Policy paper

Inheritance Tax nil-rate band and residence nil-rate band thresholds from 6 April 2026 to 5 April 2028

Published 21 November 2022

Who is likely to be affected

This measure affects the estates of deceased persons and their personal representatives where the value of the estate exceeds the nil-rate band (NRB) and where the value of a qualifying residence exceeds the residence nil-rate band (RNRB).

It also affects individuals who make lifetime chargeable transfers and trustees of relevant property trusts who are liable to periodic inheritance tax (IHT) and exit charges.

General description of the measure

This measure fixes the IHT thresholds at their current levels for tax years 2026 to 2027 and 2027 to 2028. This measure will fix the:

• NRB at £325,000
• RNRB at £175,000
• RNRB taper, starting at £2 million

Policy objective

This policy supports the government’s objective of putting the public finances on a sustainable path in a way that is fair.

Background to the measure

This measure was announced at Autumn Statement 2022.

There are two nil-rate bands within IHT. Subject to available reliefs and exemptions, tax is payable to the extent the net value of the estate exceeds these nil-rate bands.

The £325,000 NRB is available to all individuals and can be set against all asset types on their death. The NRB can also be used both:

• to allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an IHT liability
• in calculating the periodic and exit charges on relevant property trusts

The £175,000 RNRB is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the RNRB by £1 for every £2 that the net value of the estate is more than £2 million.

Any unused NRB or RNRB following the death of an individual can be transferred to their surviving spouse or civil partner. This means that since 6 April 2020, qualifying estates have been able to pass on up to £500,000 and if the NRB and RNRB remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to £1 million without an IHT liability.

The NRB has been fixed at £325,000 since the tax year 2009 to 2010.

The RNRB was introduced in the tax year 2017 to 2018, starting at £100,000 and increasing by £25,000 each year until reaching £175,000 in 2020 to 2021. The taper threshold has been set at £2 million since the RNRB was introduced.

Legislation was introduced in Finance Act 2021 to maintain the thresholds at their 2020 to 2021 levels up to and including 2025 to 2026.

The current legislative default is for the NRB, RNRB and threshold for the RNRB taper to increase in line with the Consumer Prices Index (CPI) in each year from 2026 to 2027.

Detailed proposal

Operative date

The measure will take effect in relation to the tax years 2026 to 2027 and 2027 to 2028 and will affect lifetime gifts made, relevant property trust charges arising and deaths occurring on or after 6 April 2026.

Current law

Section 7 of the Inheritance Tax Act 1984 (IHTA) provides for the rates of IHT to be as set out in the table in Schedule 1. The table states that the NRB is currently £325,000. Section 8 of the IHTA provides for the indexation of the NRB in line with CPI unless Parliament otherwise determines.

Sections 8A-C of the IHTA provides that where an estate qualifies for the spouse or civil partner exemption, the unused proportion of the NRB when the first of the couple dies can be transferred to the estate of the surviving spouse or civil partner, so that the combined NRB can be up to £650,000.

Section 8D(5) of the IHTA provides the amount of the RNRB where the interest in a home passes on death to direct descendants. Section 8K of the IHTA provides for the definition of a direct descendant. The RNRB has increased from £100,000 for the tax year 2017 to 2018 to £175,000 for the tax year 2020 to 2021.

Section 8D(5) of the IHTA outlines the “taper threshold” which reduces the amount of the RNRB by £1 for every £2 the net value of the estate is worth more than the £2 million taper threshold.

Section 8G of the IHTA provides that where the RNRB is not fully used, the unused proportion of the RNRB can be transferred to the estate of the surviving spouse or civil partner. The combined RNRB can be up to £350,000.

Section 8D(6) and (7) of the IHTA provides for the indexation of the RNRB and taper threshold set out in section 8D(5) unless Parliament otherwise determines.

Section 86 Finance Act 2021 provides that section 8 and section 8D (7) of IHTA does not apply up to and including 2025 to 2026. This means that the NRB is maintained at £325,000, the RNRB is maintained at £175,000 and the taper threshold is maintained at £2 million until the end of 2025 to 2026.

Proposed revisions

Legislation will be introduced in Autumn Finance Bill 2022 to fix the NRB, RNRB, and RNRB taper threshold at their current levels until the end of 2027 to 2028.

The legislation will amend section 86 Finance Act 2021 to disapply the indexation provisions in sections 8 and 8D of the IHTA for the tax years 2026 to 2027 and 2027 to 2028.

Summary of impacts

Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
0	0	0	0	0	+35

These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

More than 93% of estates are still forecast to have no IHT liability in each of the next five years.

This measure will impact an estimated total of 86,200 estates that are forecast to have an IHT liability in total across the 2026 to 2027 and the 2027 to 2028 tax years. Of those taxpaying estates affected, a cumulative total of around 700 additional estates will be brought into IHT over this period.

This measure is not expected to have any significant impact on family formation, stability or breakdown.

Equalities impacts

HMRC collects data about the age, sex and marital status of the deceased. The impact of this measure on groups with protected characteristics is expected to be proportionate with the population of the estates of the deceased paying IHT each year.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on advisers and relevant businesses.

Customer experience of advisers is expected to remain the same as this measure doesn’t alter how advisers interact with HMRC.

There is expected to be no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will incur operational costs to implement this measure. This will involve increased staffing costs dealing with the additional estates brought into IHT.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from IHT returns.

Further advice

If you have any questions about this change, please contact the Inheritance Tax Helpline on telephone: 0300 123 1072.

Declaration

Victoria Atkins MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.