Key takeaways
- The nil-rate band is £325,000 in 2026/27 and is frozen until 5 April 2031.
- Estates above the available nil-rate bands pay Inheritance Tax at 40%, or 36% if at least 10% of the net estate goes to charity.
- Any unused nil-rate band of a spouse or civil partner can be transferred to the survivor, so a couple can pass on up to £650,000.
- The residence nil-rate band adds up to £175,000 each when a home goes to direct descendants, taking a couple's total to £1 million.
- Gifts made in the seven years before death use the nil-rate band first.
The nil-rate band is the amount of an estate that can pass without Inheritance Tax (IHT). It has been £325,000 since April 2009 and the Autumn Budget 2025 extended the freeze to 5 April 2031. As property prices and savings have grown, many more estates now exceed it.
The figures for 2026/27
| Allowance or rate | 2026/27 |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band (maximum) | £175,000 |
| Residence nil-rate band taper starts | Estates over £2 million |
| Rate on death above the available bands | 40% |
| Reduced rate if 10% or more goes to charity | 36% |
| Rate on lifetime transfers into most trusts | 20% |
How the nil-rate band works on death
On death, Inheritance Tax is worked out on the value of the estate, less debts, funeral costs and exempt gifts (such as to a spouse or charity). The first £325,000 is charged at 0%, plus any residence nil-rate band. The excess is taxed at 40%.
Example
Philip, who is single, dies leaving an estate of £500,000, including a home worth £300,000 left to his daughter.
| Amount | |
|---|---|
| Estate | £500,000 |
| Nil-rate band | (£325,000) |
| Residence nil-rate band | (£175,000) |
| Taxable estate | £0 |
If Philip had left everything to a friend instead, the residence nil-rate band would not apply, and £175,000 would be taxed at 40%: £70,000.
Transferring an unused nil-rate band
Gifts between spouses and civil partners are usually exempt. If the first spouse to die leaves everything to the survivor, their nil-rate band is unused. The unused percentage can be transferred to the survivor’s estate on their death.
| First death | Second death | |
|---|---|---|
| Estate passing to survivor | Exempt | |
| Nil-rate band used on first death | 0% | |
| Nil-rate bands available on second death | 200% of £325,000 = £650,000 |
The transfer is by percentage, so if the first spouse used half their band on gifts to children, 50% is available to transfer. The claim is made by the executors of the second estate, usually on form IHT402, within two years of the second death.
Together with the residence nil-rate band, a married couple or civil partners can pass on up to £1 million without Inheritance Tax, if a home goes to their direct descendants and the estate is not over £2 million. See residence nil-rate band.
Lifetime gifts and the nil-rate band
Gifts made in the seven years before death are added back and use up the nil-rate band first, in the order they were made. This can leave less nil-rate band for the rest of the estate.
- Potentially exempt transfers (outright gifts to individuals) are only taxed if you die within seven years. See potentially exempt transfers.
- Chargeable lifetime transfers, mainly gifts into trusts, use the nil-rate band immediately and are taxed at 20% to the extent they exceed it.
Why the freeze matters
Had the nil-rate band kept pace with consumer price inflation since 2009, it would now be well over £500,000. Because it is fixed until 2031 while house prices and investments grow, the number of estates paying Inheritance Tax is rising. From 6 April 2027, unused pension funds will also normally count in the estate, pushing more over the threshold.
Frequently asked questions
What is the Inheritance Tax threshold for 2026/27?
The nil-rate band is £325,000 per person, plus up to £175,000 of residence nil-rate band if a home passes to direct descendants.
Can I inherit my spouse’s nil-rate band?
Yes. Any unused percentage of a deceased spouse or civil partner’s nil-rate band can be transferred to the survivor’s estate.
When will the nil-rate band increase?
Not before April 2031. The government has frozen it at £325,000 until 5 April 2031.
Do gifts reduce my nil-rate band?
Gifts in the seven years before death are set against the nil-rate band first, reducing what is left for the estate. Exempt gifts, such as those within the annual exemption, do not.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.