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Taxation (UK) · The liabilities arising on chargeable lifetime transfers and on the death of an individual

IHT Nil Rate Band and Tax Rates in TX-UK

Updated 11 October 2026 · Fact-checked

The inheritance tax nil rate band is £325,000. Tax is charged only on chargeable value above the available band. The rate is 20% on lifetime transfers and 40% on death. If at least 10% of the net estate goes to charity, the death rate falls to 36%. Always check how much band is left.

Understand IHT Nil Rate Band and Tax Rates

Inheritance tax (IHT) is a tax on transfers of value. It applies to chargeable lifetime transfers, to gifts that fail to survive seven years, and to the estate on death. The first slice of value is taxed at 0%. This slice is the nil rate band (NRB).

In the June 2026 to June 2027 tax tables, the NRB is £325,000. Value above the NRB is taxed at one of two rates. The lifetime rate is 20%. The death rate is 40%. The lifetime rate is half the death rate.

The NRB is not a fresh £325,000 for every gift. It is a pool used up by chargeable transfers in the seven years before the transfer you are looking at. So you must keep a running record of earlier chargeable transfers. Only the band left over is available now.

On death, a reduced rate of 36% applies to the taxable estate if at least 10% of the baseline amount goes to charity. The baseline amount is a special figure, so work it out carefully. Your tables also give a residence nil rate band of £175,000. It is covered in its own topic, so here you only need to know it is added to the NRB when it applies.

The key skill is simple. Find the chargeable value, subtract the available NRB, then apply the correct rate to the excess. Choose the rate by the event: lifetime or death.

Key rules to remember

Nil rate band
NRB = £325,000
Given in the tax tables. Reduced by chargeable transfers made in the previous seven years.
Available NRB
Available NRB = £325,000 − chargeable transfers in the 7 years before the transfer
Use the NRB for the year of the transfer, which is the figure in your tables.
Lifetime rate
Tax = 20% × (chargeable value − available NRB)
Applies to chargeable lifetime transfers. This is the rate when the donor pays the tax.
Death rate
Tax = 40% × (taxable value − available NRB)
Applies to the death estate and to lifetime transfers taxed on death.
Reduced death rate
Tax = 36% × (taxable value − available NRB)
Applies where at least 10% of the baseline amount is left to charity. Taper relief reduces the tax on lifetime gifts, not the rate.
Residence nil rate band
RNRB = £175,000
Given in the tables. It is added to the NRB on death only if the conditions are met.

How to solve IHT Nil Rate Band and Tax Rates questions

Use this order for any question on the NRB and the IHT rates.

  1. 1Identify the event: a lifetime transfer, or death. This sets the rate: 20% or 40%.
  2. 2Work out the chargeable value of the transfer after any exemptions and reliefs.
  3. 3List chargeable transfers in the seven years before the transfer. Add them up.
  4. 4Deduct that total from £325,000 to get the available NRB. If it is negative, the available NRB is nil.
  5. 5Subtract the available NRB from the chargeable value. If the answer is nil or negative, no tax is due.
  6. 6Apply 20%, 40% or 36% to the excess.
  7. 7If the donor pays, remember the gross-up. State clearly who bears the tax.
  8. 8Show each line in your working so you earn method marks.

Quickest way: Band first, rate last

When to use it: Use this in objective test questions where you need a fast and safe tax figure.

  1. Write £325,000 and subtract earlier chargeable transfers in the last seven years.
  2. Subtract the remaining band from the value being taxed.
  3. Multiply the excess by the rate for the event.
  4. Check for a charity gift of at least 10% before choosing 40% on death.
  5. Sense-check: tax cannot exceed the excess, and the lifetime tax should be half the death tax on the same excess.

Common mistakes in IHT Nil Rate Band and Tax Rates

  • Using the full £325,000 each time

    Students think the NRB resets with each gift.

    Fix: Deduct chargeable transfers made in the previous seven years first. Only the remainder is available.

  • Applying 40% to a lifetime transfer

    The death rate is the one students remember best.

    Fix: Tie the rate to the event. Lifetime chargeable transfer is 20%. Death is 40%.

  • Taxing the whole value instead of the excess

    Students forget the nil rate band is a 0% slice.

    Fix: Always subtract the available NRB before applying any rate.

  • Applying 36% whenever a charity gets something

    The 36% rate is learnt without its condition.

    Fix: Check that the charity share is at least 10% of the baseline amount before using 36%.

  • Counting potentially exempt transfers in the NRB used

    Students treat every gift as using up the band.

    Fix: Only chargeable lifetime transfers use the band at the time they are made. A potentially exempt transfer matters only if the donor dies within seven years.

Worked examples

Example 1

Priya made no earlier gifts. She puts £425,000 into a discretionary trust, a chargeable lifetime transfer, after exemptions. Using the 20% lifetime rate, compute the lifetime IHT if the trustees pay the tax.

Show the solution
  1. Chargeable value after exemptions: £425,000.
  2. Earlier chargeable transfers in the previous seven years: nil.
  3. Available NRB: £325,000.
  4. Excess over the NRB: £425,000 − £325,000 = £100,000.
  5. Tax at 20%: £100,000 × 20% = £20,000.

Answer: Lifetime IHT of £20,000.

Example 2

Omar dies leaving a taxable estate of £700,000. He made no lifetime gifts. Ignore the residence nil rate band and charity gifts. Compute the IHT on death, and compare it with the tax if 10% or more of the baseline amount had gone to charity and the taxable estate had been the same £700,000.

Show the solution
  1. Available NRB: £325,000, as there were no earlier transfers.
  2. Excess over the NRB: £700,000 − £325,000 = £375,000.
  3. Tax at 40%: £375,000 × 40% = £150,000.
  4. Using 36% on the same excess: £375,000 × 36% = £135,000.
  5. Difference: £150,000 − £135,000 = £15,000.

Answer: IHT on death is £150,000 at 40%. At the 36% reduced rate it would be £135,000, a saving of £15,000.

Exam tips

  • Check the tax tables in the exam for the NRB, rates and taper figures. You must still know how to use them.
  • Show the NRB deduction as its own line. Marks are awarded for the band calculation even if the final tax is wrong.
  • In a multi-gift question, set out the gifts in date order and keep a running total of band used.
  • Read the question for the words 'lifetime' and 'on death'. They decide the rate.
  • For objective tests, a wrong rate usually makes one distractor. Compute the figure yourself before you look at the options.

Practice questions from The liabilities arising on chargeable lifetime transfers and on the death of an individual

IHT Nil Rate Band and Tax Rates in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IHT Nil Rate Band and Tax Rates: frequently asked questions

What is the IHT nil rate band in TX-UK?

It is £325,000 in the tax tables for June 2026 to June 2027. The first £325,000 of chargeable value, less earlier chargeable transfers in the seven years, is taxed at 0%.

What are the IHT rates in TX-UK?

The lifetime rate is 20% and the death rate is 40%. Both apply only to value above the available nil rate band. A reduced death rate of 36% applies when enough of the estate goes to charity.

When does the 36% rate apply?

It applies on death when at least 10% of the baseline amount is left to charity. The baseline amount is worked out on a special basis, so check the question's figures. If the condition is not met, use 40%.

Does the nil rate band reset every year?

No. It is reduced by chargeable transfers made in the seven years before the transfer. Once those transfers fall outside seven years, that band is available again.