Inheritance Tax Thresholds – Current and Historical
The standard Inheritance Tax nil-rate band is currently £325,000. It has remained at this level since 6 April 2009 and is currently fixed until 5 April 2031.
The nil-rate band is the amount of an estate that can normally fall within the 0% Inheritance Tax band. However, deciding whether Inheritance Tax is payable is not always as simple as comparing the value of an estate with £325,000.
Other exemptions, allowances and reliefs may apply. Assets passing to a spouse or civil partner are normally exempt from Inheritance Tax, while a qualifying home passing to direct descendants may also benefit from the Residence Nil-Rate Band.
How much can be inherited free of Inheritance Tax?
The standard nil-rate band is £325,000.
Where the conditions are met, the Residence Nil-Rate Band can provide an additional allowance of up to £175,000 where a qualifying home passes to direct descendants.
This means that an individual may potentially have total allowances of up to £500,000.
Unused nil-rate band and Residence Nil-Rate Band can, in some circumstances, be transferred between spouses or civil partners. Consequently, the estate of a surviving spouse or civil partner may potentially benefit from combined allowances of up to £1 million.
That does not mean every married couple automatically has a £1 million Inheritance Tax allowance. The Residence Nil-Rate Band has its own qualifying conditions and can also be reduced for larger estates.
What happens if the estate is worth more than £2 million?
The Residence Nil-Rate Band is subject to a special taper where the estate is worth more than £2 million.
The available Residence Nil-Rate Band is reduced by £1 for every £2 by which the estate exceeds £2 million.
Example: an estate worth £2.1 million
An estate worth £2.1 million is £100,000 above the £2 million taper threshold.
The Residence Nil-Rate Band is therefore reduced by £50,000.
If the estate would otherwise qualify for the full £175,000 Residence Nil-Rate Band:
£175,000 – £50,000 = £125,000 Residence Nil-Rate Band remaining.
When is the £175,000 Residence Nil-Rate Band completely lost?
For an individual entitled to the standard maximum Residence Nil-Rate Band of £175,000, the allowance is completely tapered away when the relevant value of the estate reaches £2.35 million.
This is because £350,000 is £350,000 above the £2 million threshold and the allowance is reduced by £1 for every £2:
£350,000 ÷ 2 = £175,000.
What about a surviving spouse or civil partner?
A surviving spouse or civil partner may also be entitled to a transferred Residence Nil-Rate Band from their late spouse or civil partner.
Where the full transferred allowance is available, the combined Residence Nil-Rate Band can be as much as £350,000.
The same £1-for-every-£2 taper applies.
Where the full £350,000 combined Residence Nil-Rate Band would otherwise be available, it will therefore be completely tapered away at an estate value of approximately £2.7 million.
Important: the value used for the £2 million taper calculation is broadly the net value of the estate after liabilities, but before applying many Inheritance Tax exemptions and reliefs. The calculation can therefore produce unexpected results in larger or more complicated estates.
The Residence Nil-Rate Band only applies where its qualifying conditions are met, including requirements concerning the home and who inherits it.
More about the Residence Nil-Rate Band
What rate of Inheritance Tax is payable?
The standard rate of Inheritance Tax on death is 40%.
It is normally charged on the taxable part of an estate after taking account of the available nil-rate band, exemptions and reliefs.
For example, ignoring any other exemptions or allowances, if a taxable estate is worth £500,000 and only the standard £325,000 nil-rate band is available:
£500,000 – £325,000 = £175,000 taxable.
At 40%, the resulting Inheritance Tax would be £70,000.
There is also a reduced 36% rate which can apply to qualifying estates where sufficient assets are left to charity.
Lifetime gifts can affect Inheritance Tax
Gifts made during a person’s lifetime can affect the amount of Inheritance Tax payable after death.
Some gifts are immediately exempt. Others may fall within the rules governing potentially exempt transfers or chargeable lifetime transfers.
It is therefore important that executors obtain proper information about significant gifts made by the deceased.
Special care is needed where someone gives an asset away but continues to use or benefit from it. This can amount to a gift with reservation of benefit.
