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Advanced Taxation (UK) · Inheritance tax: the basic principles of computing transfers of value

Nil Rate Band, Residence Nil Rate Band and IHT Rates

Updated 11 October 2026 · Fact-checked

The nil rate band is £325,000 of value taxed at 0%. The residence nil rate band adds up to £175,000 when a home passes to direct descendants on death, reduced when the estate exceeds £2 million. Unused bands transfer between spouses. Tax above the bands is 20% in lifetime, 40% on death, or 36% with enough to charity.

Understand Nil Rate Band, Residence Nil Rate Band and IHT Rates

Inheritance tax (IHT) is charged on the value a person transfers, in lifetime or on death. Before any tax arises, a slice of value is taxed at 0%. This is the nil rate band (NRB). The tax tables give it as £325,000. Tax is charged only on the value above it.

On death, a second band may apply. The residence nil rate band (RNRB) is £175,000 in the tax tables. It is available only when the deceased's home (or a replacement) is left to direct descendants, such as children, stepchildren, adopted and foster children, grandchildren, and their spouses. The RNRB is limited to the lower of the value of the home passing to descendants and the maximum RNRB. It is not available against lifetime transfers.

The RNRB is tapered for large estates. Where the net estate is above £2,000,000, the RNRB (including any transferred RNRB) is reduced by £1 for every £2 of excess. The £2,000,000 threshold is not in the tax tables, so you must learn it. If the estate is large enough, the RNRB is lost completely. The NRB is never tapered. Two further points: if the person downsized or sold their home on or after 8 July 2015, a downsizing addition can preserve some RNRB that would otherwise be lost. This addition is considered separately and is not tapered as part of the total. And the RNRB is not available if nothing qualifying passes to descendants.

Spouses and civil partners can pass on unused bands. When the second spouse dies, the estate can claim the unused percentage of the first spouse's NRB and RNRB. The percentage is applied to the band at the second death. The total claim is capped at 100% extra, so the maximum is double each band. Transfers between UK-domiciled spouses are exempt, which is why the first spouse's bands are often unused.

For rates, the tax tables show 20% for lifetime transfers and 40% on death, on the excess over the nil rate band. A lifetime chargeable transfer is taxed at 20% of the excess over the available NRB, or at 25% (20/80) of the net gift above the available NRB if the donor pays the tax. On death, if at least 10% of the baseline amount is left to charity, the death rate falls to 36% on the taxable estate. Taper relief reduces the tax on chargeable lifetime gifts (the part exceeding the available NRB) where death occurs between 3 and 7 years after the gift. It reduces only the tax, not the value of the gift.

Key rules to remember

Nil rate band
NRB = £325,000
Tax tables figure. Applies to lifetime and death transfers. Not tapered.
Residence nil rate band
RNRB = lower of (value of home passing to direct descendants, RNRB available after any taper)
Death only. Add any transferred unused RNRB to the £175,000, then apply the taper to that total. The downsizing addition is considered separately and is not tapered as part of the total.
RNRB taper
Reduction = (Net estate − £2,000,000) ÷ 2
Applies only if net estate exceeds £2,000,000. It reduces the RNRB including any transferred part, but not the downsizing addition. RNRB cannot go below nil. Learn the threshold, as it is not in the tax tables.
Transferable band from a spouse
Extra band = (1 − % used by first spouse) × band at second death
Applies separately to NRB and RNRB. Total extra claim cannot exceed 100% of each band.
Lifetime rate
Donee pays: Tax = 20% × (CLT after annual exemptions − available NRB). Donor pays: Tax = 20/80 × (net gift after annual exemptions − available NRB)
Deduct annual exemptions first, then the available NRB (£325,000 less chargeable transfers in the previous seven years). Gross up only when the donor bears the tax.
Death rate
Tax = 40% × (taxable estate − available NRB − RNRB)
Tax tables death rate.
Reduced rate for charity
36% if charitable gift ≥ 10% of the baseline amount
Baseline is the net estate after liabilities, exemptions and reliefs (other than the charity gift), less available nil rate bands. Applies to the taxable estate.
Taper relief on lifetime gifts
More than 3 but less than 4 years 20%, more than 4 but less than 5 years 40%, more than 5 but less than 6 years 60%, more than 6 but less than 7 years 80% reduction in tax
Reduces the tax on the chargeable part of the gift (the part above the available NRB), not the value. Death must be between 3 and 7 years after the gift. Within 3 years, no relief.

