What Are the Inheritance Tax (IHT) Nil-Rate Band and Residence Nil-Rate Band Thresholds?
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Understanding Inheritance Tax (IHT) can save families a lot of stress and money. In the UK, taxes are charged when someone passes away and leaves their estate to others. This article explains the two main allowances that can help reduce tax: the Nil-Rate Band (NRB) and the Residence Nil-Rate Band (RNRB).
Let’s make it simple. We’ll cover:
What is the Nil-Rate Band (NRB)?
What is the Residence Nil-Rate Band (RNRB)?
How these allowances work together.
When the RNRB is reduced (tapered).
Real-life examples.
Tips to reduce inheritance tax.
What Is the Nil-Rate Band (NRB)?
The Nil-Rate Band (NRB) is the amount of an estate that is tax-free. Any estate under this amount does not pay Inheritance Tax (IHT).
The NRB is £325,000 for the 2024-25 tax year.
It applies to everyone in the UK.
Key Points About NRB:
If your estate is under £325,000, you pay no IHT.
Anything over £325,000 is taxed at 40%.
If you are married or in a civil partnership, you can combine allowances. This gives a total tax-free amount of £650,000.
Example:
| Estate Value | Tax-Free Allowance (NRB) | Taxable Amount | IHT Due (40%) |
|---|---|---|---|
| £400,000 | £325,000 | £75,000 | £30,000 |
If you are single and your estate is £400,000, the first £325,000 is tax-free. You pay 40% tax on the remaining £75,000.
What Is the Residence Nil-Rate Band (RNRB)?
The Residence Nil-Rate Band (RNRB) is an extra allowance. It is for estates that include a family home left to direct descendants.
The RNRB is £175,000 for the 2024-25 tax year.
You get this allowance only if the property goes to children, stepchildren, or grandchildren.
Key Points About RNRB:
It is on top of the standard NRB.
The total tax-free amount for one person becomes £500,000.
For couples, this adds up to £1,000,000.
Example:
| Estate Value | NRB | RNRB | Total Tax-Free Allowance | Taxable Amount |
| £500,000 | £325,000 | £175,00 | £500,000 | £0 |
If you leave your family home to your children and your estate is worth £500,000, you pay no IHT.
How Do NRB and RNRB Work Together?
You can combine NRB and RNRB to get the most tax relief. Here’s how:
NRB: Everyone gets £325,000.
RNRB: If you pass your home to children or grandchildren, you get another £175,000.
This means a single person can pass on up to £500,000 tax-free.
For married couples or civil partners:
If one person does not use their NRB or RNRB, it transfers to the surviving partner.
Together, they can pass on up to £1,000,000 tax-free.
When Does the Residence Nil-Rate Band Get Reduced (Tapered)?
If your estate is worth more than £2 million, the RNRB is reduced. This is called tapering.
The RNRB goes down by £1 for every £2 over the £2 million mark.
Estates over £2.35 million lose all of the RNRB.
Example:
| Estate Value | RNRB Reduction | Final RNRB | Total Tax-Free Allowance |
| £2,100,000 | £50,000 | £125,000 | £450,000 |
| £2,300,000 | £150,000 | £25,000 | £350,000 |
| £2,350,000 | £175,000 | £0 | £325,000 |
If your estate is worth £2.3 million, the RNRB is reduced from £175,000 to £25,000.
Real-Life Examples of IHT Calculations
Example 1: Single Person, No Family Home
Estate Value: £400,000
NRB: £325,000
RNRB: Not Applicable
Taxable Amount: £75,000
IHT Due: £30,000
Example 2: Single Person, Family Home
Estate Value: £500,000
NRB: £325,000
RNRB: £175,000
Taxable Amount: £0
IHT Due: £0
Example 3: Married Couple, Combined Estate
Estate Value: £1,200,000
Combined NRB: £650,000
Combined RNRB: £350,000
Tax-Free Total: £1,000,000
Taxable Amount: £200,000
IHT Due: £80,000
Example 4: Estate Over £2 Million
Estate Value: £2,300,000
NRB: £325,000
RNRB: £25,000 (Reduced)
Total Tax-Free Allowance: £350,000
Taxable Amount: £1,950,000
IHT Due: £780,000
Tips to Reduce Inheritance Tax
Use Gifts:
Give up to £3,000 per year as gifts. These are tax-free.
Small gifts of up to £250 per person are also tax-free.
Make Charitable Donations:
Gifts to charities are 100% tax-free.
If you give more than 10% of your estate to charity, the IHT rate drops from 40% to 36%.
Set Up Trusts:
Putting assets in a trust can help reduce IHT liability.
Speak to an accountant for advice tailored to your estate.
Use Your Allowances:
Combine your NRB and RNRB with your spouse or civil partner.
Plan to pass your family home to children or grandchildren.
Seek Professional Advice:
A professional accountant can help you save money on IHT.
Learn more about estate planning on the HMRC Inheritance Tax Guide.
For tailored advice, contact MA & Co Accountants to help you plan your estate.
Key Takeaways
The Nil-Rate Band (NRB) is £325,000.
The Residence Nil-Rate Band (RNRB) adds another £175,000 if you leave your home to your children.
Combined, you can pass on £500,000 tax-free.
Married couples or civil partners can pass on up to £1 million tax-free.
Estates over £2 million lose the RNRB due to tapering.
Plan ahead to reduce IHT and maximize your allowances.
Final Thoughts
Understanding how the NRB and RNRB work can save your family from paying large tax bills. Plan carefully and use the allowances available to you. For professional help, visit MA & Co Accountants or check out the HMRC IHT Rules.
FAQs
What is the difference between NRB and RNRB?
NRB is the standard £325,000 tax-free allowance. RNRB adds another £175,000 for family homes left to children.
Can spouses combine their NRB and RNRB?
Yes, married couples or civil partners can transfer unused allowances, making the total up to £1 million.
What happens if my estate is over £2 million?
The RNRB is reduced by £1 for every £2 over the £2 million limit.
How do I reduce my inheritance tax?
Give gifts, donate to charity, use trusts, and plan ahead with a professional accountant.
For more tips, visit MA & Co Accountants Tax Planning Services.
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