Advanced Taxation (UK) · Inheritance tax: the use of exemptions and reliefs in deferring and minimising inheritance tax liabilities

Nil Rate Bands, Residence NRB and Inheritance Tax Rates

Updated 11 October 2026 · Fact-checked

Inheritance tax is charged on a death estate above the nil rate band of £325,000, plus the residence nil rate band of £175,000 where a home passes to direct descendants. Tax is 40% on death, or 36% if 10% of the baseline amount goes to charity. Unused bands pass to a surviving spouse.

Understand Nil Rate Bands, Residence NRB and Tax Rates

Inheritance tax (IHT) is charged on the value you transfer, either on death or on certain lifetime gifts. The first slice is taxed at 0%. This is the nil rate band (NRB), which is £325,000 in the ATX-UK tax tables. Only the value above it is taxed.

The rate on the excess depends on when the transfer happens. On death it is 40%. On a chargeable lifetime transfer it is 20%. If more tax is due on death within seven years of the gift, the death rate applies, reduced by taper relief for gifts made more than three years before death.

The residence nil rate band (RNRB) is an extra £175,000. It applies only when the deceased's home (or a share in it) is left to direct descendants, such as children and grandchildren. You get the lower of the RNRB available and the value of the home passing to descendants. It is a death-estate relief only. It does not apply to lifetime transfers.

The RNRB has a taper. If the net estate is over £2,000,000, the RNRB is reduced by £1 for every £2 of excess. A single £175,000 RNRB is therefore lost completely once the estate reaches £2,350,000. With a full transferred RNRB (£350,000 in total) it is lost completely at £2,700,000.

When the first spouse or civil partner dies, any unused NRB and RNRB can be transferred to the survivor. You work in percentages. If the first to die used 40% of their NRB, then 60% is unused. The survivor adds 60% of the NRB in force at the second death. The most a survivor can add is 100% of each band, so the maximum is £650,000 NRB and £350,000 RNRB.

There is also a reduced death rate of 36%. It applies if at least 10% of the baseline amount is left to charity. The baseline amount is the net estate after reliefs and exemptions other than the charity exemption, less the available NRB.

Key rules to remember

Nil rate band: NRB = £325,000; Reduced by chargeable transfers in the seven years before the transfer. Use the tax table figure.
IHT rates: Death rate = 40%; lifetime rate = 20%; Applied only to the value above available nil rate bands.
Residence nil rate band: RNRB = lower of (£175,000 available, value of home left to direct descendants); Death estates only. The home must pass to direct descendants.
RNRB taper: Reduction = (Net estate − £2,000,000) ÷ 2; Applies only if the net estate exceeds £2,000,000. Reduction cannot take the RNRB below zero.
Transferable NRB: Transferred NRB = unused % of first spouse's NRB × NRB at second death; Unused % = 1 − (NRB used ÷ NRB at first death). Maximum extra is 100%.
Transferable RNRB: Transferred RNRB = unused % of first spouse's RNRB × RNRB at second death; Maximum extra is 100%. If the first death was before the RNRB existed, treat 100% as unused.
Reduced 36% rate test: Charity gift ≥ 10% × (net estate after reliefs and exemptions other than charity − available NRB); If the test is met, the whole taxable estate is taxed at 36%. Otherwise it is taxed at 40%.

How to solve Nil Rate Bands, Residence NRB and Tax Rates questions

Use this order for any death estate question. It keeps the bands, the taper and the rate separate, so you pick up each mark.

1Value the net estate after debts and funeral costs. Note the value of the home and who receives it.
2Deduct exempt transfers (spouse, charity) and reliefs such as business or agricultural property relief to find the chargeable estate. Keep the pre-relief net estate figure for the RNRB taper test.
3Work out the NRB. Reduce it for chargeable transfers in the previous seven years, and add any transferred percentage from a deceased spouse.
4Work out the RNRB. Check the home passes to direct descendants. Take the lower of the RNRB and the home value. Add any transferred RNRB, then apply the taper if the net estate exceeds £2,000,000.
5Deduct the NRB and RNRB from the chargeable estate to find the taxable amount.
6Check the charity test. If the gift is at least 10% of the baseline amount, use 36%. Otherwise use 40%.
7Calculate the tax. Show each figure so you earn marks even if one number is wrong.

Quickest way: Band-stacking shortcut

When to use it: Use it when the question gives a married couple and a single death estate, and you only need the tax figure.

Write the maximum bands first: NRB £325,000 and RNRB £175,000, each plus any transferred percentage.
Cut the RNRB for the home value limit and the £2,000,000 taper before adding it to the NRB.
Subtract total bands from the chargeable estate and multiply by 40%.
If a charity gift is mentioned, test 10% of the baseline amount before choosing 36%.