How to solve Nil Rate Band, Residence Nil Rate Band and IHT Rates questions

Use this order for any question on nil rate bands, RNRB and rates. It stops you mixing lifetime and death rules.

  1. 1Decide whether the tax is on a lifetime transfer, on death, or both. Rates and the RNRB depend on this.
  2. 2Work out the NRB available. Start with £325,000. Deduct chargeable transfers in the previous seven years (cumulation). Add any transferable percentage from a deceased spouse.
  3. 3On death, test the RNRB. Check the death date, whether a home passes to direct descendants, and the value that qualifies. Add any transferred RNRB to the £175,000. Note any downsizing addition, but deal with it separately.
  4. 4Apply the taper. If the net estate is above £2,000,000, reduce the RNRB by half the excess. Do this on the total of the own and transferred RNRB. Do not taper the downsizing addition as part of this total.
  5. 5Cap the RNRB at the lower of the qualifying home value and the (tapered) RNRB. Then bring in any downsizing addition separately.
  6. 6Compute the taxable estate or transfer, then apply the rate: 20% lifetime, 40% on death. Test the 36% rate if charity gets a gift.
  7. 7Apply taper relief to the tax on chargeable lifetime gifts where death occurs more than three but less than seven years after the gift. Show the percentage clearly.
  8. 8State your answer, then add one line of advice or comment if the requirement asks for it.

Quickest way: Band-first shortcut

When to use it: Use when a death estate question gives a spouse who died earlier and a home left to children, and time is short.

  1. Write the spouse's unused percentages first: NRB used %, RNRB used %.
  2. Calculate total NRB = £325,000 × (1 + unused %) and total RNRB = £175,000 × (1 + unused %). Check neither extra exceeds 100%.
  3. Check estate against £2,000,000. If over, taper the total RNRB at £1 per £2 of excess.
  4. Compare the tapered RNRB with the home value passing to descendants. Take the lower.
  5. Taxable estate = estate − exemptions − NRB − RNRB. Multiply by 40%, or 36% if the charity test is met.

Common mistakes in Nil Rate Band, Residence Nil Rate Band and IHT Rates

  • Applying the RNRB to lifetime transfers.

    Students see 'nil rate band' and assume both bands work together everywhere.

    Fix: The RNRB is a death-only band and needs a home passing to direct descendants. Lifetime gifts only use the NRB.

  • Tapering the NRB or tapering the RNRB when the estate is below £2,000,000.

    Confusing the RNRB taper with taper relief on lifetime gifts.

    Fix: The £2,000,000 taper cuts only the RNRB, by £1 for each £2 of excess. Taper relief is a different relief that reduces the tax on chargeable gifts (the part above the available NRB) where death occurs between 3 and 7 years after the gift.

  • Letting the RNRB exceed the value of the home passing to descendants.

    Students use £175,000 automatically without checking who gets the home.

    Fix: Always take the lower of the qualifying home value and the available RNRB. If the home goes to a non-descendant, the RNRB is not available.

  • Transferring more than 100% of a spouse's band, or using the percentage on the old band figure.

    Students copy pounds from the first death, or add several spouses' unused amounts.

    Fix: Use the unused percentage, apply it to the band at the second death, and cap the total extra at 100% of each band.

  • Using 40% for lifetime transfers or forgetting to gross up.

    Mixing death and lifetime rates, or not noticing who pays the tax.

    Fix: Lifetime rate is 20%. If the donor pays, tax is 20/80 of the net gift above the available NRB, after annual exemptions. Death rate is 40%.

  • Applying 36% without checking the 10% test.

    Students see a charity legacy and apply the lower rate by default.

    Fix: Work out the baseline amount and test whether the charity gift is at least 10% of it. Only then use 36% on the taxable estate.