A common example is giving a house to children while continuing to live in it without paying a full market rent. Simply transferring a home to children does not automatically remove it from the estate for Inheritance Tax purposes and can create other tax, ownership and practical problems.
The Inheritance Tax 7-year rule
Most people have heard of the Inheritance Tax 7-year rule.
Broadly, an outright gift to another individual will normally become exempt from Inheritance Tax if the person making the gift survives for seven years after making it.
If the donor dies within seven years, the gift may have to be taken into account when calculating the Inheritance Tax position.
Gifts generally use the available nil-rate band in chronological order, starting with the earliest relevant gift.
Does the value of a gift gradually reduce over seven years?
No. This is a common misunderstanding.
The value of the gift itself does not gradually disappear for Inheritance Tax purposes.
Instead, where Inheritance Tax is actually payable on a lifetime gift, taper relief may reduce the tax payable on that gift if the donor survived for more than three years after making it.
Inheritance Tax taper relief
| Time between gift and death | Effective tax rate on taxable part of gift |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | Normally 0% |
Taper relief only reduces tax payable on a gift. It does not reduce the value of the gift itself.
It is particularly important to understand that taper relief generally only becomes relevant where the relevant lifetime gifts exceed the available nil-rate band. If there is no tax payable on the gift itself, there is no tax for taper relief to reduce.
A simple taper relief example
Suppose someone makes a chargeable gift of £425,000 and has the full £325,000 nil-rate band available.
Ignoring exemptions and other complications, £100,000 would be above the nil-rate band.
If the donor died less than three years after the gift, tax on that £100,000 could be charged at 40%, producing £40,000 of tax.
If the donor survived for between five and six years, the tapered rate would instead be 16%, giving tax of £16,000 on that taxable part of the gift.
What is the Inheritance Tax 14-year rule?
The so-called 14-year rule is another area which is often misunderstood.
It does not mean that every executor routinely has to investigate every ordinary gift made during the 14 years before death.
The issue can arise when an earlier chargeable lifetime transfer interacts with a later potentially exempt transfer.
An example of an immediately chargeable transfer is a transfer into certain types of trust.
If someone makes a potentially exempt gift shortly before the end of the seven-year period before death, it may be necessary to look back a further seven years from the date of that gift to establish what nil-rate band was available.
This means that in some circumstances a chargeable transfer made almost 14 years before death can affect the Inheritance Tax calculation.
Simple example of the 14-year rule
Suppose someone transfers a substantial amount into a discretionary trust.
Nearly seven years later they make a substantial outright gift to a child.
They then die just under seven years after making the gift to the child.
The gift to the child is within seven years of death and therefore has to be considered.
When calculating the tax position of that gift, the earlier chargeable transfer into trust may also have to be taken into account when determining how much nil-rate band was available.
The result is that a transaction made nearly 14 years before death can still affect the calculation.
This is relatively unusual for straightforward estates, but it is an important reason not to assume that examining only the seven years immediately before death will always be sufficient where trusts or substantial lifetime transfers are involved.
Inheritance Tax and gifts where the donor keeps the benefit
The seven-year rule does not necessarily solve the problem where the person making the gift continues to benefit from the asset.
For example, someone might give their home to their children but continue living there without paying a genuine market rent.
HMRC may treat this as a gift with reservation of benefit. The property can then remain relevant to the donor’s estate for Inheritance Tax purposes despite having been legally transferred.
This is one reason why transferring a home to children purely in an attempt to avoid Inheritance Tax can have very different consequences from those expected.
When professional advice may be worthwhile
Inheritance Tax becomes significantly more complicated where an estate involves:
- substantial lifetime gifts;
- trusts;
- gifts with reservation of benefit;
- estates above the £2 million Residence Nil-Rate Band taper threshold;
- business or agricultural assets;
- foreign assets;
- previously deceased spouses or civil partners and transferable allowances; or
- uncertainty about exemptions or reliefs.
Read our guide to Understanding Inheritance Tax
Need help with probate or Inheritance Tax? Contact us
Historical Inheritance Tax thresholds
The tables below show the standard Inheritance Tax nil-rate bands and their predecessors going back to 1914.
