The rule in one sentence
For every £2 the estate is worth above £2,000,000, the residence nil-rate band goes down by £1. A single band of £175,000 is gone at £2,350,000; a doubled band of £350,000 (with a late spouse’s band) is gone at £2,700,000.
The example in the calculator
A widowed grandparent leaves a £900,000 home to the family, £1,200,000 of other assets and a £300,000 pension (death after 6 April 2027, so the pension counts).
- Estate: £900,000 + £1,200,000 + £300,000 = £2,400,000.
- Over the £2m threshold by: £400,000. Half of that is £200,000.
- Residence band: £350,000 − £200,000 = £150,000.
- Nil-rate band: £325,000 × 2 = £650,000 (gifts in the last seven years would reduce this).
- Taxable: £2,400,000 − £650,000 − £150,000 = £1,600,000. At 40%, the tax is £640,000.
How the bill grows above £2 million (widowed, both bands, home to family)
| Estate | Residence band left | Inheritance tax |
|---|---|---|
| £2,000,000 | £350,000 | £400,000 |
| £2,200,000 | £250,000 | £520,000 |
| £2,400,000 | £150,000 | £640,000 |
| £2,600,000 | £50,000 | £760,000 |
| £2,700,000 | £0 | £820,000 |
| £2,800,000 | £0 | £860,000 |
Every £100,000 between £2m and £2.7m adds £60,000 of tax: £40,000 on the extra value plus £20,000 from the lost residence band — an effective 60% rate.
What counts towards the £2 million?
The test uses the whole estate after debts but before reliefs and exemptions — so business assets, gifts to a spouse or charity still count. From April 2027 unused pensions count too, which is why many estates near £2m will be affected for the first time.
Friendly ideas to discuss with an adviser
- Gifts during your lifetime reduce the estate if you survive seven years, and can bring it back under £2m.
- Regular gifts from surplus income are exempt straight away.
- The £3,000 annual exemption (plus last year’s if unused) adds up over time.
- Wills for couples: where everything goes to the surviving spouse, the second estate can become very large. Some couples look at passing some assets to children on the first death.
Downsized or sold your home?
If you moved to a smaller home or sold your home after 8 July 2015, you may still get some or all of the residence band through the “downsizing addition”, as long as other assets of equal value go to your direct descendants. The calculator does not work this out, so mention it to your solicitor or adviser. The same goes for business and agricultural relief, which can reduce the tax on qualifying assets but do not stop those assets counting towards the £2 million test.
FAQ
At what estate value is the residence nil-rate band lost?
It goes completely at £2,350,000 for one band, or £2,700,000 when a late spouse’s band has been transferred.
How much inheritance tax is due on a £2.4 million estate?
For a widowed person leaving a £900,000 home to their family, the residence band falls to £150,000, so £1,600,000 is taxed at 40% = £640,000.
Why is the effective rate 60% above £2 million?
Each extra £1 is taxed at 40p, and it also removes 50p of residence band, which costs another 20p. Together that is 60p per pound until the band is gone.
Sources: GOV.UK policy paper “Inheritance Tax thresholds” (26 Nov 2025) — gov.uk/government/publications/inheritance-tax-thresholds; GOV.UK “Inheritance Tax on pensions: liability, reporting and payment”; GOV.UK press release “Inheritance tax reliefs threshold to rise to £2.5m” (Dec 2025); Inheritance Tax Act 1984 Sch 1A (36% rate). Autumn Budget 28 Oct 2026: no change to the thresholds (HCR Law overview, 30 Oct 2026). Checked 5 November 2026.