The nil-rate band
The first £325,000 of an estate is taxed at 0%. That’s the nil-rate band. It has been £325,000 since 2009, and Finance Act 2026 froze it until 5 April 2031. Gifts made in the 7 years before death use it up first, so it can be smaller for the estate itself; see the 7-year gift rule.
A single person with £412,000 of assets, £7,000 of debts and £5,000 of funeral costs has an estate of £400,000. The first £325,000 is free and the other £75,000 is taxed at 40%: £30,000.
The residence band
The residence nil-rate band adds up to £175,000 when a home the person lived in goes to their direct descendants. That means children and grandchildren, including stepchildren, adopted and foster children, and their spouses or civil partners. Nephews, nieces and siblings don’t count.
The band can’t be more than the value of the home, after any mortgage, that goes to them. If half the home goes to a son and half to a friend, only the son’s half counts. If the home goes to someone else, or there isn’t one, there’s no residence band (apart from the downsizing rules, which our calculator doesn’t cover).
The £2 million taper
The residence band is reduced by £1 for every £2 the estate is over £2 million. The estate here is the net value before exemptions and reliefs, so a large estate can lose the band even if most of it goes to a spouse. At £2.35 million the standard £175,000 band is gone; with a full band passed on from a late spouse (£350,000), it’s gone at £2.7 million.
An estate of £2.1 million with a £600,000 home going to the children keeps £125,000 of residence band. The tax is 40% of £2.1 million less £325,000 and £125,000: £660,000.
Passing bands on to a spouse
Anything left to a husband, wife or civil partner is free of inheritance tax. When someone dies and doesn’t use all their bands, the unused share passes to their spouse’s estate. So a widow or widower whose late spouse left everything to them can have a nil-rate band of £650,000 and a residence band of £350,000: £1 million in all.
If the first spouse died before 6 April 2017, when the residence band started, their residence band counts as 100% unused. A widow with a £500,000 home going to her children and £400,000 of other assets pays nothing. With £600,000 of other assets she pays £40,000.
The 36% charity rate
If at least 10% of the baseline goes to charity, the rest of the estate is taxed at 36% instead of 40%. The baseline is the chargeable estate less the nil-rate band left, plus the charity gift itself; the residence band isn’t deducted (IHTM45010).
HMRC’s own example (IHTM45010) is an estate of £750,000 with £50,000 to charity. The baseline is £425,000, so £50,000 is more than 10% and the rate is 36%: the tax is £135,000 instead of £150,000. Near the line, leaving slightly more to charity can leave the family better off.
What’s always free
Gifts to a spouse or civil partner who is a long-term UK resident, and gifts to UK charities, are exempt. So are the annual and small gift exemptions in life. Business and agricultural relief can cover qualifying business and farm assets, with 100% relief on the first £2.5 million from April 2026; our calculator leaves these out.