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Taxation (UK) · The use of exemptions in deferring and minimising inheritance tax liabilities

Nil Rate Band and Residence Nil Rate Band for TX-UK

Updated 11 October 2026 · Fact-checked

The nil rate band (£325,000) and the residence nil rate band (£175,000) are amounts of a death estate taxed at 0%. The residence band needs a home left to direct descendants and is tapered for estates over £2,000,000. Unused bands pass to a surviving spouse as a percentage. Tax on the excess is 40%.

Understand Nil Rate Band and Residence Nil Rate Band

Inheritance tax (IHT) only charges the part of a person's wealth above a tax-free amount. That amount is the nil rate band (NRB). For the exam it is £325,000. Gifts made in the seven years before death use up the NRB first, so less is left for the death estate.

The residence nil rate band (RNRB) is an extra £175,000. It is available on death only. The estate must include a home that the deceased lived in, and the home (or an interest in it) must pass to direct descendants, such as children or grandchildren. The RNRB is the lower of the RNRB limit and the value of the home that goes to descendants. If the home is worth less than £175,000, you only get the value of the home.

The RNRB is tapered for large estates. If the net estate is over £2,000,000, the total RNRB, including any transferred RNRB, falls by £1 for every £2 of excess. The £2,000,000 threshold is not increased for transferred amounts. Work out the net estate after liabilities but before reliefs and exemptions, such as the spouse exemption. The NRB is never tapered.

Both bands can be transferred between spouses and civil partners. At the first death, work out what percentage of each band was unused. At the second death, increase the survivor's band by that percentage. The first death can be at any date. The transfer is of a percentage, so the survivor's band at the second death is used. The survivor can claim at most 100% extra of each band, so the maximum is twice the NRB and twice the RNRB.

If the person downsized, sold a home or moved to a less valuable one, and other assets of equivalent value go to descendants, an addition can protect the RNRB that would otherwise be lost. Read the question carefully for any sale or move of home.

Key rules to remember

Nil rate band
NRB = £325,000, less gifts in the previous 7 years that used it
Rate on the excess is 40% on death and 20% on lifetime transfers.
Residence nil rate band
RNRB = lower of £175,000 and value of home passing to direct descendants
Death only. Home must be in the estate and left to direct descendants.
Taper of RNRB
Reduction = (net estate − £2,000,000) ÷ 2, deducted from the total RNRB including any transferred RNRB
Net estate is after liabilities, before reliefs and exemptions. The £2,000,000 threshold is not increased for transferred amounts. Apply only if over £2,000,000.
Transfer of unused band
Transferred % = unused band at first death ÷ band at first death; added band = % × band at second death
Applies to both NRB and RNRB for a spouse or civil partner.
Tax on death estate
IHT = (chargeable estate − available NRB − available RNRB) × 40%
Only if the result is positive.

How to solve Nil Rate Band and Residence Nil Rate Band questions

Use this order for any NRB or RNRB question.

  1. 1Find the date of death, the net estate and what passes to each person: spouse, descendants, charity or others.
  2. 2Work out the NRB available. Start with £325,000, deduct chargeable lifetime transfers and failed PETs in the seven years before death, and add any transferred percentage from a predeceased spouse.
  3. 3Check if the RNRB applies. Is there a home in the estate, and does it pass to direct descendants?
  4. 4Add any transferred RNRB percentage to the £175,000 limit. Then check the net estate against £2,000,000. If it is higher, reduce the total RNRB, including any transferred amount, by £1 for every £2 of excess. The threshold is not increased for transferred amounts. Do not go below nil.
  5. 5Cap the RNRB at the value of the home passing to descendants, and consider a downsizing addition if the question mentions a sale or move of home.
  6. 6Deduct exempt transfers such as spouse and charity from the estate to find the chargeable estate, then deduct the NRB and RNRB.
  7. 7Multiply the excess by 40%. Show each band separately so you gain method marks.

Quickest way: Band-first shortcut

When to use it: Use it in Section A and OT case questions when you need a quick figure for tax or for the band available.

  1. Write £325,000 and £175,000 first.
  2. Adjust the NRB for gifts in the past seven years.
  3. Tick the three RNRB tests: home in estate, left to descendants, estate not over £2,000,000. A failed test means nil or reduced.
  4. Convert any spouse transfer into a percentage, then multiply by the survivor's band.
  5. Subtract the total bands from the chargeable estate and multiply by 40%.

Common mistakes in Nil Rate Band and Residence Nil Rate Band

  • Giving the RNRB when the home goes to a niece, friend or sibling.

    Students assume any relative counts.

    Fix: Only direct descendants qualify, such as children and grandchildren. Check who receives the home.