Worked examples

Example 1

Mr Khan died in January 2027. His estate was £1,000,000, including a house worth £450,000 left to his son. His wife died in 2020. She left £65,000 to her children and everything else to Mr Khan. Her NRB was £325,000 and she used none of her RNRB. Mr Khan made no lifetime gifts. Compute the IHT payable on his death.

Show the solution
  1. Wife used £65,000 of NRB. Percentage used = £65,000 ÷ £325,000 = 20%. Unused = 80%.
  2. Her RNRB was unused: 100% unused is transferable.
  3. NRB available = £325,000 + (80% × £325,000) = £325,000 + £260,000 = £585,000.
  4. RNRB maximum = £175,000 + (100% × £175,000) = £350,000. Extra claim is 100%, within the cap.
  5. Estate £1,000,000 is below £2,000,000, so there is no taper.
  6. Home passing to son is £450,000. RNRB is the lower of £450,000 and £350,000 = £350,000.
  7. Taxable estate = £1,000,000 − £585,000 − £350,000 = £65,000.
  8. IHT = 40% × £65,000 = £26,000.

Answer: IHT payable on death is £26,000.

Example 2

Mrs Lee, a widow, died in 2027 with a net estate of £2,300,000, which includes her home worth £600,000 left to her daughter. Her late husband used all of his NRB and RNRB. She made no lifetime gifts and left nothing to charity. Compute the IHT payable.

Show the solution
  1. NRB = £325,000. No transfer is available because her husband used all his bands.
  2. RNRB before taper = £175,000, as the home goes to a direct descendant and is worth more than £175,000.
  3. Taper: estate exceeds £2,000,000 by £300,000 (£2,300,000 − £2,000,000).
  4. Reduction = £300,000 ÷ 2 = £150,000.
  5. RNRB after taper = £175,000 − £150,000 = £25,000.
  6. Taxable estate = £2,300,000 − £325,000 − £25,000 = £1,950,000.
  7. IHT = 40% × £1,950,000 = £780,000.

Answer: IHT payable on death is £780,000.

Exam tips

  • Write down each band with a short label (NRB, transferred NRB, RNRB, taper) so the marker can award method marks even if a figure is wrong.
  • Learn the £2,000,000 taper threshold and the 36% charity test. Neither is in the tax tables, but both are examined.
  • Show the percentage of the spouse's NRB used and the cap of 100% on the transfer. Many marks are lost by skipping this.
  • In scenario questions, check the facts that switch the RNRB on or off: death date, who inherits the home, and any downsizing. Comment on them in your answer to earn professional skills marks.
  • If the requirement asks for advice, quantify it. For example, show how a charity legacy that cuts the rate to 36% affects the tax, and state the assumption you used.

Practice questions from Inheritance tax: the basic principles of computing transfers of value

Nil Rate Band, Residence Nil Rate Band and IHT Rates 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, Residence Nil Rate Band and IHT Rates: frequently asked questions

How does the RNRB taper work above £2 million?

If the net estate is more than £2,000,000, the RNRB is reduced by £1 for every £2 of excess. An estate of £2,350,000 has an excess of £350,000, so the reduction is £175,000. Where only the person's own £175,000 RNRB is available, none remains. If a transferred RNRB gives a total of up to £350,000, the same £175,000 reduction leaves £175,000. The NRB is not tapered.

Can I transfer the NRB and RNRB from a deceased spouse in ATX?

Yes. The unused percentage of each band at the first death can be claimed at the second death, applied to the band at the second death. The extra claim is capped at 100% of each band, so the maximum is double.

When is the 36% IHT rate used?

It applies on death when at least 10% of the baseline amount is left to charity. The reduced rate applies to the taxable estate instead of 40%. You must calculate the baseline amount to test this.

What is the downsizing addition?

It protects RNRB where the person sold or gave up a home on or after 8 July 2015 and moved to a less valuable home, or none. If assets of equivalent value pass to direct descendants, an additional amount is added to the RNRB that would otherwise be lost. It is considered separately and is not tapered as part of the total RNRB.

Does the RNRB apply to lifetime gifts?

No. The RNRB is a death-only relief. Lifetime chargeable transfers use only the NRB, with the 20% rate on the excess.