The Nil Rate Band Frozen Until 2030: How Fiscal Drag Adds £40,000 to a Typical Bill
The £325,000 nil rate band (NRB) and £175,000 residence nil rate band (RNRB) are frozen all the way to 5 April 2030, while house prices and investments keep climbing. That gap — "fiscal drag" — is why an ordinary estate that owed nothing a decade ago can now face a five-figure inheritance tax bill. For a typical £600,000 estate, the freeze quietly adds roughly £40,000 to what the family pays.
What is actually frozen, and since when
Inheritance tax (IHT) in the UK is charged at 40% on the value of an estate above the available tax-free thresholds. There are two of them:
- The nil rate band (NRB): £325,000. Everyone gets this. It has sat at £325,000 since 6 April 2009 — 21 years without an increase by the time the freeze ends.
- The residence nil rate band (RNRB): £175,000. An extra slice available when you leave a home (or its value) to direct descendants — children, grandchildren, stepchildren and so on. It reached £175,000 in April 2020 and has not moved since.
At the Autumn Budget 2024, the Chancellor extended an existing freeze by a further two years. Both bands — plus the £2 million threshold at which the RNRB starts to taper away — are now fixed until the 2029 to 2030 tax year, i.e. through to 5 April 2030 (gov.uk: Inheritance Tax). Married couples and civil partners can also transfer any unused NRB and RNRB to the survivor, so a couple can shelter up to £1 million between them where the home passes to children.
A figure set in 2009 (£325,000) and a figure set in 2020 (£175,000) are being held flat until 2030 — but the assets they shelter (homes, ISAs, pensions soon) have not stood still. Frozen allowance + rising values = more tax, with no policy change you can point to.
| Allowance | Amount | Set in | Frozen until |
|---|---|---|---|
| Nil rate band (NRB) | £325,000 | April 2009 | 5 April 2030 |
| Residence nil rate band (RNRB) | £175,000 | April 2020 | 5 April 2030 |
| RNRB taper threshold | £2,000,000 | April 2017 | 5 April 2030 |
| IHT rate above the bands | 40% | — | — |
Why a frozen band quietly raises your tax: fiscal drag
"Fiscal drag" is what happens when a tax threshold stays still while the thing it measures grows. The allowance does not rise with inflation or house prices, so each year more of your estate sticks out above the band and gets taxed at 40%. Nothing in the rules changes — you simply drift over the line.
The scale is stark. Had the £325,000 nil rate band risen with inflation since 2009, analysis of the Autumn Budget 2024 figures put it at roughly £503,879 today. In other words, the band is more than £175,000 lower than an inflation-linked version would be — and every pound of that gap is potentially taxed at 40%.
Worked example: how a £600,000 estate crept into a tax bill
Margaret, a widow in Surrey, dies in the 2026–27 tax year leaving an estate of £600,000: a home worth £450,000 left to her two children, plus £150,000 in cash and ISAs. Her late husband left everything to her, so his full NRB and RNRB transfer to her estate. Her estate is below £2 million, so no RNRB taper applies.
Her available tax-free total:
- Her NRB: £325,000
- Transferred NRB from her husband: £325,000
- Her RNRB: £175,000
- Transferred RNRB from her husband: £175,000
- Total allowances: £1,000,000
Result today: £600,000 is below £1,000,000, so Margaret's estate pays £0 IHT. So far, so reassuring.
But watch the freeze bite. Margaret's children keep the house, which had grown from £350,000 to £450,000 over the decade. Now run the same family situation a few years on, when the house is worth £600,000 and the cash/ISAs have grown to £200,000 — a total estate of £800,000. The allowances are still £1,000,000 (frozen), so still no tax. The point is the cushion is shrinking: a £200,000 buffer where there used to be £400,000.
Now take a single person rather than a couple — the situation where the freeze hurts most, because there is only one set of bands.
David, divorced, no surviving spouse, leaves a £600,000 estate to his daughter: a £450,000 home and £150,000 in savings. He has only his own allowances.
Allowances: NRB £325,000 + RNRB £175,000 = £500,000.
Taxable estate: £600,000 − £500,000 = £100,000.
IHT at 40%: £100,000 × 40% = £40,000.
Now rewind a decade. When David's home was worth £350,000 (the same property, before a decade of price growth), his estate was £500,000 — exactly at his £500,000 allowance. His IHT bill then would have been £0. Nothing about David's wishes, his family, or the law changed. The house simply rose £100,000 while the allowance stood still — and that £100,000 of fiscal drag is now taxed at 40%, producing the £40,000 bill in the headline.
| David's estate | A decade ago | Today (2026–27) |
|---|---|---|
| Home value | £350,000 | £450,000 |
| Savings | £150,000 | £150,000 |
| Total estate | £500,000 | £600,000 |
| Allowances (NRB + RNRB) | £500,000 | £500,000 |
| Taxable amount | £0 | £100,000 |
| IHT at 40% | £0 | £40,000 |
That is fiscal drag in a single line: the allowance is frozen, the house grew, and a previously tax-free estate now owes £40,000. Multiply this across the country and you see why HMRC's IHT receipts keep climbing without any rise in the headline 40% rate.
Why frozen bands pull more middle-class estates into IHT every year
IHT used to be a tax on genuinely large estates. The freeze is changing that. Two forces work together:
- House prices. For most families the home is the single biggest asset. In high-value regions a fairly ordinary house plus modest savings can now exceed a single person's £500,000 band on its own.
- The RNRB only helps if it applies. The residence nil rate band is conditional — you need a qualifying home passing to direct descendants, and it tapers away once the estate tops £2 million (lost at £1 for every £2 over). People who have downsized, rent, or want to leave the home to a sibling, niece or nephew may get little or none of that £175,000, so they hit the 40% rate sooner.