  • Tapering the nil rate band as well as the RNRB.

    Students think the £2,000,000 test applies to every band.

    Fix: The taper applies to the RNRB only. The NRB stays at £325,000.

  • Taking the full £175,000 when the home is worth less.

    Students forget the lower-of rule.

    Fix: Use the lower of £175,000 and the value of the home passing to descendants.

  • Transferring a £ amount instead of a percentage from the first spouse.

    Students copy the unused £ figure into the survivor's estate.

    Fix: Calculate the unused percentage, then apply it to the band at the second death.

  • Measuring the £2,000,000 threshold on the chargeable estate after spouse or charity exemptions.

    Students deduct exemptions too early.

    Fix: Use the net estate after liabilities but before reliefs and exemptions for the taper test.

  • Forgetting that lifetime gifts use up the NRB but not the RNRB.

    Students apply gifts to both bands.

    Fix: Deduct gifts made in the seven years before death from the NRB only.

Worked examples

Example 1

Alan, a widower with no transferable bands, dies in 2026. His estate is a home worth £500,000 and other assets of £1,800,000, less liabilities of £100,000. Everything passes to his son. He made no lifetime gifts. Calculate the IHT payable.

Show the solution
  1. Net estate = £500,000 + £1,800,000 − £100,000 = £2,200,000.
  2. Taper test: excess over £2,000,000 = £200,000. Reduction = £200,000 ÷ 2 = £100,000.
  3. RNRB before taper is the lower of £175,000 and £500,000 = £175,000. After taper: £175,000 − £100,000 = £75,000.
  4. NRB = £325,000 (no gifts, not tapered).
  5. Chargeable estate = £2,200,000 (no exemptions apply as it passes to his son).
  6. Taxable = £2,200,000 − £325,000 − £75,000 = £1,800,000.
  7. IHT = £1,800,000 × 40% = £720,000.

Answer: IHT payable is £720,000.

Example 2

Beth dies in 2026. Her husband died earlier. He left £130,000 in cash to his son and everything else to Beth, including his half of their home. The home passed to Beth and was exempt as a transfer between spouses, so none of his RNRB was used. Beth's estate is £900,000, including a home worth £450,000. All of it passes to her daughter. Beth made no lifetime gifts. Calculate the IHT payable.

Show the solution
  1. Husband's NRB used = £130,000 ÷ £325,000 = 40%. Unused = 60%.
  2. Beth's NRB = £325,000 + (60% × £325,000) = £325,000 + £195,000 = £520,000.
  3. The home passed to Beth under the spouse exemption, so none of the husband's RNRB was used and 100% of it is transferable. The £130,000 gift to his son was cash, not the home, so it does not use any RNRB. Beth's RNRB limit = £175,000 + £175,000 = £350,000.
  4. The net estate of £900,000 is under £2,000,000, so there is no taper. The home passing to her daughter is worth £450,000, which is more than £350,000, so the full £350,000 is available.
  5. Total bands = £520,000 + £350,000 = £870,000.
  6. Taxable = £900,000 − £870,000 = £30,000.
  7. IHT = £30,000 × 40% = £12,000.

Answer: IHT payable is £12,000.

Exam tips

  • Write the NRB and RNRB figures from memory. The exam gives the tax tables, but looking them up wastes time.
  • Set out the NRB and the RNRB in separate lines in a constructed response answer so a marker can see each step.
  • In OT cases, check three things before choosing an answer: who receives the home, the net estate against £2,000,000, and whether any band was used by earlier gifts.
  • State the percentage unused at the first death before applying it. This earns marks even if the figures contain an error.
  • If the question mentions the sale of a home, think about the downsizing addition and say so.

Practice questions from The use of exemptions in deferring and minimising inheritance tax liabilities

Nil Rate Band and Residence Nil Rate Band in other exams

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

Nil Rate Band and Residence Nil Rate Band: frequently asked questions

What is the residence nil rate band for TX-UK?

It is an extra £175,000 on death, on top of the £325,000 nil rate band. It needs a home in the estate that passes to direct descendants. It is reduced for estates over £2,000,000.

How does the RNRB taper work?

If the net estate is over £2,000,000, the RNRB is reduced by £1 for every £2 of excess. Net estate is before reliefs and exemptions. It is tapered to nil once the reduction equals the band.

How does a spouse transfer unused bands?

Find the percentage of the NRB and RNRB unused at the first death. At the second death, add that percentage of the band at that date to the survivor's own band. The same applies to civil partners.

Do lifetime gifts reduce the residence nil rate band?

No. Gifts in the seven years before death use up the nil rate band. The RNRB is only for the death estate and depends on the home passing to descendants.