Inheritance Tax nil-rate band, residence nil-rate band from 6 April 2028
Published 30 October 2024
漏 Crown copyright 2024
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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
- the value of a qualifying residence exceeds the residence nil-rate band
It also affects individuals who make lifetime chargeable transfers and trustees of relevant property trusts who are liable to periodic Inheritance Tax and exit charges.
General description of the measure
This measure fixes the聽Inheritance Tax聽thresholds at their current levels for tax years 2028 to 2029 and 2029 to 2030. This measure will fix the:
- nil-rate band聽at 拢325,000
- residence nil-rate band聽at 拢175,000
- residence nil-rate band聽taper, starting at 拢2 million
Policy objective
This policy takes steps to ensure the sustainability of the public finances and to fund vital public services.
Background to the measure
This measure was announced at Autumn Budget 2024.
There are two nil-rate bands within聽Inheritance Tax. Subject to available reliefs and exemptions, tax is payable to the extent the net value of the estate exceeds these nil-rate bands.
The 拢325,000聽nil-rate band聽is available to all individuals and can be set against all asset types on their death. The聽nil-rate band聽can also be used both:
- to allow individuals to make lifetime chargeable transfers up to 拢325,000 within a 7-year period without an聽Inheritance Tax聽liability
- in calculating the periodic and exit charges on relevant property trusts
The 拢175,000聽residence nil-rate band聽is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the聽residence nil-rate band聽by 拢1 for every 拢2 that the net value of the estate is more than 拢2 million.
Any unused聽nil-rate band聽or聽residence nil-rate band聽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 拢500,000 and, if the聽nil-rate band聽and聽residence nil-rate band聽remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to 拢1 million without an聽Inheritance Tax聽liability.
The聽nil-rate band聽has been fixed at 拢325,000 since the tax year 2009 to 2010.
The聽residence nil-rate band聽was introduced in the tax year 2017 to 2018, starting at 拢100,000 and increasing by 拢25,000 each year until reaching 拢175,000 in 2020 to 2021. The taper threshold has been set at 拢2 million since the聽residence nil-rate band聽was introduced.
Legislation was introduced in Finance Act 2021 to fix the thresholds at their 2020 to 2021 levels up to and including 2025 to 2026.
Finance Act 2023 amended Finance Act 2021 to fix the thresholds at these levels up to and including 2027 to 2028.
The current legislative default is for the聽nil-rate band,聽residence nil-rate band聽and threshold for the聽residence nil-rate band聽taper to increase in line with the Consumer Prices Index in each year from 2028 onwards.
Detailed proposal
Operative date
The measure will take effect in relation to the tax years 2028 to 2029 and 2029 to 2030 and will affect:
- lifetime gifts made
- relevant property trust charges arising
- deaths occurring on or after 6 April 2028
Current law
Section 7 of the Inheritance Tax Act 1984 provides for the rates of聽Inheritance Tax聽to be as set out in the table in Schedule 1. The table states that the聽nil-rate band聽is currently 拢325,000. Section 8 of the聽Inheritance Tax Act 1984聽provides for the indexation of the聽nil-rate band聽in line with聽Consumer Prices Index聽unless Parliament otherwise determines.
Sections 8A-C of the聽Inheritance Tax Act 1984聽provides that where an estate qualifies for the spouse or civil partner exemption, the unused proportion of the聽nil-rate band聽when the first of the couple dies can be transferred to the estate of the surviving spouse or civil partner, so that the combined聽nil-rate band聽can be up to 拢650,000.
Section 8D(5) of the聽Inheritance Tax Act 1984 provides the amount of the聽residence nil-rate band聽where the interest in a home passes on death to direct descendants. Section 8K of the聽Inheritance Tax Act 1984聽provides for the definition of a direct descendant. The聽residence nil-rate band聽increased from 拢100,000 for the tax year 2017 to 2018 to 拢175,000 for the tax year 2020 to 2021.
Section 8D(5) of the聽Inheritance Tax Act 1984聽outlines the 鈥榯aper threshold鈥� which reduces the amount of the聽residence nil-rate band聽by 拢1 for every 拢2 the net value of the estate is worth more than the 拢2 million taper threshold.
Section 8G of the Inheritance Tax Act 1984聽provides that where the聽residence nil-rate band聽is not fully used, the unused proportion of the聽residence nil-rate band聽can be transferred to the estate of the surviving spouse or civil partner. The combined聽residence nil-rate band聽can be up to 拢350,000.
Section 8D(6) and (7) of the聽Inheritance Tax Act 1984聽provides for the indexation of the聽residence nil-rate band聽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 the Inheritance Tax Act 1984 does not apply up to and including 2027 to 2028.
This means that the聽nil-rate band聽is fixed at 拢325,000, the聽residence nil-rate band聽is fixed at 拢175,000 and the taper threshold is fixed at 拢2 million until the end of 2027 to 2028.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25 to fix the聽nil-rate band,聽residence nil-rate band, and聽residence nil-rate band聽taper threshold at their current levels until the end of the tax year 2029 to 2030.
The legislation will amend section 86 Finance Act 2022 to disapply the indexation provisions in sections 8 and 8D of the聽Inheritance Tax Act 1984聽for the tax years 2028 to 2029 and 2029 to 2030.
Summary of impacts
Exchequer impact (拢 million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| 鈥� | 鈥� | 鈥� | 鈥� | +110 | +355 |
These figures are set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
Fixing thresholds will have an impact on all taxpaying estates forecast to have an Inheritance Tax liability in 2028 to 2029 and 2029 to 2030 respectively. Compared to increasing the thresholds with Consumer Price Index, this policy is only forecast to increase the number of taxpaying estates by 1,400 in 2028 to 2029 and 2,900 in 2029 to 2030. This means that the proportion of all UK deaths subject to Inheritance Tax will rise by 0.2 and 0.4 percentage points in 2028 to 2029 and 2029 to 2030 respectively.
This measure is not expected to have any impact on family formation, stability or breakdown.
This measure is expected overall to have no impact on individual鈥檚 experience of dealing with HMRC as it maintains the current nil-rate band, residence nil-rate band and taper rates and does not alter how individuals interact with HMRC.
Equalities impacts
This measure will have an indirect impact on the beneficiaries of estates liable to Inheritance Tax as the value of the estate after Inheritance Tax is paid will be lower than it otherwise would have been. HMRC does not hold data on the beneficiaries of estates,聽therefore it is not possible to assess whether there any disproportionate impacts to any groups sharing protected characteristics.
This measure will affect estates of deceased individuals liable to Inheritance Tax. The majority of Inheritance Tax is paid by the estates of individuals aged 75 or over (81%). Inheritance Tax is also paid by the estates of slightly more females than males. One reason for this is that marriages and civil partnerships in the UK are predominantly between opposite sex individuals. Men generally die at a younger age and those in a marriage or civil partnership will normally pass on all, or a large percentage, of the estate to their spouse or civil partner tax-free.
HMRC do not hold data on the other protected characteristics of deceased individuals with estates liable for Inheritance Tax.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on professional advisers and other businesses as it maintains the current nil-rate band, residence nil-rate band and taper rates. One-off costs will include businesses familiarising themselves with the extension. There are not expected to be any further one-off or continuing costs.
Customer experience for businesses is expected to remain the same, as this measure does not alter how they interact with HMRC.
There is expected to be no impact on civil society organisations.
Operational impact (拢 million) (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聽Inheritance Tax.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from聽Inheritance Tax聽returns.
Further advice
If you have any questions about this change, contact the Inheritance Tax helpline on 0300 123 1072.