Will I lose my late husband's inheritance tax allowance on our home if my estate tops £2M?
A reader whose husband passed away over a decade ago is concerned about losing valuable inheritance tax relief as her estate approaches the £2 million threshold. The question highlights a growing problem for families caught by frozen allowances and rising property values.
The issue centres on the residence nil rate band, an additional inheritance tax allowance introduced in April 2017 that applies when a residential property is passed to direct descendants such as children, grandchildren, stepchildren or adopted children. This allowance started at £100,000 and increased by £25,000 annually until reaching its current level of £175,000 in 2020-2021.
When combined with the standard nil rate band of £325,000, an individual can potentially pass on £500,000 free of inheritance tax when leaving a home to direct descendants. Married couples and civil partners can double this to £1 million by transferring any unused allowances between spouses.
How the £2 million taper works
The concern is well-founded. Once an estate exceeds £2 million in value, the residence nil rate band begins to taper away at a rate of £1 for every £2 over the threshold. This means estates valued between £2 million and £2.35 million face a gradual reduction in the allowance. For estates reaching £2.35 million or above, the residence nil rate band disappears entirely. When claiming a spouse's unused allowance, this complete loss occurs at £2.7 million.
The transferability of allowances between spouses has been possible since 9 October 2007, enabling surviving partners to inherit unused allowances from their deceased spouse regardless of when the first death occurred. This means the reader can claim her late husband's unused residence nil rate band even though he died 13 years ago, well before the allowance was introduced.
However, there is a crucial detail: if the first spouse's estate exceeded the £2 million threshold at the time of their death, any tapering that applied then will reduce the amount available to transfer to the surviving spouse's estate.
Frozen thresholds creating fiscal drag
The problem is intensifying because both the standard nil rate band and residence nil rate band are frozen. The nil rate band has remained at £325,000 since April 2009, representing 17 years without an increase. Both allowances are now frozen until at least April 2031, meaning thresholds will remain unchanged for at least another five years.
This prolonged freeze creates fiscal drag, pulling more estates into the inheritance tax net as property values and other assets rise with inflation. UK inheritance tax receipts reached £8.5 billion in the 2025/26 financial year, representing approximately 58% growth over seven years despite no change to the 40% tax rate itself.
Currently, approximately 4.72% of deaths result in an inheritance tax charge, affecting around 30,400 estates out of 644,000 total deaths in 2023/24. While this represents fewer than one in 20 estates, the proportion continues to rise as more families find themselves caught by the frozen thresholds.
Pension changes loom
From 6 April 2027, most unused defined contribution pension pots will be included in estates for inheritance tax purposes. This change could push many borderline estates over the £2 million taper threshold, with HMRC estimating around 10,500 estates will face inheritance tax for the first time as a result.
For the reader concerned about her situation, the key points are: she can claim her late husband's unused residence nil rate band, but once her estate exceeds £2 million, that allowance will begin to taper away. Between £2 million and £2.7 million, she will lose £1 of the combined allowance for every £2 her estate exceeds the threshold. Above £2.7 million, the residence nil rate band vanishes completely.
Given the complexity of inheritance tax planning and the significant sums involved, consulting a qualified tax adviser or solicitor specialising in estate planning would be prudent to explore strategies for mitigating the impact of these rules.
