The Nil-Rate Band & Transferable Nil-Rate Band

The nil-rate band (NRB) is the slice of an estate that passes free of Inheritance Tax. It is £325,000 per person. Value above it is generally taxed at 40% on death. Since 2007 a widow, widower or surviving civil partner can also claim the unused percentage of their late spouse's band, so a couple can pass on up to £650,000 between them before any tax bites. This page explains how the band works, how lifetime gifts eat into it, how the transfer is claimed, and where the old "nil-rate band trusts" still have a role. For the wider machinery - what counts as a chargeable transfer, PETs and CLTs - see Inheritance Tax - An Overview.

What the nil-rate band is#

Every individual has a nil-rate band charged at 0% (Inheritance Tax Act 1984, s.7 and Schedule 1). It is not a relief you claim and it is not tied to any particular asset - it is simply the first tranche of chargeable value that escapes tax. Only value above the band is charged, and the standard death rate is 40% (reduced to 36% where at least 10% of the net estate passes to charity).

The band is a personal allowance, not a household one. Each spouse or civil partner has their own £325,000; the transferable band (below) is the mechanism that lets the survivor pick up what the first to die did not use.

The current figure and the freeze#

The NRB has stood at £325,000 since the 2009/10 tax year. Successive Finance Acts have suspended the usual indexation and frozen it: the freeze, repeatedly extended, now runs to 5 April 2031. In real terms the band shrinks every year it stays fixed, which is why more estates fall into charge over time and why planning around the band matters more, not less.

How the rate works above the band#

Tax is charged on the cumulative total, with the band applied first. Put simply: add up the chargeable transfers, set the nil-rate band against the bottom slice, and charge the excess at 40%. An estate of £525,000 with a full £325,000 band has £200,000 taxable, giving £80,000 of tax.

How the band is used up: cumulation#

The band is not held in reserve for the death estate alone. Lifetime gifts made in the seven years before death are brought back into account and use up the band first, in date order (IHTA 1984, s.7). Two kinds of gift matter here:

• A potentially exempt transfer (PET) - an outright gift to an individual - is tax-free if the donor survives seven years. If they do not, it becomes chargeable and consumes the band from its date.
• A chargeable lifetime transfer (CLT) - typically a gift into a discretionary trust - is chargeable when made (20% on anything above the band) and stays in the cumulation for seven years.

The mechanics of PETs, CLTs and the taper on tax (not on the band itself) are covered in Inheritance Tax - An Overview. The point for the NRB is this: gifts in the last seven years reduce the band available to the estate. Only what is left over shelters the death estate.

The transferable nil-rate band (TNRB)#

Before 2007, a band unused on the first death was simply lost - which is why couples set up nil-rate band trusts to capture it (see below). Since 9 October 2007 that is no longer necessary. Under IHTA 1984, s.8A, when the first spouse or civil partner dies, the unused percentage of their nil-rate band can be transferred to the survivor and added to the survivor's own band on the second death.

How the unused percentage transfers#

The transfer is expressed as a percentage, not a cash sum - and this is the detail that catches people out. You work out what proportion of the first band was unused, then apply that same percentage to the band in force at the second death.

Most first deaths leave everything to the survivor. Because gifts between spouses and civil partners are exempt (IHTA 1984, s.18), none of the first band is touched, so 100% is unused and carries forward. Applied to today's £325,000, that gives the survivor a combined £650,000 - the effective maximum of two full bands. Where the first estate did use part of its band (a legacy to the children, say), a smaller percentage carries forward.

Claiming it: IHT402 and the time limit#

The transfer is not automatic. The personal representatives of the second estate must claim it, on form IHT402, filed with the IHT account. Crucially, the claim is made on the second death - often years or decades after the first - so the first death's paperwork (the will, grant, and a note of what was left to whom) needs to be kept.

The claim must be made within a permitted period: broadly two years from the end of the month of the second death, or, if later, three months after the personal representatives first act (IHTA 1984, s.8B). HMRC can accept a late claim at its discretion.

More than one late spouse#

A survivor who has been widowed more than once can aggregate unused bands from each late spouse - but the total transferred is capped at 100% of a single nil-rate band (s.8A(5) and (6)). The most anyone can ever have is therefore two nil-rate bands: their own, plus one transferred band's worth.

The order in which allowances and reliefs apply#

Getting the order right changes the bill. On a death estate, work down in this sequence:

1. Exemptions and reliefs come off first. Spouse/civil partner and charity exemptions (ss.18, 23) remove that value entirely; Business Property Relief and Agricultural Property Relief cut the value of qualifying assets - see Inheritance Tax Exemptions & Reliefs.
2. Set the The Residence Nil-Rate Band (RNRB) against the home. This extra band (up to £175,000, with its own transferable version) applies only to a residence passing to children or other direct descendants.
3. Set the nil-rate band - own plus any transferred band - against what remains.
4. Charge the balance at 40% (or 36% with the charity reduction).

