Understanding Your Allowances
Inheritance Tax (IHT) is complicated and difficult to navigate without expert advice. In this guide we will try to make things as clear as possible for you.
Understanding Your Allowances
Everybody has a personal allowance for Inheritance Tax – this is called the nil rate band. Inheritance Tax only applies to the part of your estate valued above the nil rate band. This is why many people don’t leave behind an Inheritance Tax bill when they die.
Need help with Inheritance Tax?
Our friendly specialists are here to help you and can offer information and a free, no-obligation quote over the phone.
How much is the nil rate band?
The nil rate band is currently £325,000 per person and will remain at this amount until April 2026. However, your nil rate band may be reduced by any gifts you made in the seven years before your death.
The residence nil rate band
The residence nil rate band is an allowance for passing on the family home that was introduced in April 2017. It only applies to the family home (not a second home or buy-to-let property) and can only be used when passing on assets to direct descendants.
The residence nil rate band currently stands at £175,000 and will remain at that level until April 2026. The allowance is tapered down for people with larger estates – it reduces by £1 for every £2 that your estate is valued over the £2 million mark.
Allowances can be transferred between spouses
Both the nil rate band and the residence nil rate band can be transferred between married couples and civil partners when one spouse dies, regardless of how long ago this happened. Any individual can have a maximum of two nil rate bands and two residence nil rate bands. However, these can be transferred from multiple deceased spouses for people who have had several marriages or civil partnerships.
Both allowances are transferred as percentages, rather than explicit amounts of money. These rules can be very complex and you might need to take action to benefit from them, so you should consider speaking to a financial planner if you’d like to know more.
An Inheritance Tax bill – two examples
These two example bills demonstrate how Inheritance Tax works in practice. The first person has a single nil rate band, whereas the second person received a second nil rate band from their partner after they died.
Example one (one nil rate band)
Example two (two nil rate bands)
Jewellery and other assets
Total estate value
Less nil rate band(s)
Plus gifts made within the last seven years
Less residence nil rate band(s)
Estate value to be charged 40% Inheritance Tax
Total Inheritance Tax bill
Examples of how tax or tax relief may apply are based on our understanding of current tax legislation. Whether any tax will be payable, at what level it is charged and whether you qualify for tax relief (if applicable) will depend on individual circumstances and may be subject to change in the future.
You can also fax us on 0844 884 8509. at 11p and up per minute from a fax machine.
Correct as of 1-1-2021
Please note: do not call the fax number from a mobile phone as you will be charged 50p per minute and you will not be able to speak to anyone.
Probate Specialist Limited, 5th Floor, 167-169 Great Portland Street, Marylebone London, W1W 5PF
Probate Specialist Limited 126, High Street , Marlborough SN8 1LZ
For general email purposes, you can email firstname.lastname@example.org
You can also email your specialist directly on, email@example.com
Please note: specialistname refers directly to the name of your specialist. You can find further information on the name of your specialist on the about us page.
Probate Specialist Limited, The Office, 21 Ferozeshah Road, Devizes, Wiltshire SN10 2JQ
Company Number: 13015149
ICO Reg Number ZA807624
Rise to the top
Helping Our Clients
Our main focus is helping our clients. Tax systems are difficult and cumbersome, our qualified accountants have years of experience dealing with tax affairs.
count on us
The Inheritance Tax Experts
We have extensively trained in Inheritance Tax and we believe that we have the best systems in place to deal with your Inheritance Tax in a fast efficient and accurate manner.
Right First Time
Our systems are constantly checked on a daily basis to make sure we are capable of dealing with anything that can literally be thrown at them