Nil rate band ― principles

Inheritance tax (IHT) is charged at the rate of 40% on estates at death or at half that rate, 20%, on chargeable lifetime transfers. The nil rate band (NRB) is an important relief which assigns a rate of 0% to the lower portion of an estate or transfer.

Generally, IHT only becomes payable if the chargeable transfer exceeds the NRB in force at the time the transfer is made. In order to determine whether a transfer exceeds the NRB, it is added to the transferor’s previous chargeable transfers in the preceding seven years. This is known as the cumulation principle.

See Example 1.

The NRB is currently £325,000. This threshold has applied from 6 April 2009, and will remain at that level until 5 April 2031.

Thresholds in previous years can be found on the GOV.UK website.

Every individual is entitled to an NRB, regardless of their residence status.

An estate on death may also qualify for some or all of the unused NRB of the spouse