UK Inheritance Tax Guide 2025 — Thresholds & Planning

Two thresholds, stacked

The nil rate band (NRB) is £325,000 — the value of an estate up to this figure is not taxed. Above it, the excess is taxed at 40%.

The residence nil rate band (RNRB) adds a further £175,000, but only when a home is left to direct descendants (children, grandchildren, and similar) — it does not apply automatically to every estate. Together, a qualifying individual can shelter up to £500,000 (£325,000 + £175,000) from IHT, and a married couple or civil partners can combine both partners' unused NRB and RNRB, potentially sheltering up to £1,000,000 between them on the second death.

The RNRB tapers away for larger estates

Above a £2,000,000 estate value, the RNRB is reduced by £1 for every £2 the estate exceeds that threshold — a large enough estate can lose the residence band entirely, not just partially.

Gifts within 7 years — taper relief is not a simple exemption

A gift is fully outside your estate for IHT purposes only if you survive 7 years after making it. If you die within that window, tax can still be due, on a sliding scale that only starts to help after 3 years:

Taper relief reduces the rate, not the value of the gift — and crucially, it only helps once the gift (combined with other gifts in the same 7 years) has already used up the nil rate band; a gift that stays within an unused NRB owes no tax regardless of taper relief, because there was nothing to tax in the first place.

Worked example

A person makes a single gift of £425,000 to their child and dies 4.5 years later, having made no other gifts in the preceding 7 years and having their full £325,000 NRB available at the time of the gift.

• Value of the gift exceeding the NRB: £425,000 − £325,000 = £100,000
• Death occurs in the 4–5 year band, so taper relief reduces the charge to 24% of the full rate
• IHT due on the gift: £100,000 × 24% = £24,000

Had the same donor survived just seven months longer — past the 5-year mark — the rate would have dropped to 16%, and the tax due would have fallen to £100,000 × 16% = £16,000: an £8,000 difference turning entirely on the calendar, not on anything else about the gift.

FAQ

Q: Does the residence nil rate band apply if I leave my home to my spouse rather than my children? A: A transfer to a spouse or civil partner is generally exempt from IHT entirely regardless of RNRB — RNRB specifically matters for the direct-descendant route, and unused RNRB (like unused NRB) can generally be carried over to the surviving spouse for use on the second death.

Q: If I give away £200,000 and my NRB is £325,000, do I owe anything if I die within 3 years? A: Not necessarily — taper relief and the tax charge only bite once cumulative gifts in the 7-year window exceed the nil rate band. A £200,000 gift alone, with no other recent gifts, stays under the £325,000 NRB and owes nothing regardless of how soon death follows.

Q: Can the residence nil rate band be lost completely? A: Yes — for very large estates, the £1-per-£2 taper above £2,000,000 can reduce the RNRB to zero well before the estate value reaches astronomical figures, since £175,000 of taper only requires £350,000 of estate value above the £2,000,000 line.

Sources

Figures verified against HMRC and parliamentary sources as of 30 July 2026:

• gov.uk / HMRC — Inheritance Tax thresholds (£325,000 nil rate band, £175,000 residence nil rate band, 40% standard rate, combined £500,000/£1,000,000 individual/couple shelter)
• gov.uk — Residence nil rate band taper (£1-per-£2 reduction above a £2,000,000 estate value)
• gov.uk / HMRC — Taper relief on gifts (3–4/4–5/5–6/6–7-year bands at 32%/24%/16%/8% of the full rate; full exemption after 7 years; chronological allocation against the nil rate band)
• House of Commons Library — "Inheritance tax: a basic guide" (mechanics of taper relief and the nil-rate-band interaction)