Inheritance Tax can catch families off guard. While the potential tax bill can be significant, there are also valuable allowances available that may help reduce the amount payable. Two of the most important are the nil rate band and the residence nil rate band. Understanding how these work is one of the first steps in effective estate and Inheritance Tax planning.
What is the nil rate band?
The nil rate band (NRB) is the threshold up to which your estate pays no Inheritance Tax. For the 2026/27 tax year, this sits at £325,000. Anything above that is usually taxed at 40%.
The nil rate band has been frozen at this level since 2009, which means that, because property and investment values have risen over time, more estates are being pulled into the Inheritance Tax net.
If you are married or in a civil partnership, any unused nil rate band can be transferred to your surviving partner. This means a couple could effectively have a combined nil rate band of £650,000. You can read more about how this works on our Inheritance Tax planning page.
What is the residence nil rate band?
The residence nil rate band (RNRB) is an additional allowance introduced in 2017. It applies when you leave your main home to direct descendants, which include children, stepchildren, grandchildren and certain other relatives.
For 2026/27, the RNRB is £175,000 per person. Like the standard nil rate band, it can also be transferred between spouses, giving a couple a potential combined RNRB of £350,000.
How do they work together?
Used together, a married couple could potentially pass on up to £1 million to their children without any Inheritance Tax applying. That is made up of:
- £325,000 nil rate band for each partner (£650,000 combined)
- £175,000 residence nil rate band for each partner (£350,000 combined)
It is worth noting that the RNRB begins to taper away for estates valued above £2 million, reducing by £1 for every £2 over that threshold. If your estate is approaching this level, specialist Inheritance Tax advice is particularly important.
- The property must pass to direct descendants (children or grandchildren). Leaving it to a sibling, niece, or friend will not qualify.
- You must have owned a qualifying residential property. If you downsized or sold your home after July 2015, a downsizing addition may still apply, but the rules are complex.
- Certain trust arrangements can affect eligibility. If your home passes into a trust rather than directly to descendants, the RNRB may not apply.
The seven-year rule and lifetime gifts
Gifts made during your lifetime are often a key part of reducing an Inheritance Tax bill. Most gifts to individuals fall outside your estate after seven years. There are also annual exemptions and smaller gift allowances that take effect immediately.
If someone makes gifts during their lifetime and then dies within seven years, those gifts may still be counted as part of their estate for Inheritance Tax purposes. These are often called “failed” Potentially Exempt Transfers (PETs).
The nil rate band interacts with any failed gifts made within seven years of death, so the order in which allowances are applied matters and can have a significant impact on the overall tax position.
What about trusts?
Trusts can play an important role in Inheritance Tax planning, but they also interact with the nil rate band in specific ways. Transfers into most trusts count as chargeable lifetime transfers and use up your nil rate band at the time of transfer. Our Inheritance Tax planning service covers trust planning in more detail.
Why this matters in 2026
From April 2027, the government plans to bring inherited pension pots into the scope of Inheritance Tax for the first time. This will change the planning picture significantly for anyone with defined contribution pensions.
Combined with the frozen nil rate band and rising asset values, many more families will need to think carefully about their estate planning in the coming years. The window to put effective strategies in place is narrowing.
Key numbers – 2026/27 tax year
| Allowance | Amount |
|---|---|
| Nil rate band (NRB) | £325,000 per person |
| Residence nil rate band (RNRB) | £175,000 per person (where qualifying) |
| Combined NRB for couples | Up to £650,000 |
| Combined RNRB for couples | Up to £350,000 |
| Maximum allowances combined | Up to £1,000,000 for couples |
| RNRB taper threshold | Begins reducing for estates above £2,000,000 |
| Standard IHT rate | 40% on assets above the available threshold |
| Pension IHT change | From 6 April 2027, most unused pension funds will be included in the estate |
Frequently asked questions
What is the nil rate band for 2026/27?
The nil rate band is £325,000 for the 2026/27 tax year. It has been frozen at this level since 2009 and is currently frozen until at least 2028.
Can married couples double the nil rate band?
Yes. Any unused nil rate band from the first partner to die can be transferred to the survivor. This means a couple can effectively have a combined nil rate band of up to £650,000 and up to £1 million when the residence nil rate band is also included.
What is the residence nil rate band and who qualifies?
The residence nil rate band is an additional £175,000 allowance (per person for 2026/27) that applies when you leave your main home to direct descendants such as children or grandchildren. It can also be transferred between spouses.
What happens if my estate is worth more than £2 million?
The residence nil rate band tapers away by £1 for every £2 your estate exceeds £2 million. For estates worth £2.35 million or more, the RNRB is lost entirely. The standard nil rate band is not affected by this taper.
How do the 2027 pension changes affect inheritance tax planning?
From April 2027, most unused defined contribution pension pots will be included in your estate for Inheritance Tax purposes. This is a significant change for many people. Taking advice now, before the rules are finalised, gives you the most options. See our Inheritance Tax service for more details.
Understanding your allowances is a starting point, not a complete plan. Gifts, trusts, life insurance, and pension planning can all play a role in reducing your estate’s Inheritance Tax exposure. Our Chartered, independent advisers will look at your full picture and help you put the right strategy in place.
Book your free initial appointment or call us to speak with an adviser today.
This article is intended for information purposes only and does not constitute personal financial advice. The information is based on our understanding of current legislation and HMRC guidance as at April 2026, which may change. Tax treatment depends on individual circumstances and is subject to change. Beaumont Wealth is authorised and regulated by the Financial Conduct Authority.