The effect compounds the longer the freeze runs. Each year of growth that the bands do not match pushes a fresh cohort of "I never thought we'd pay inheritance tax" estates over the threshold.
The 2027 pensions change makes the freeze bite harder
Until now, most unused pension pots have sat outside the estate for IHT — a key reason advisers often suggested spending other assets first and leaving the pension untouched. That changes. From 6 April 2027, most unused pension funds and pension death benefits will be brought inside the value of the estate for inheritance tax (gov.uk technical note: Inheritance Tax on pensions).
Here is why that compounds the freeze. The thresholds are not rising, but the pool of assets measured against them is about to get bigger — for many families, considerably so. An estate that was comfortably under £1 million on property and savings alone can be tipped over once a £200,000–£300,000 SIPP is added in. HMRC's own impact note estimates around 10,500 estates will face an IHT bill in 2027–28 that would not have arisen before, and the average bill for affected estates rises by roughly £34,000 once pension assets count.
Frozen allowances (held flat to 2030) + rising house prices (fiscal drag) + pensions counting from April 2027 (a bigger taxable base) = three pressures pushing the same estates over the line at once. Spouse and civil-partner transfers, and death-in-service benefits, remain exempt from the pension change — but for single people and unmarried partners, the squeeze is real.
Mitigation that still works while the bands are frozen
You cannot un-freeze the bands, but the core IHT reliefs are unchanged by the freeze. The well-established planning routes still apply — though several of these are technical and timing-sensitive, so take advice before acting:
- Spouse/civil-partner exemption + transferable bands. Anything left to a UK spouse or civil partner is exempt, and their unused NRB and RNRB transfer to the survivor — the foundation of the £1 million figure for couples (gov.uk).
- Annual gifting allowances. Each tax year you can give away £3,000 in total (the annual exemption), plus small gifts of up to £250 per person, and there are separate exemptions for wedding gifts (gov.uk: gifts and IHT).
- Normal expenditure out of income. Regular gifts made from surplus income — not capital — can be immediately exempt if they leave your standard of living intact. Underused and powerful; keep records.
- The seven-year rule on larger gifts. Outright gifts above the allowances are "potentially exempt transfers": fall outside the estate entirely if you survive seven years, with taper relief reducing the tax after three (gov.uk: 7 year rule).
- Charitable giving. Gifts to charity are exempt, and leaving 10% or more of the net estate to charity cuts the IHT rate on the rest from 40% to 36%.
- Review the 2027 pension position. The old "leave the pension untouched" default needs rethinking. Speak to a regulated adviser about drawdown order and beneficiary nominations ahead of April 2027.
- A deed of variation. Where someone has already died, beneficiaries can sometimes redirect an inheritance within two years to improve the family's overall IHT position. See our deed of variation guide.
- The NRB (£325,000) and RNRB (£175,000) are frozen until 5 April 2030, alongside the £2m RNRB taper threshold.
- The NRB has not moved since 2009; the RNRB since 2020. Fiscal drag — frozen bands against rising values — is the quiet tax rise.
- Worked example: a £100,000 rise in a single person's home, with the £500,000 allowance frozen, turns a £0 bill into a £40,000 bill at 40%.
- Couples can shelter up to £1 million via transferable bands; single people and unmarried partners feel the freeze most.
- From 6 April 2027 most unused pensions count inside the estate — a bigger taxable base against the same frozen thresholds.
- Reliefs still work: spouse exemption, gifting, normal expenditure out of income, the 7-year rule, and charitable giving (36% reduced rate).
Frequently asked questions
Is the nil rate band really frozen until 2030?
Yes. At the Autumn Budget 2024 the freeze on the £325,000 nil rate band, the £175,000 residence nil rate band and the £2 million RNRB taper threshold was extended by two years, so all three are fixed through to the 2029–30 tax year — meaning 5 April 2030. See gov.uk: Inheritance Tax.
How much can a couple leave before inheritance tax?
A married couple or civil partners can pass on up to £1 million free of IHT where a home is left to direct descendants: £325,000 NRB plus £175,000 RNRB each, with both transferable to the survivor. Single people get one set of bands — up to £500,000.
What is fiscal drag in plain English?
It is the extra tax you pay simply because a frozen allowance has not kept pace with rising prices. The £325,000 band set in 2009 would be around £503,879 today if it had tracked inflation — so more of your estate now falls above the band and is taxed at 40%, without any change to the headline rate.
Do pensions count for inheritance tax now?
Most unused pension funds currently sit outside the estate for IHT, but that changes from 6 April 2027, when most unused pension funds and death benefits will be brought into the estate. Death-in-service benefits and transfers to a spouse or civil partner remain exempt. See the gov.uk technical note.
What is the residence nil rate band and can I lose it?
The RNRB is an extra £175,000 allowance available when a home (or its value) passes to direct descendants such as children or grandchildren. It tapers away by £1 for every £2 by which the estate exceeds £2 million, so larger estates — and those not leaving a qualifying home to descendants — may receive little or none of it.
Can I reduce my IHT bill while the bands are frozen?
Yes. The freeze does not change the reliefs. The spouse exemption, annual gifting allowances, normal expenditure out of income, the seven-year rule on larger gifts, and charitable giving (which cuts the rate to 36% if you leave at least 10% of the net estate to charity) all still apply. Take regulated advice on what fits your estate.
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Sources: gov.uk — Inheritance Tax · gov.uk — gifts and the 7-year rule · gov.uk — Inheritance Tax on pensions technical note. Figures verified against official United Kingdom government sources on 2026-06-03. The inflation-adjusted £503,879 figure derives from Autumn Budget 2024 analysis.