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The nil rate band explained

What is the nil rate band and how much is it?

If you have an inheritance to pass on, you can pass on assets up to the value of the nil rate band without incurring tax. The nil rate band is currently £325,000 and it will remain fixed until April 2026.

You might have a lower nil rate band on your death if you have chosen to make gifts during your lifetime and you die within seven years of making the gifts. The value of these gifts will reduce or eliminate your nil rate band, meaning less of your estate will be tax-free.

The residence nil rate band

The residence nil rate band was introduced in 2017 as an additional amount that could be passed on tax-free against the value of the family home. It is currently set at £175,000. The rules are not simple though!

To use the residence nil rate band you must pass your property on to direct descendants such as children (including foster, adopted or step-children) or grandchildren, but not nieces or nephews. Importantly you cannot use a discretionary trust to pass on the home, but some other types of trust do qualify. If you do have a trust in your Will, make sure that it can apply to the residence nil rate band.

Residence nil rate band tapering for bigger estates

The residence nil rate band reduces after a certain level for bigger estates. For every £2 that your estate is valued over £2 million, the residence nil rate band reduces by £1. This means that estates worth more than £2.35 million may not benefit.

The rules are complex, so it’s best to seek professional advice should your estate fall into the higher bracket of value.

Nil rate band transfer

The nil rate band and the residence nil rate band can both usually be transferred between married couples and civil partners when one spouse dies, even if the death occurred a long time ago. Any unused nil rate band is transferred as a percentage rather than a specific amount of money.

You can have a maximum of two nil rate bands

Any single person can have a maximum of two nil rate bands and two residence nil rate bands, particularly useful if you have been married more than once. This means an individual could potentially pass up to £1 million without any Inheritance Tax charges.

Want to understand more about nil rate bands?

We’re experts in helping you to manage your estate and to ensure that you only pay the tax that you need to. If you’d like some help with estate planning, please contact us. For more information, please visit or call  01642 493101.