Nil-Rate Band Calculation UK (2026): Step-by-Step IHT Calculation with NRB, RNRB and TNRB

The nil-rate band (NRB) is the value of a person's estate that is not subject to inheritance tax on death. The current NRB is £325,000 and has been frozen at this level since 2009 — it will remain frozen until at least 2030 under current government policy. Here is how it works: (1) BASIC PRINCIPLE: IHT at 40% is charged on the 'chargeable estate' — the value of everything a person owned at death, after deducting debts, exemptions, and reliefs. But the first £325,000 of the chargeable estate is nil-rated — it faces IHT at 0%. Only the excess above £325,000 is charged at 40%; (2) EXAMPLE: estate £500,000, NRB £325,000 → taxable amount = £175,000 → IHT = £175,000 × 40% = £70,000; (3) WHAT COUNTS AS THE ESTATE: everything the deceased owned at death: (a) property (houses, land); (b) savings and investments; (c) personal possessions (furniture, jewellery, cars); (d) business interests (subject to BPR); (e) agricultural land (subject to APR); (f) life insurance NOT written under trust (if under trust: excluded from estate); (g) assets held jointly (the deceased's share); (h) assets given away but with a reserved benefit (IHTA 1984 s.102 — 'gift with reservation' — these are still in the estate even if 7 years have passed); (4) WHAT DOES NOT COUNT: (a) assets passing to a surviving spouse or civil partner — fully exempt (IHTA s.18); (b) assets passing to a qualifying charity — fully exempt (IHTA s.23); (c) assets qualifying for 100% APR or BPR — exempt after relief; (d) pensions (before April 2027 — see Budget 2024 changes from April 2027); (5) FROZEN AT £325,000: the freeze means more and more estates cross the threshold as house prices rise. An estate worth £400,000 in 2009 was far above the NRB; the same nominal estate value in 2026 faces more IHT in real terms because the £325,000 threshold has not kept pace with house price inflation. The freeze was extended to 2030 in the Autumn 2024 Budget.

The IHT calculation follows a specific sequence: (1) STEP 1 — GROSS ESTATE: add up everything owned at death at market value. Include: main home; second property; all bank/savings accounts; ISAs; stocks and shares; life insurance not under trust; business interests; agricultural land; personal possessions and vehicles; (2) STEP 2 — DEDUCT LIABILITIES: from the gross estate, deduct: (a) funeral expenses (reasonable amount); (b) testamentary expenses (probate costs; legal costs of administration); (c) debts due and owing at death: mortgages; credit cards; unpaid bills; outstanding loans; care home fees owing; HMRC debts (income tax arrears; unpaid IHT on failed PETs). Result = NET ESTATE; (3) STEP 3 — APPLY EXEMPTIONS AND RELIEFS: from the net estate, deduct: (a) exempt transfers on death (surviving spouse/CP; charity); (b) BPR on qualifying business assets; (c) APR on qualifying agricultural property. Result = CHARGEABLE ESTATE; (4) STEP 4 — IDENTIFY AVAILABLE NRB: Basic NRB = £325,000. REDUCE by: chargeable lifetime transfers (CLTs) — transfers to discretionary trusts in the 7 years before death — in chronological order (FIFO: oldest first). Each CLT uses up the NRB in the order it was made. ALSO REDUCE by: PETs (gifts to individuals) that failed because the donor died within 7 years — these are added to the cumulation in chronological order. The FIFO rule means that if the deceased made a CLT of £100,000 in year 1 and a PET of £150,000 in year 4 (both within 7 years), the CLT uses up £100,000 of NRB first, then the PET £150,000 — total £250,000 used, leaving only £75,000 NRB available against the estate at death; (5) STEP 5 — RNRB AND TRNRB: add the available RNRB and TRNRB (see separate FAQ); (6) STEP 6 — CALCULATE IHT: IHT = 40% × (chargeable estate − available NRB − available RNRB). If the estate qualifies for the 36% reduced rate (charitable giving ≥ 10% of estate — IHTA s.24A), use 36% instead of 40%; (7) STEP 7 — TAPER RELIEF ON FAILED PETS AND CLTS: where a PET or CLT fails (because the donor died within 7 years), taper relief reduces the IHT chargeable on that lifetime gift: 3–4 years: 80% of full charge; 4–5 years: 60%; 5–6 years: 40%; 6–7 years: 20%. NB: taper relief applies to the IHT on the lifetime gift, not to the value of the gift or to the estate calculation itself.

The RNRB is an additional IHT-free allowance for qualifying residential property passing to lineal descendants: (1) AMOUNT: £175,000 per person in 2026/27. This is the maximum since 2020/21 — it did not increase with inflation and is also frozen; (2) WHO QUALIFIES AS A 'LINEAL DESCENDANT': children (natural, adopted, step-children — IHTA s.8H); grandchildren and further descendants; children-in-law where they inherit through a predeceased child. NOTE: leaving property to siblings, nieces, nephews, friends, or a surviving spouse (without passing to descendants) does NOT attract the RNRB. The RNRB is specifically for passing to the deceased's own line of descent; (3) QUALIFYING RESIDENTIAL PROPERTY: a dwelling house in which the deceased lived at some point during their lifetime (or, if they had moved into care, which they owned before moving into care). The property does not have to be the main home at the date of death — a property the deceased lived in previously can qualify if they have disposed of it (see downsizing rules); (4) HOW THE RNRB IS APPLIED: the RNRB is applied against the net value of the qualifying residential property passed to descendants (not the whole estate). If the house is worth £300,000 and the RNRB is £175,000, the RNRB covers £175,000 of the house's value. The remaining £125,000 of the house falls into the main NRB calculation; (5) ESTATE TAPER ABOVE £2M: the RNRB is tapered away at £1 for every £2 of the estate above £2 million. If the estate is £2.5m, the £500,000 excess reduces the RNRB by £250,000 — from £175,000 to nil. The RNRB is fully withdrawn where the estate exceeds £2m + (2 × RNRB) = £2m + £350,000 = £2.35m (2026/27). For large estates: RNRB provides no benefit; (6) DOWNSIZING ALLOWANCE: if the deceased downsized or sold their home after 8 July 2015 and the new home (or no home at all) does not fully use the RNRB, a 'brought-forward allowance' allows the unused RNRB (notionally calculated on the former larger property) to still be claimed. This protects people who sell the family home and move into care or rental accommodation.