Common mistakes in Nil Rate Bands, Residence NRB and Tax Rates

Applying the RNRB when the home is left to a spouse, a sibling or a trust that is not for descendants.
Students see a house and a £175,000 figure and assume the band applies.
Fix: Check who receives the home. It must pass to direct descendants. Spouse exemption applies instead, but the RNRB is not used there.
Applying the taper to the chargeable estate after reliefs or charity gifts.
Students use the same figure for the whole computation.
Fix: Use the net estate value before reliefs such as business property relief and before the charity exemption for the £2,000,000 taper test. Check the question wording.
Transferring a fixed £ amount of unused NRB instead of a percentage.
Students copy the unused £ from the first death.
Fix: Calculate the unused percentage, then apply it to the NRB in force at the second death.
Using 36% whenever there is a gift to charity.
Students forget the 10% test.
Fix: Compare the gift with 10% of the baseline amount. The baseline is after NRB, not the whole estate.
Forgetting to reduce the NRB for gifts in the previous seven years.
Lifetime gifts are in a different part of the question.
Fix: List chargeable transfers made in the seven years before death. Deduct them from the NRB before it is used against the estate.
Applying the lifetime 20% rate to the death estate, or the 40% rate to a lifetime transfer.
Rates are learned as a pair and mixed up.
Fix: Death estate is 40%, or 36% with the charity test. Chargeable lifetime transfers are 20%.

Worked examples

Example 1

Mrs Hale died in the current tax year. Her net estate was £1,800,000, which included a house worth £500,000 left to her daughter. The rest passed to her son. Her husband died in 2015. He left £130,000 to his children and the rest of his estate to Mrs Hale. Mrs Hale made no lifetime gifts. Calculate the IHT due on her death. Assume NRB of £325,000 and RNRB of £175,000 apply.

Show the solution

Husband's NRB used: £130,000 ÷ £325,000 = 40%. Unused: 60%.
Transferred NRB: 60% × £325,000 = £195,000. Total NRB: £325,000 + £195,000 = £520,000.
RNRB: the husband died before the RNRB existed, so 100% of his RNRB is unused and transferable. Total RNRB available: £175,000 + £175,000 = £350,000.
The house is £500,000 and passes to a direct descendant. Lower of £350,000 and £500,000 = £350,000.
The net estate of £1,800,000 is below £2,000,000, so there is no taper.
Taxable estate: £1,800,000 − £520,000 − £350,000 = £930,000.
IHT at 40%: £930,000 × 40% = £372,000.

Answer: IHT payable on Mrs Hale's death is £372,000.

Example 2

Mr Dean, a widower with no children, died with a net estate of £1,000,000 before any charity gift. He left £80,000 to charity and the rest to a friend. He made no lifetime gifts and no NRB was transferred to him. Calculate the IHT and show whether the 36% rate applies. Assume NRB of £325,000.

Show the solution

No RNRB: there is no home passing to direct descendants.
Baseline amount: £1,000,000 − £325,000 = £675,000. There are no other reliefs or exemptions to deduct.
10% test: £675,000 × 10% = £67,500. The gift of £80,000 is at least £67,500, so the test is met and the 36% rate applies.
Taxable estate: £1,000,000 − £80,000 charity − £325,000 NRB = £595,000.
IHT at 36%: £595,000 × 36% = £214,200.
For comparison, at 40% the tax would be £238,000, so the reduced rate saves £23,800.

Answer: IHT is £214,200 at the reduced 36% rate.

Exam tips

Always show the NRB and RNRB as separate lines. The marker gives separate marks for each band and for the transfer percentage.
Quote the rates from the tax table. Do not rely on memory for the 40% and 20% rates and the £2,000,000 taper threshold. Check which figures the question provides.
For spouse transfer questions, show the percentage workings: NRB used ÷ NRB at first death, then unused % × current NRB.
In charity questions, state the 10% test explicitly and show the baseline amount. A comparison of the 36% and 40% outcomes earns commercial awareness marks.
In advice questions, say when the RNRB would be lost, for example when the home is left to a spouse, a sibling or a trust, or when the estate exceeds £2,000,000. Suggest changes to the will.

Practice questions from Inheritance tax: the use of exemptions and reliefs in deferring and minimising inheritance tax liabilities

Nil Rate Bands, Residence NRB 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.

ACCA Applied SkillsNil Rate Band and Residence Nil Rate Band

Nil Rate Bands, Residence NRB and Tax Rates: frequently asked questions

How do I calculate a transferable nil rate band from a spouse?

Find the percentage of the first spouse's NRB that was unused at their death. Multiply that percentage by the NRB in force at the survivor's death. Add this to the survivor's own NRB. The extra cannot exceed 100% of the NRB.

How does the residence nil rate band taper work?

If the net estate is over £2,000,000, the RNRB is reduced by £1 for every £2 of excess. A single £175,000 RNRB is lost completely when the estate reaches £2,350,000.

When does the 36% inheritance tax rate apply?

It applies to a death estate where at least 10% of the baseline amount is left to charity. The baseline amount is the net estate after reliefs and exemptions other than the charity exemption, less the available NRB. The reduced rate then applies to the whole taxable estate.

Does the residence nil rate band apply to lifetime gifts?

No. The RNRB applies only on death and only where a home passes to direct descendants. Chargeable lifetime transfers use the NRB and are taxed at 20% above it.