What is the Nil Rate Band (NRB)?

If you're looking to understand what the Nil Rate Band is, it’s essentially the portion of an estate that can be passed on without paying Inheritance Tax (IHT). It plays a central role in estate planning and can make a big difference to the final value passed to loved ones.

The Nil Rate Band: A closer look 

The Nil Rate Band (NRB) is currently set at £325,000 per person. This means that, when someone dies, the first £325,000 of their estate is not subject to IHT. Only the amount above this threshold is taxed, usually at 40%, although this can vary if other reliefs apply. This threshold has remained frozen for several years and is expected to stay the same until at least April 2028. As property values and savings continue to rise, more estates are becoming liable for IHT, even if they seem modest by today’s standards. 

How the NRB is applied in real life 

When someone dies, the value of everything they owned, including their home, savings, possessions, and investments, is added together. After debts, liabilities, and any funeral costs are deducted, the total is assessed against the available tax allowances. If the estate’s net value falls below the £325,000 threshold, no tax is due. If it exceeds that amount, only the balance above the threshold is taxed. 

Gifts made within seven years of death may also reduce the available NRB unless they’re covered by exemptions. 

Passing unused allowance between spouses or civil partners

One of the most valuable features of the NRB is that it can be transferred. If someone leaves their estate to their spouse or civil partner, the NRB isn’t used - transfers between spouses are tax-free. When the second partner passes away, the unused portion of the first partner’s allowance can be added to their own. 

For example, if the first person didn’t use any of their £325,000 threshold, the second partner’s estate may benefit from a combined allowance of £650,000, doubling the tax-free limit. This transfer must be claimed when the second person dies, usually by submitting HMRC form IHT402.  

How it works alongside the Residence Nil Rate Band (RNRB)

The Nil Rate Band can be used with another allowance called the Residence Nil Rate Band (RNRB). This additional threshold applies when a main home is left to children or grandchildren. The RNRB is currently set at £175,000 per person. Combined, the NRB and RNRB could allow an individual to pass on up to £500,000 tax-free. For couples, that figure could reach £1 million, assuming all qualifying criteria are met. 

It’s important to know that the RNRB is only available when the home is inherited by direct descendants. It also starts to reduce if the total value of the estate exceeds £2 million, which is known as tapering. 

Why this matters now

Inheritance Tax thresholds haven’t kept pace with rising asset values, especially property. With more families being drawn into the tax net, understanding how these allowances work has become increasingly important. 

By making the most of the NRB and RNRB, and seeking advice where needed, families can often reduce or even eliminate their tax bill - ensuring more of the estate reaches those it was intended for. 

Final thoughts 

To recap: what is the Nil Rate Band? It’s the standard tax-free allowance for estates, set at £325,000. Used on its own or alongside the RNRB, it helps many families minimise their exposure to IHT. With smart planning, including the transfer of unused allowances between spouses, it’s possible to pass on more to your loved ones without tax getting in the way.