When a spouse or civil partner dies, their unused NRB and RNRB can be transferred to the survivor's estate: (1) THE TNRB PRINCIPLE (IHTA 1984 s.8A): on the first death, if the deceased spouse did not use all of their NRB, the UNUSED PERCENTAGE of their NRB can be transferred and added to the survivor's NRB. It is a percentage that is transferred — not a fixed £ amount. The transferred percentage is applied to the NRB at the time of the survivor's death; (2) EXAMPLE — TNRB CALCULATION: first spouse dies in 2006 with an estate of £100,000, all passing to the surviving spouse (fully exempt). NRB in 2006 = £285,000. NRB used = nil (all assets went to spouse; spouse exemption). Unused = 100%. Survivor dies in 2026. NRB in 2026 = £325,000. TNRB = 100% × £325,000 = £325,000. Total NRB available = £325,000 + £325,000 = £650,000; (3) PARTIAL USE: if the first spouse left £50,000 to children (using £50,000 of their NRB) and the rest to the surviving spouse: NRB used = £50,000/£285,000 = 17.5% (approx). Unused = 82.5%. TNRB = 82.5% × £325,000 = £268,125. Total NRB = £325,000 + £268,125 = £593,125; (4) TRNRB (TRANSFERRED RNRB — IHTA s.8G): the same percentage transfer applies to the RNRB. If the first spouse's RNRB was entirely unused (e.g. they owned no qualifying property, or left it all to the surviving spouse), 100% is transferred. TRNRB = 100% × £175,000 = £175,000. Total RNRB = £175,000 + £175,000 = £350,000; (5) COMBINED EFFECT FOR STANDARD MARRIED COUPLE: if neither spouse used any NRB or RNRB on the first death: Total NRB = £650,000 + Total RNRB = £350,000 = £1,000,000 combined IHT-free threshold. This is why an estate of under £1m often pays no IHT where it passes to children of a married couple; (6) HOW TO CLAIM TNRB: the personal representatives of the surviving spouse must claim the TNRB by completing the IHT400 and Schedule IHT402. They must provide evidence of the first spouse's estate and how their NRB was used — typically the first spouse's probate paperwork and IHT return (or a declaration that the estate was below the NRB and passed fully to the survivor).

Here is a step-by-step worked example for a surviving spouse who dies in 2026: FACTS: Margaret dies in 2026. Her husband Arthur died in 2019 with a small estate of £80,000, all passing to Margaret (fully exempt). They have two adult children. Margaret's estate: main home £550,000 (passing to children in the will); ISAs and savings £180,000; personal possessions £20,000; life assurance (under trust) £100,000. Debts: mortgage fully repaid; outstanding credit card £3,000; funeral expenses £6,000. No lifetime gifts in last 7 years. (1) GROSS ESTATE: £550,000 (home) + £180,000 (ISAs/savings) + £20,000 (possessions) = £750,000. Life assurance under trust = NOT in estate. Gross estate: £750,000; (2) DEDUCT LIABILITIES: £3,000 (credit card) + £6,000 (funeral) = £9,000. Net estate: £741,000; (3) DEDUCT EXEMPTIONS: no assets passing to spouse (Margaret is the surviving spouse); no charitable gifts. Chargeable estate: £741,000; (4) AVAILABLE NRB: Arthur died in 2019 with £80,000 → all to Margaret (spouse exempt) → NRB used by Arthur = nil → 100% transferred. TNRB = 100% × £325,000 = £325,000. Margaret's own NRB = £325,000. Total NRB = £650,000; (5) AVAILABLE RNRB: Margaret's home (£550,000) passes to children (lineal descendants) — qualifying. Estate = £741,000 < £2m — no tapering. RNRB = £175,000. Arthur's RNRB: Arthur owned the home jointly (as tenant in common), so Arthur had a share. But let us simplify: Arthur's qualifying RNRB = £175,000 fully unused (passed to Margaret entirely). TRNRB = 100% × £175,000 = £175,000. Total RNRB = £350,000; (6) TOTAL THRESHOLDS: £650,000 + £350,000 = £1,000,000; (7) IHT CALCULATION: Chargeable estate £741,000 < £1,000,000 threshold. IHT = nil. Result: Margaret's estate passes to her children entirely free of IHT — even though it is worth £741,000, because the combined NRB + RNRB for a married couple covers £1,000,000. Second example — higher estate: same facts but ISAs £500,000 instead of £180,000. Gross estate = £1,070,000. Net estate after debts = £1,061,000. Chargeable estate = £1,061,000. NRB+RNRB = £1,000,000. Taxable = £1,061,000 − £1,000,000 = £61,000. IHT = £61,000 × 40% = £24,400.