When the residence nil rate band is tapered away

Short answer

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died¹. Most estates do not pay it, because the first slice of an estate is covered by allowances. The main one is the nil-rate band, worth £325,000 per person². On top of that, there is an extra allowance for passing on a home to children or grandchildren: the residence nil rate band, worth up to £175,000 per person³.

That extra allowance is the one that disappears for larger estates. Once an estate is worth more than £2m, the residence nil rate band is reduced by £1 for every £2 above the threshold⁴. Because the allowance is £175,000, it is wiped out entirely once the estate reaches £2.4m⁴. The £2m starting point is set by the government and is not changing⁵.

For a married couple leaving a home to direct descendants, the combined allowances can protect up to £1m⁶. But the taper is applied to each estate separately, so a couple whose combined wealth sits above £2m can still lose part of the allowance on the first death.

Residence nil rate band: £175,000 on a home left to direct descendants

The residence nil rate band is an additional allowance worth up to £175,000 if you leave your main home to direct descendants⁴. It sits alongside the standard nil-rate band of £325,000 per person². Together, one person leaving a home to children or grandchildren could potentially pass on up to £500,000 tax-free⁷.

The allowance was introduced in April 2017 and increased gradually between April 2017 and April 2020⁸. It is fixed at £175,000 until 5 April 2031⁵. It applies when a home is left to a direct descendant, such as a child, stepchild or grandchild⁹.

To claim it, the deceased must have died on or after 6 April 2017, owned a residence, and the residence must be inherited by their direct descendants¹⁰. The allowance applies to only one home, which must be in the estate and one you have lived in at some stage. There is no minimum ownership period, the home need not be in the UK, and executors can nominate which home qualifies⁸.

A simple diagram showing the standard nil-rate band and the residence nil rate band stacked together — The two allowances combine to cover up to £500,000 for one person leaving a home to direct descendants.

£500,000 per person, up to £1m for a couple

For a single person leaving a home to children or grandchildren, the two allowances together can cover up to £500,000⁷. For a married couple or civil partners, the combined figure can reach £1m⁶.

That is because any unused allowance can be transferred between married couples and civil partners when one person dies¹¹. If the first spouse or civil partner did not use all of their nil-rate band, the survivor can add the unused proportion to their own. The same applies to the residence nil rate band.

The transfer is proportional. If the first spouse had used 10% of their nil-rate band, the survivor would be able to use 90% of whatever the nil-rate band is worth when they die². So the amount transferred depends on how much was used, not a flat figure.

Unmarried partners do not have this option. They can only benefit from the deceased's nil-rate band of £325,000, and not the £175,000 residence nil rate band, because to qualify the home must be left to direct descendants¹⁰. A partner who is not a direct descendant cannot receive the home and preserve the allowance.

What counts towards the estate's value

A woman stands at the gate of a brick terraced house with an estate agent's board in the garden.

The taper is tested against the taxable value of the estate after allowable deductions such as debts and funeral expenses⁷. That means a mortgage secured on the property, credit card balances, and other liabilities can reduce the figure used to decide whether the estate is over the £2m threshold. The standard nil-rate band is applied first, not the residence nil rate band⁷.

Gifts made within seven years of death are also added back when working out the value of the estate. The nil-rate band is allocated to those gifts before it is used against the rest of the estate⁶. Gifts made more than seven years before death are generally outside the calculation, so their timing can matter¹².

The residence nil rate band applies to only one home, which must be in the estate and one you have lived in at some stage⁸. If the value of your home at death is less than the main residence nil-rate band at that time, a downsizing addition may apply⁸. This is designed to help where someone has sold a larger home and moved to a smaller one, or sold up to move into care.

Unused pensions will count towards the estate

From 6 April 2027, most unused pension funds and death benefits will be included in the value of a person's estate for Inheritance Tax¹⁴. The government confirmed the change in a consultation response, stating that most unused pension funds and death benefits would be included in the value of a person's estate for Inheritance Tax from that date¹⁴.

This matters for the taper because pension wealth has historically sat outside the estate for Inheritance Tax purposes. Once included, it could push an estate over the £2m threshold and reduce or eliminate the residence nil rate band¹⁵. The change applies to deaths on or after 6 April 2027¹⁶.

The rules are still being finalised. Defined contribution pensions may become subject to Inheritance Tax for people who die on or after 6 April 2027, with detail not yet known³. For now, the position is that pensions do not form part of your estate on death, but that is due to change¹⁷.

Paying the tax when the allowance is reduced

A cardboard box of desk belongings sits on an office chair in an emptying open-plan office.

Once the residence nil rate band has been tapered away, the estate pays Inheritance Tax on the value above the available allowances. The standard nil-rate band of £325,000 per person is not tapered in the same way, so it remains available even for larger estates².

Inheritance Tax can be paid in yearly instalments where the estate includes assets that take time to sell, such as property. The first instalment is due at the end of the sixth month after the death, with further payments due every year on that date¹⁸. You can pay off the full tax and interest at any time by writing to HMRC asking for a final assessment¹⁸.

If 10 percent or more of the net estate is given to charity, the Inheritance Tax rate drops from 40 percent to 36 percent¹⁹. However, the taper of the residence nil rate band is calculated before any gifts to charity are counted, so a charitable gift does not restore the allowance¹³. Lifetime charitable donations to registered UK charities are also not taken into consideration when calculating the residence nil rate band¹³.

