Inheritance tax (IHT) receipts in the UK amounted to almost £8.5bn in 2025/26, compared with £7.5bn in the previous financial year.
As property values continue to rise, many families are surprised to find that a larger proportion of their estate may be exposed to inheritance tax (IHT). One area that is often misunderstood is the Residence Nil Rate Band (RNRB) – but this can be particularly useful.
What is the Residence Nil Rate Band (RNRB)?
The Nil Rate Band (NRB) is currently £325,000 per person. This is the amount of value in your estate that can be passed on without paying IHT. Spouses and civil partners can transfer part or all of their unused NRB to each other.
The Residence Nil Rate Band (RNRB) is £175,000. If you own a home, ownership can transfer to a direct descendant after your death. It is an additional IHT allowance available when you leave your main residence to direct descendants (typically children or grandchildren).
These two tools together mean that a couple can pass on up to £1m free of IHT. However, there are some rules which apply.
Tapering
The RNRB begins to reduce once your estate exceeds £2m. For every £2 over £2m, you lose £1 of RNRB.
Examples:
A. An estate is worth £2.1m. This exceeds the RNRB threshold by £100,000 so it is reduced by £50,000. The available RNRB is now £125,000 (instead of £175,000).
B. An estate is worth £2.35m. This exceeds the RNRB threshold by £350,000 so it is reduced by £175,000. The available RNRB has been completely lost.
For couples, the same principle applies, meaning a £2.7m joint estate could result in losing the full £350,000 combined RNRB. This can significantly increase the eventual IHT bill.
How planning can reinstate the RNRB
The key point with tapering is that it is based on the value of your estate at death. With careful planning, it is often possible to reduce the estate below £2m, thereby restoring some or all of the RNRB.
Strategies can include lifetime gifting, using Trusts, pension planning (particularly important with upcoming pension inheritance rule changes) and structuring your investments efficiently.
Even relatively modest reductions can have a meaningful impact. For example, bringing an estate from £2.2m down to £2m can restore the full £175,000 RNRB, saving potentially £70,000 in IHT.
An important nuance: gifting and the RNRB
From an IHT perspective, gifts may still be counted in your estate for up to 7 years (as potentially exempt transfers) but for RNRB tapering, gifts are excluded immediately.
For example, an estate is worth £2.3m so your RNRB is fully lost. However, if you were to gift £300,000, your estate is now valued at £2m for RNRB purposes.
This nuance can significantly reduce the overall tax exposure with the right advice and timing.
Understanding how tapering works, how estate are valued and how planning strategies can impact your inheritance tax exposure, can make a substantial difference to the wealth passed on to your family.
For more information on your own intergenerational wealth planning, please speak directly with a Medical Family Finance adviser.
Inheritance Tax Planning is not regulated by the Financial Conduct Authority.
