first £325,000 of the gift. The chargeable slice is £75,000.
- At 40%, tax on that slice would be £30,000.
- Made 6 to 7 years before death, the tapered rate is 8%, so the tax is £6,000.
- Taper relief was worth £24,000 — not the £320,000 that "80% off the gift" would have implied.
There's a second bill hiding behind the first. That gift consumed the whole £325,000 band, so the estate itself starts being taxed from the first pound. GOV.UK: "Gifts always use up the Inheritance Tax threshold first before any other assets or property that the person who died left." The relief saved £24,000 on the gift and left the estate £130,000 worse off — 40% of the band the gift swallowed.
The scale itself is short and steep. GOV.UK's table sets the rate of tax on the gift at 32% for 3 to 4 years, 24% for 4 to 5, 16% for 5 to 6, 8% for 6 to 7, and 0% after that. Gifts inside 3 years are taxed at the full 40%.
Several exemptions sit outside all of this: a £3,000 annual exemption, carried forward one year at most; gifts of £250 or less to any number of people; wedding gifts of £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else. Then there's normal expenditure out of income, which GOV.UK bounds only by affordability — "no limit to how much you can give tax free", provided you can "afford the payments after meeting your usual living costs" and pay from regular monthly income. For anyone weighing up dying with too much unspent, that exemption is the least documented and the most elastic.
The counter-case: the seven-year rule raises almost nothing, and the OTS wanted it scrapped
The strongest objection to treating any of this as a framework came from inside government. The Office of Tax Simplification's second inheritance tax report, published in July 2019, asked what the 7 year rule actually collects.
In 2015 to 2016, 4,860 estates — about 20% of taxpaying estates — reported lifetime gifts made within 7 years of death, worth £870m in total. Of a total inheritance tax bill of £4.38 billion that year, gifts made more than 5 years before death accounted for £7 million. That is less than 10% of the £71 million raised from taxable lifetime gifts of any vintage.
The recommendation was blunt: cut the 7 year period to 5 years and "abolish taper relief". The reasoning on taper was that "the way this works is widely misunderstood", and that "many people do not appreciate that taper relief is only relevant to people who make very large lifetime gifts totalling more than the nil rate band".
How do you referee that? On the evidence the OTS is right about the arithmetic and about the confusion. But it describes a rule that survived: no government adopted the recommendation, and the 7 year rule is still law in the 2026 to 2027 tax year. The honest reading is that the tail of the period is a record-keeping burden raising little revenue — not that it can be ignored. A gift made 6 years and 11 months before a death still sits inside the window.
The OTS was no more impressed by the residence band. It called it "one of the most complex areas of Inheritance Tax" and reported that it "generated a large proportion of the correspondence received by the OTS", much of it from people without children, and from siblings who cannot leave a shared home to each other. Against that, the OTS put its reach at "an estimated 16,450 estates per year" taken out of the tax. Both things hold: it is a large relief and a poorly targeted one. HMRC's later figures are consistent — 31,000 estates used the band in 2023 to 2024, sheltering £7.79 billion of chargeable value.
What the data can't tell you here
Start with coverage. Since 1 January 2022, estates classed as "excepted" no longer report their values to HMRC. HMRC says the statistics "now have slightly reduced coverage" and that "comparisons across years should be treated with caution". The 4.72% of UK deaths that produced a charge in 2023 to 2024 is solid; the shape of estates below the threshold is less well observed than it once was.
Then vintage. The latest statistics describe the 2023 to 2024 tax year and count deaths, not receipts. They predate two changes HMRC flags in the same release: restrictions to agricultural and business property relief from April 2026, and the extension of inheritance tax to unspent pension pots at death from April 2027. Neither is in the effective-rate curve above, and the second in particular moves estates across the £2,000,000 line.
There is also a live inconsistency inside HMRC's own material. The Inheritance Tax Manual page on the taper threshold still says £2,000,000 applies "for the tax years 2017-18 to 2027-28", while the November 2025 measure fixes it to the end of 2030 to 2031. The manual is guidance; the Finance Bill is law, and the measure is the one that was legislated. A reader checking that date on the manual page alone would be three tax years out.
Finally, this is mechanism, not planning. HMRC states its own limit: it "cannot give tax planning advice", cannot "comment on what someone should do to take advantage of the residence nil rate band", and cannot say what anyone's future position looks like. Wills, trusts, deeds of variation and the drafting that decides whether a residence genuinely passes to a direct descendant are a solicitor's work. None of the arithmetic here is a recommendation to arrange an estate one way rather than another.
What would change the conclusion
Three things, and they all carry dates.
Indexation restarting. The freeze runs to the end of the 2030 to 2031 tax year. HMRC states the statutory default plainly: the bands and the taper threshold rise "in line with the Consumer Prices Index (CPI) in each year from 2030 onwards". If that default takes effect, the 60% zone starts moving with prices instead of standing still while house prices don't.
The £2,000,000 threshold itself. It has not moved since the residence band was introduced in 2017. HMRC estimates 2,100 more estates pay tax in 2030 to 2031 from the extra frozen year alone. The taper zone catches a widening set of estates for exactly the reason the main threshold does.
Pensions entering the estate from April 2027. HMRC's statistics release flags it. An estate under £2,000,000 today with a pension outside it can be over £2,000,000 afterwards — the difference between a 40% marginal rate and a 60% one.
The number worth tracking isn't the tax bill. It is the gross value of everything you would be counted as owning — before reliefs, before exemptions, including the house — measured against £2,000,000. That figure decides which side of the taper an estate falls on, and most people have never totalled it. Working out a retirement number starts from the same total, approached from the other end.