The United Kingdom’s inheritance tax nil-rate band is £325,000, with a residence nil-rate band of £175,000 on top where the conditions are met. Both are fixed at those levels until the end of the 2030 to 2031 tax year, per HMRC. A frozen threshold is a tax rise that never has to be announced.
The mechanism
Nothing about the headline rate changes. Asset values drift upward with inflation and the line stays where it is, so estates that would once have sat below the threshold cross it through nominal growth alone. Over a multi-year freeze the effect compounds, and it falls hardest on estates whose value is concentrated in a single illiquid asset, which usually means the family home.
- Nil-rate band: £325,000
- Residence nil-rate band: £175,000
- Qualifying estate: up to £500,000 free of inheritance tax
- Surviving spouse or civil partner: up to £1 million
- Fixed until: end of the 2030 to 2031 tax year
The liquidity problem, which is the real one
Inheritance tax is generally due before an estate is distributed. An estate that is asset-rich and cash-poor therefore faces a bill it can only meet by selling, often quickly and often into whatever market happens to exist that year. The tax is not the hardship. The timing is.
The tax is not the hardship. The timing is.
Rich & Richer
This is the specific problem life cover written in trust is designed to solve: it puts cash outside the estate at exactly the moment the estate needs cash, so the illiquid asset does not have to be sold to pay the tax on itself. Whether that is the right answer depends on the estate, and it is a question for a qualified adviser rather than a magazine. The structural options, including how cover interacts with trusts and entity arrangements, are outlined in this private client overview.
Frozen thresholds are a planning signal
A threshold frozen to 2031 is unusually long visibility by the standards of tax policy, and it is visibility in one direction: the real value of the allowance will be lower every year of the freeze. Families with UK-situated assets can plan against that with more confidence than they usually get.
It also sits alongside the move to a residence-based regime for non-domiciled individuals, which brought a larger group of internationally mobile families within scope of UK inheritance tax than the old domicile test did. Read together, the direction of travel is not ambiguous.
Frequently asked questions
What is the UK inheritance tax nil-rate band?
£325,000. The residence nil-rate band adds a further £175,000 where the qualifying conditions are met.
How long are the thresholds frozen?
Both the nil-rate band and the residence nil-rate band are fixed at current levels until the end of the 2030 to 2031 tax year.
How much can an estate pass tax free?
A qualifying estate can pass up to £500,000, and the qualifying estate of a surviving spouse or civil partner up to £1 million, before an inheritance tax liability arises.
Why does a frozen threshold increase the tax take?
Because asset values move and the threshold does not. Estates cross a fixed line purely through nominal growth, which raises the effective rate without any change to the headline rate.