Historic thresholds can be important when dealing with an older death, a trust, an historic estate or a claim for transferable nil-rate band.
Inheritance Tax nil-rate band – 18 March 1986 onwards
| From | To | Nil-rate band |
|---|---|---|
| 6 April 2009 | 5 April 2031 | £325,000 |
| 6 April 2008 | 5 April 2009 | £312,000 |
| 6 April 2007 | 5 April 2008 | £300,000 |
| 6 April 2006 | 5 April 2007 | £285,000 |
| 6 April 2005 | 5 April 2006 | £275,000 |
| 6 April 2004 | 5 April 2005 | £263,000 |
| 6 April 2003 | 5 April 2004 | £255,000 |
| 6 April 2002 | 5 April 2003 | £250,000 |
| 6 April 2001 | 5 April 2002 | £242,000 |
| 6 April 2000 | 5 April 2001 | £234,000 |
| 6 April 1999 | 5 April 2000 | £231,000 |
| 6 April 1998 | 5 April 1999 | £223,000 |
| 6 April 1997 | 5 April 1998 | £215,000 |
| 6 April 1996 | 5 April 1997 | £200,000 |
| 6 April 1995 | 5 April 1996 | £154,000 |
| 10 March 1992 | 5 April 1995 | £150,000 |
| 6 April 1991 | 9 March 1992 | £140,000 |
| 6 April 1990 | 5 April 1991 | £128,000 |
| 6 April 1989 | 5 April 1990 | £118,000 |
| 15 March 1988 | 5 April 1989 | £110,000 |
| 17 March 1987 | 14 March 1988 | £90,000 |
| 18 March 1986 | 16 March 1987 | £71,000 |
Capital Transfer Tax thresholds – 13 March 1975 to 17 March 1986
| From | To | Threshold |
|---|---|---|
| 6 April 1985 | 17 March 1986 | £67,000 |
| 13 March 1984 | 5 April 1985 | £64,000 |
| 15 March 1983 | 12 March 1984 | £60,000 |
| 9 March 1982 | 14 March 1983 | £55,000 |
| 26 March 1980 | 8 March 1982 | £50,000 |
| 27 October 1977 | 25 March 1980 | £25,000 |
| 13 March 1975 | 26 October 1977 | £15,000 |
Estate Duty thresholds – England, Wales and Scotland
| From | To | Threshold |
|---|---|---|
| 22 March 1972 | 12 March 1975 | £15,000 |
| 31 March 1971 | 21 March 1972 | £12,500 |
| 16 April 1969 | 30 March 1971 | £10,000 |
| 4 April 1963 | 15 April 1969 | £5,000 |
| 9 April 1962 | 3 April 1963 | £4,000 |
| 30 July 1954 | 8 April 1962 | £3,000 |
| 10 April 1946 | 29 July 1954 | £2,000 |
| 16 August 1914 | 9 April 1946 | £100 |
Estate Duty thresholds – Northern Ireland
| From | To | Threshold |
|---|---|---|
| 22 March 1972 | 12 March 1975 | £15,000 |
| 5 May 1971 | 21 March 1972 | £12,500 |
| 4 June 1969 | 4 May 1971 | £10,000 |
| 22 May 1963 | 3 June 1969 | £5,000 |
| 4 July 1962 | 21 May 1963 | £4,000 |
| 1 November 1954 | 3 July 1962 | £3,000 |
| 29 August 1946 | 31 October 1954 | £2,000 |
| 16 August 1914 | 28 August 1946 | £100 |
More about Inheritance Tax
- Inheritance Tax guides
- Residence Nil-Rate Band
- Understanding Inheritance Tax
- When is Inheritance Tax paid?
- Probate and Inheritance Tax help
Official Inheritance Tax information
For current official rates and rules, see:
- GOV.UK – Inheritance Tax
- GOV.UK – Inheritance Tax and gifts
- HMRC – current and historic Inheritance Tax thresholds
Inheritance Tax rules can be complicated and depend on the circumstances of the individual and the estate. This page provides general information and should not be treated as individual tax or legal advice.
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