The nil rate band is the first £325,000 of chargeable value on which inheritance tax is charged at 0%. On death it is set first against chargeable gifts made in the previous seven years, in date order, and only what is left covers the estate. That is why recent gifts can leave the estate paying tax even when the gifts themselves are tax free.

What is the nil rate band and how much is it for 2026 to 2027?

Inheritance tax is charged under section 7 of the Inheritance Tax Act 1984 (IHTA 1984) using the table in Schedule 1. The table has two bands: £0 to £325,000 at nil, and anything above £325,000 at 40%. The first band is the nil rate band. It is not an exemption for particular assets. It is a slice of value taxed at 0%, and it is shared out across every chargeable transfer a person makes in a rolling seven year period, including the transfer made on death.

HMRC’s published threshold table shows the nil rate band at £325,000 from 6 April 2009 to 5 April 2031, so the figure for the 2026 to 2027 tax year is £325,000. It has not changed since the 2009 to 2010 tax year. If 10% or more of the net estate is left to charity, the estate can pay a reduced rate of 36% on some assets instead of 40%. Current figures are also collected on our 2026 to 2027 rates and thresholds page.

How is the nil rate band used when someone dies?

On death, the person is treated as making a transfer of the whole of their estate. Exempt gifts in the will, such as to a spouse, civil partner or charity, come out first, and reliefs such as business relief reduce the value of qualifying assets. What remains is the chargeable estate. HMRC’s Inheritance Tax Manual at IHTM14503 explains that tax on the death estate is worked out by cumulating it with chargeable transfers made in the seven years before death. Those earlier transfers include immediately chargeable gifts, such as gifts into most trusts, and potentially exempt transfers that failed because the donor died within seven years.

So the question is never just “is the estate over £325,000”. It is “how much of the £325,000 is left after the last seven years of chargeable gifts”.

Why do gifts in the last seven years use the nil rate band first?

Because of the way section 7 cumulates transfers. Each chargeable transfer is taxed as the top slice of everything the person transferred in the seven years ending with that transfer. Gifts are earlier in time than the death, so they sit at the bottom of the pile and absorb the nil rate band first. The death estate comes last and is taxed on whatever is above the band.

HMRC’s own example at IHTM14512 shows the effect. Gifts of £170,000 and £170,000 were made, then the donor died within seven years with an estate of £225,000 and a nil rate band of £325,000. The first gift used £170,000 of the band, leaving £155,000 for the second gift. The £15,000 excess on the second gift became chargeable in its own right, and the whole of the death estate was taxed because no band was left.

Two practical results follow. First, a gift within the nil rate band carries no tax itself, but it shifts tax onto the estate, which usually means onto the residuary beneficiaries under the will. Second, HMRC’s residence nil rate band guidance confirms that the residence nil rate band does not apply to lifetime gifts. Only the ordinary nil rate band covers them, so gifts can use up the whole £325,000 and still leave the residence nil rate band available against the estate.

Which nil rate band applies to a gift made years ago?

For a potentially exempt transfer that becomes chargeable because of death, HMRC uses the nil rate band in force at the date of death, not at the date of the gift (IHTM14515). With the band fixed since 2009, this currently makes no difference, but it would if the threshold rose before the death.

Cumulation can also reach back further than seven years. HMRC’s manual at IHTM14514 notes that working out tax on a failed gift can require looking at transfers up to 14 years before the death, because each gift is cumulated with chargeable transfers in the seven years before it. In practice this only catches immediately chargeable transfers, such as an earlier gift into a discretionary trust.

How does the nil rate band work on lifetime gifts into trust?

Most gifts into trust are immediately chargeable. Under section 7(2) IHTA 1984, a chargeable transfer made during lifetime is taxed at one half of the death rates, so the part above the available nil rate band is taxed at 20% when the gift is made. The available band is £325,000 less chargeable transfers in the previous seven years. HMRC’s policy paper on the threshold freeze also notes that the nil rate band is used in calculating the ten year and exit charges on relevant property trusts.

If the settlor dies within seven years, tax on the trust gift is recalculated at the full rate using the nil rate band at death, with credit for lifetime tax paid. Taper relief may reduce the extra tax for gifts more than three years before death.

Worked example: a gift four years before death

Illustration only. Rhian, who is unmarried and has no home in her estate, gives her son £203,000 four years before she dies. Her annual exemptions for that year and the year before cover £6,000, so the potentially exempt transfer is £197,000. She makes no other gifts. Her estate on death is £500,000, all left to her daughter.

Step Amount
Nil rate band at death £325,000
Used by the failed gift to her son £197,000
Band left for the estate £128,000
Estate above the remaining band £372,000
Tax on the estate at 40% £148,800

The gift itself bears no tax because it fits within the band, so taper relief has nothing to reduce. Without the gift, the estate would have been taxed on £175,000 above the full band. The son keeps his gift tax free, while the daughter’s inheritance bears the extra tax. Had she been a widow with a transferable nil rate band from a late spouse, more band would have been left for the estate. The seven year rule page covers who pays when gifts exceed the band.

What can increase the nil rate band available?

Three things can add to the basic £325,000 on death. A surviving spouse or civil partner’s estate can claim the unused percentage of the first spouse’s nil rate band under section 8A IHTA 1984, up to a further £325,000. The residence nil rate band adds up to £175,000 where a home passes to direct descendants, and it too can be transferred between spouses. HMRC’s policy paper notes that, with both bands unused on the first death, a surviving spouse’s qualifying estate can pass on up to £1 million without inheritance tax. Exempt and fully relieved assets on the first death do not use any band at all (IHTM43002).

What mistakes come up most often?

  • Treating the estate value alone as the test, without listing gifts from the last seven years. HMRC’s guidance tells people to keep records of what was given, to whom, its value and the date, because executors must report those gifts on form IHT403 with the IHT400 account.
  • Assuming the residence nil rate band protects lifetime gifts. It never does.
  • Applying the £3,000 annual exemption to the wrong gift. Where gifts are made on different days in the same tax year, HMRC applies the exemption to the earliest gift first (IHTM14143).
  • Forgetting that a will which leaves the estate to the children rather than a spouse uses the first spouse’s band, reducing what can transfer.
  • Expecting a gift within the band to benefit from taper relief. Taper relief only reduces tax charged on the gift itself.

Executors who are professional advisers should also read our page on acting as executor or trustee.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.