Worked examples#

Example 1 - everything to the survivor, then a taxable second estate#

Raj dies in 2019 leaving his whole estate to his wife Priya. The spouse exemption covers it, so none of his band is used - 100% carries forward.

Priya dies in June 2026 with an estate of £900,000 (no qualifying residence, so no RNRB here).

• Priya's own NRB: £325,000
• Transferred from Raj (100%): £325,000
• Combined band: £650,000
• Taxable: £900,000 − £650,000 = £250,000
• IHT at 40% = £100,000

Her executors claim the transfer on IHT402.

Example 2 - the first spouse used part of the band#

On the first death in 2015, Margaret left a £130,000 legacy to her children (chargeable) and the rest to her husband Tom (exempt). The NRB was £325,000 then, so £130,000 was used - that is 40% used, 60% unused. It is the percentage that matters, not the £130,000.

Tom dies in 2026 with an estate of £700,000.

• Tom's own NRB: £325,000
• Transferred from Margaret: 60% × £325,000 = £195,000
• Combined band: £520,000
• Taxable: £700,000 − £520,000 = £180,000
• IHT at 40% = £72,000

Because the transfer is a percentage, Margaret's 60% is applied to the band in force when Tom dies - so it keeps pace with any future rise in the band.

Example 3 - a lifetime gift eats into the band#

In 2022 David settles £200,000 into a discretionary trust (a CLT). He dies in 2026, within seven years, with a death estate of £500,000.

• The 2022 CLT uses the band first: £200,000 of the £325,000 band is consumed.
• Band left for the estate: £325,000 − £200,000 = £125,000
• Taxable estate: £500,000 − £125,000 = £375,000
• IHT at 40% = £150,000

Had David survived to 2029 (seven years on), the gift would drop out of the cumulation and the full band would shelter the estate again.

Nil-rate band will trusts: history and where they survive#

Before the transferable band, a band unused on the first death was lost forever. The standard fix was a nil-rate band discretionary trust in the will: on the first death, assets up to the band were poured into a discretionary trust for the family rather than passing outright to the survivor, so the first band was "banked" rather than wasted. For the trust structures themselves, see Understanding Trusts - A Plain-English Guide.

The transferable band (from 2007) made that manoeuvre unnecessary for the tax alone - the survivor now inherits the unused percentage anyway, usually with far less complexity. So the plain NRB discretionary trust is largely history for tax purposes.

It has not vanished, though, because banking the band was never its only job. A nil-rate band or capped trust on the first death is still used to:

• protect assets against a survivor's remarriage, divorce, bankruptcy or care-fee assessment;
• keep control where there are children from an earlier relationship (blended families);
• preserve flexibility in the two years after death (when a discretionary will trust can be read back under s.144).

InLeef's First-Death Capped Trust is built for exactly these situations - capping the amount held on the first death while keeping the survivor provided for. Where the aim is simply to pass everything to the survivor and rely on the transferable band, an outright gift to the surviving spouse does the job more simply.

A trust's own nil-rate band#

A trust is not just a route for a person's band - it has a band of its own for its ongoing charges. Under the The Relevant Property Regime, a discretionary (relevant property) trust faces ten-yearly and exit charges, and those are calculated using a nil-rate band available to the trust itself. But that band is reduced by the settlor's cumulative chargeable transfers in the seven years before the trust was created - so a trust set up after the settlor has already made gifts may have far less than a full £325,000 to work with. This is why staggering settlements, and watching the settlor's seven-year history, matters when building trust plans.

Quick reference#

Item	Position	Notes
Nil-rate band (NRB)	£325,000 per person	IHTA 1984, s.7 & Sch 1; unchanged since 2009/10
Freeze	Fixed to 5 April 2031	Indexation suspended by successive Finance Acts
Rate above the band	40% on death	36% if ≥10% of net estate passes to charity
Lifetime gifts	Use the band first, in date order	Gifts in the 7 years before death - see Inheritance Tax - An Overview
Transferable NRB (TNRB)	Up to 100% of the first band's unused percentage	IHTA 1984, s.8A
Effective couple maximum	£650,000 (2 × NRB)	Plus RNRB on top where a home passes to descendants
Multiple late spouses	Capped at 100% transferred	s.8A(5)–(6): never more than two bands total
Spouse/civil partner exemption	Removes value entirely	s.18 - why the first band is usually 100% unused
Claim form	IHT402, filed by the second estate's PRs	Not automatic
Claim time limit	~2 years from end of month of second death	s.8B; HMRC may allow late claims
Order of allowances	Exemptions/reliefs → RNRB → NRB → 40%	See Inheritance Tax Exemptions & Reliefs, The Residence Nil-Rate Band
A trust's own NRB	Reduced by settlor's 7-year cumulation	For charges under the The Relevant Property Regime

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This page is general information, not legal or tax advice. Inheritance Tax thresholds, reliefs and rules change, and the figures here are current only at the date shown above. Check the position before relying on it, and take advice on any specific estate.