Where to get help

Inheritance Tax and the residence nil rate band interact with wills, trusts, pensions and gifts, and the rules differ depending on family circumstances. Free, impartial guidance is available from MoneyHelper, and the Scottish Government provides Inheritance Tax support through mygov.scot¹. For estates that may be affected by the taper, professional advice is often needed to work out the taxable value and the available allowances.

The residence nil rate band is fixed at £175,000 until 5 April 2031⁵, and the taper threshold remains at £2m⁵. The pension change from April 2027 is the main development that could affect how many estates are caught by the taper¹⁴.

Sources19 cited

Inheritance Tax mygov.scot
How much money can I pass on without paying inheritance tax? Which?
What happens to my pension when I die? Which?
5 inheritance tax planning mistakes to avoid Which?
Budget 2025 overview of tax legislation and rates GOV.UK
Will our gifts to our children be taxed? Which?
More inheritance tax is being saved through charitable gifts Which?
Inheritance tax property changes Which?
How much could frozen tax thresholds be costing you? Which?
Why some families will be hit harder by new inheritance tax rules for pensions Which?
Will trusts and lifetime trusts Which?
5 inheritance tax rules to know when gifting money in 2026 Which?
Could donating to charity lower my inheritance tax bill? Which?
Inheritance Tax on pensions: liability, reporting and payment GOV.UK
Will my pension be subject to inheritance tax? Which?
6 ways couples can cut taxes and maximise their savings Which?
Inheritance tax planning and tax-free gifts Which?
Paying Inheritance Tax: yearly instalments GOV.UK
How can gifts in wills reduce inheritance tax? Remember A Charity

Related guides

The residence nil-rate band: passing on a home

The Residence Nil Rate BandExplains the extra threshold when a home passes to direct descendants, who counts as one, how it transfers between spouses and how the downsizing addition works.

Income tax: bands, rates and how your bill is worked out

Income TaxExplains which income is taxable and how the Personal Allowance and the bands combine to produce a bill.

Tax codes explained: what the numbers and letters mean

Tax Codes ExplainedExplains how HMRC builds a tax code from allowances and deductions, what the common numbers, letters and prefixes mean, and how coding notices work.

PAYE: how tax is taken from wages and pensions

PAYEExplains how employers and pension payers deduct income tax and National Insurance through PAYE, what payslips show, and the P45, P60 and P11D forms.

Benefits in kind: how perks from your employer are taxed

Tax on Employer PerksExplains which employer perks are taxable, including company cars, medical insurance and loans, and which are exempt.

Claiming a refund when you have overpaid income tax

Claiming an Income Tax RefundExplains the common reasons people overpay tax and how HMRC calculates and repays them, including P800 letters.

Free, impartial help

Free services that can help with this. They are not linked to us, and we are not paid to mention them.

GOV.UKOfficial information on tax, benefits and government services

MoneyHelperFree, impartial money and pensions guidance, set up by government

Citizens AdviceFree advice on money, consumer and legal problems in England and Wales

Turn2usFree benefits calculator and grants search from a charity

Citizens Advice ScotlandFree advice across Scotland

Frequently asked questions

At what estate value does the residence nil rate band start to be tapered?

The taper begins once the net estate is worth more than £2m. Above that figure the residence nil rate band is reduced by £1 for every £2 the estate exceeds the threshold. The £2m starting point is set by the government and applies alongside the standard £325,000 nil-rate band, which is not tapered in the same way.

How much of the residence nil rate band is lost as an estate grows?

It falls by £1 for every £2 above £2m. Because the allowance is £175,000 per person, it is wiped out entirely once the estate reaches £2.4m. For a couple passing on a home to direct descendants, the combined allowance can be up to £1m, but the taper is applied to each estate separately.

Can a surviving spouse or civil partner use their partner's unused residence nil rate band?

Yes. Any unused allowance can be transferred between married couples and civil partners when one person dies. That includes the residence nil rate band, so a surviving spouse or civil partner can add the proportion their partner did not use to their own allowance. Unmarried partners cannot transfer it.

Who counts as a direct descendant for the residence nil rate band?

Direct descendants include children and their spouses or civil partners, grandchildren and their spouses or civil partners, great-grandchildren and their spouses or civil partners, stepchildren, adopted children, foster children, and children under the guardianship of the person passing on their estate. The home must be left to one of these people for the allowance to apply.

Do mortgages and other debts reduce the estate value used for the taper?

The taper is tested against the taxable value of the estate after allowable deductions such as debts and funeral expenses. That means a mortgage secured on the property, and other liabilities, can reduce the figure used to decide whether the estate is over the £2m threshold. The standard nil-rate band is applied first, not the residence nil rate band.

Do gifts made in the seven years before death push an estate over the taper limit?

Gifts made within seven years of death are added back when working out the value of the estate for inheritance tax. The nil-rate band is allocated to those gifts before it is used against the rest of the estate. Gifts made more than seven years before death are generally outside the calculation, so their timing can matter.

Does leaving 10% of an estate to charity change the residence nil rate band?

Giving 10 percent or more of the net estate to charity reduces the inheritance tax rate from 40 percent to 36 percent. However, the taper of the residence nil rate band is calculated before any gifts to charity are counted, so a charitable gift does not restore the allowance. Lifetime charitable donations are also not taken into account when calculating the residence nil rate band.

When does Inheritance Tax have to be paid, and can it be paid in instalments?

The first instalment is due at the end of the sixth month after the death, with further payments due every year on that date. You can pay off the full tax and interest at any time by writing to HMRC asking for a final assessment. Instalments are commonly used where the estate includes property or other assets that take time to sell.