Thresholds and rates
Residence nil rate band taper: what happens above the threshold
The residence band is withdrawn from larger estates, gradually rather than all at once. While it is being withdrawn, each extra pound of estate costs far more than the headline rate.
The residence nil rate band taper reduces the residence band by £1 for every £2 by which an estate exceeds £2,000,000. The estate measured is everything the person owned less debts, before deducting exemptions such as gifts to a spouse or charity and reliefs such as business property relief. A single person's band of £175,000 disappears completely at £2,350,000; a widow or widower with a late partner's band transferred has £350,000 to lose and keeps some of it until £2,700,000. Inside that zone each extra £1,000 of estate is taxed at 40 % and also removes £500 of band, itself worth 40 %, so the effective rate is 60 %. From 6 April 2027 unused pension funds are part of the estate, so a pension can push an estate over the threshold even when the home and savings alone are below it. The bands and the threshold are frozen until 5 April 2031.
What the £2 million taper costs
Extra inheritance tax from the taper
£40,000
| Residence band before taper | £350,000 |
| Band lost | £100,000 |
| Band left | £250,000 |
| Estate where it is all gone | £2,700,000 |
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
One pound lost for every two above the threshold
HMRC’s guidance states the rule plainly: if the estate is worth more than £2,000,000, the residence band is reduced by £1 for every £2 over that amount. The reduction applies to the maximum band available, including any share transferred from a late spouse, before the band is compared with the value of the home. A large house therefore does not protect the band: an estate of £2,200,000 with a £900,000 home left to children gets the same reduced band as one with a £400,000 home.
The table shows the band that survives at different estate values, for a single person and for a widow or widower with a full band transferred, and the extra inheritance tax the lost band costs. The home is assumed to be worth more than the band, so the cap at the home's value does not bite.
| Estate after debts | Band left, single | Extra tax, single | Band left, with transfer | Extra tax, with transfer |
|---|---|---|---|---|
| £2,000,000 | £175,000 | £0 | £350,000 | £0 |
| £2,100,000 | £125,000 | £20,000 | £300,000 | £20,000 |
| £2,200,000 | £75,000 | £40,000 | £250,000 | £40,000 |
| £2,350,000 | £0 | £70,000 | £175,000 | £70,000 |
| £2,500,000 | £0 | £70,000 | £100,000 | £100,000 |
| £2,700,000 | £0 | £70,000 | £0 | £140,000 |
The calculator above does the same for any estate value. A widowed estate loses band at the same pace as a single one; it simply has twice as much to lose, which is why the point where nothing remains moves from £2,350,000 to £2,700,000.
Which estate is measured
The figure tested against the threshold is not the taxable estate. It is the net value of everything the person owned at death, less debts and liabilities, before any exemption or relief is taken off. A gift in the will to a spouse, civil partner or charity does not lower it. Nor does business property relief or agricultural property relief on a family company or farm, even though those reliefs may take the assets out of the tax itself. An estate can therefore pay little or no tax and still lose its whole residence band.
That matters most at the first death of a married couple. A husband whose £2,400,000 estate goes entirely to his wife pays nothing, because the spouse exemption covers it. But his residence band is tested against the full £2,400,000, the taper removes £175,000, and nothing is left. The unused percentage that his widow's estate can claim later is measured from that tapered figure, so 0 % of a band transfers under the transfer rules.
The 60 % zone, worked out
Inside the taper, an extra £1,000 of estate has two effects. It is taxed at 40 %, adding £400. It also cuts the residence band by £500, exposing that much of the rest of the estate to tax at 40 %, adding another £200. Together the next £1,000 costs £600, a rate of 60 %. The table runs the engine for the next £1,000 at four estate values.
| Position | Estate | Rate on the next £1,000, single | Rate, with transfer |
|---|---|---|---|
| Below the threshold, above the bands | £1,800,000 | 40 % | 40 % |
| Inside the single taper zone | £2,200,000 | 60 % | 60 % |
| Single band gone, transferred band still tapering | £2,500,000 | 40 % | 60 % |
| Both bands gone | £2,800,000 | 40 % | 40 % |
The single estate leaves the zone once its band is used up; the widowed estate stays in it for twice as long. The headline rate never rises above 40 %; the higher figure is the result of losing an allowance while the estate grows.
How the pension pushes estates over from April 2027
Until 6 April 2027, a pension paid at the scheme's discretion was outside the estate and therefore outside the taper test. Section 150A changes both. A widow with a £900,000 home left to three children, £900,000 of savings and a £500,000 pension has an estate of £1,800,000 for a death before the change, comfortably under the threshold, with the full £350,000 of residence band. For a death after it, the estate counted is £2,300,000, the band falls to £200,000, and the tax rises from £320,000 to £580,000.
The increase of £260,000 is more than the tax on the pension alone would suggest, because £150,000 of band disappears at the same time. Because the taper counts the estate before exemptions, the result would be the same if part of that pension were nominated to a surviving spouse: the exemption takes the pension out of the tax, but not out of the taper test.
When the home is worth less than the tapered band
The taper is applied first and the cap at the home's value second. For an estate of £2,100,000 the tapered band is £125,000. If the home passing to the children is worth only £100,000, the band is capped at £100,000, the lower of the two. In that estate the first £50,000 above the threshold removes band the home could never have used, so the taper costs nothing until the tapered figure falls below the value of the home. Estates built mainly of savings, investments or pensions, with a modest home, therefore feel the taper later than the table suggests. The residence band guide explains the cap.
Pensions drawn during life
From April 2027 the timing of pension withdrawals affects the taper test as well as the tax. Money left in the pot counts at death. Money drawn and spent is gone from the estate; money drawn and kept in a bank account still counts, now as savings. Withdrawals are taxed as income in the year they are taken, apart from the tax-free part, and income tax rates can be high in the same years. How those two taxes balance differs for each family and is a matter for a regulated adviser, not a general rule; the drawdown tax page shows the income tax on a withdrawal.
What the figure includes and leaves out
Excluded pension benefits never count: a dependants' scheme pension, a joint life annuity bought with the member's own annuity, and death in service benefits from a job held at death. Debts reduce the figure, including a mortgage on the home. Money a person has spent is no longer in the estate. Beyond that, every asset counts at its value at death, wherever it goes and whatever relief it attracts. GOV.UK’s overview sets the taper alongside the other thresholds; the page on an estate of £2,000,000 works through one complete estate at that level.
Reading the taper for your family
The taper is mechanical, but estates near the threshold are often the ones where several rules meet: a business or farm with relief, a pension nominated to a spouse, a home worth more or less than the band. The calculator gives the cost of the taper for an estate value and whether a late partner's band was transferred. It does not replace a valuation of the estate, and it is not advice: the executors, a solicitor or a regulated adviser look at a real case, including how the first death of a couple affects the second.