July 30, 2026 · Adil

Inheritance Tax Allowances: Standard & Residence Nil Rate Bands Explained

Published: July 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)

This guide is fully updated for the 2026/27 UK tax year. All Inheritance Tax (IHT) calculations and allowance thresholds have been audited against official HMRC guidelines.

Inheritance Tax (IHT) is often described as one of the UK’s most unpopular taxes, but with proper planning, many families can avoid it entirely. The tax is levied on the estate (property, money, and possessions) of someone who has passed away, but features generous allowances that exclude the vast majority of estates from paying any tax. In this guide, we explain the mechanics of the standard Nil Rate Band, the Residence Nil Rate Band, and how married couples can combine their allowances to secure up to £1 million tax-free.

The Standard Nil Rate Band (NRB)

Under the Inheritance Tax Act 1984, every individual in the UK is entitled to a standard tax-free allowance known as the Nil Rate Band. For the 2026/27 tax year, the standard Nil Rate Band is set at £325,000. If your total estate value (plus any non-exempt gifts made in the last 7 years) is £325,000 or less, no Inheritance Tax is due. Any estate value exceeding this threshold is taxed at a standard rate of 40%.

The Residence Nil Rate Band (RNRB)

To help families pass their main home to their children or grandchildren without facing high tax bills, HMRC introduced the Residence Nil Rate Band (RNRB) in 2017. For 2026/27, the RNRB provides an additional allowance of up to £175,000, bringing an individual’s total tax-free allowance to £500,000. To qualify for the RNRB, the estate must satisfy three strict conditions:

  • The estate must include a residential property that was used as the deceased’s main home at some point.
  • The home must be “closely inherited”—meaning it is passed directly to children, stepchildren, grandchildren, or other direct lineal descendants.
  • The property cannot be passed to a discretionary trust (even if the beneficiaries are direct descendants).

Tapering on Estates Over £2 Million

For wealthier estates, the Residence Nil Rate Band is subject to tapering. Under statutory rules, the £175,000 RNRB is reduced by £1 for every £2 that the net value of the estate exceeds £2,000,000. This tapering applies regardless of whether the home is passed to direct descendants. The RNRB is fully clawed back to £0 once the estate value reaches £2,350,000 or more.

How Married Couples Get a £1 Million Allowance

One of the most powerful provisions of UK tax law is the Spousal Exemption. Any assets passed to a surviving spouse or civil partner are completely exempt from Inheritance Tax, regardless of the value. Furthermore, if a spouse passes away and does not utilize their Nil Rate Bands, the unused percentage can be transferred to the surviving partner upon their death.

This means that when the surviving spouse passes away, their estate can claim two Nil Rate Bands and two Residence Nil Rate Bands. This effectively doubles the combined tax-free allowance to up to £1,000,000 (£650,000 NRB + £350,000 RNRB), shielding substantial family wealth from the 40% tax charge.

Step-by-Step Worked Example (Surviving Spouse)

Let’s calculate the IHT due on an estate valued at £1,200,000 left by a widowed individual to their children, assuming their deceased spouse made no prior contributions or gifts:

  1. Standard Nil Rate Band (Transferred): £325,000 (Deceased Spouse) + £325,000 (Self) = £650,000.
  2. Residence Nil Rate Band (Transferred): £175,000 (Deceased Spouse) + £175,000 (Self) = £350,000.
  3. Total Combined Allowance: £650,000 + £350,000 = £1,000,000.
  4. Taxable Estate Value: £1,200,000 – £1,000,000 = £200,000.
  5. Inheritance Tax Due at 40%: £200,000 * 40% = £80,000.
  6. Net Passed to Heirs: £1,200,000 – £80,000 = £1,120,000.

David Vance, CTA FCA, recommends: “To claim the transferred Nil Rate Bands from a deceased spouse, the executors of the estate must actively apply to HMRC when filing the IHT400 estate return. The transfer is not automatic, even if all assets originally passed to the spouse tax-free. Keep detailed records of the deceased partner’s estate documents, as they will be required decades later.”

Topical Cluster Links

To run inheritance tax calculations or check gifting and mitigation rules, refer to our other guides:

Frequently Asked Questions (FAQs)

1. What is the Residence Nil Rate Band threshold for 2026/27?
The Residence Nil Rate Band threshold is capped at £175,000 per individual (or up to £350,000 for married couples if fully transferred).

2. How does the estate taper work on properties over £2 million?
The Residence Nil Rate Band is reduced by £1 for every £2 the total estate exceeds £2,000,000, tapering to £0 once the estate reaches £2,350,000.

3. Are unused tax allowances transferred automatically to spouses?
No. The executors of the surviving spouse’s estate must submit a claim to HMRC to transfer the unused Nil Rate Bands when filing the estate tax returns.