Residence nil-rate band: £175,000, the £2 million taper, and the 60% slice a client estate of £2.3 million falls into

A paraplanner is preparing the annual review for a widowed client with a house worth £900,000, investments of £700,000 and a pension of £700,000 that is about to count towards the estate from April 2027. The adviser asks for a quick illustration of what the family would pay. The headline figures are well known. The step most illustrations miss is that the residence nil-rate band is withdrawn on a slope above £2 million, and a client in the middle of that slope is taxed at a higher marginal rate than the 40% they expect. This guide counts it.

What GOV.UK says

The nil-rate band is £325,000, listed for the period to 5 April 2031. The residence nil-rate band is £175,000, listed to 5 April 2030. It applies where the home is left to direct descendants: "a child, grandchild or other lineal descendant", plus their spouses or civil partners, but not nephews, nieces or siblings. The home does not have to be named in the will. The band "will reduce by £1 for every £2 that the estate is worth more than the £2 million taper threshold". The standard rate is 40% on the value above the thresholds, and an unused band can transfer to a spouse or civil partner, though tapering can also shrink the transferable amount.

The slope in numbers

For a single person whose home passes to children, the whole nil-rate allowance is £325,000 plus the remaining residence band.

The arithmetic is from the two GOV.UK figures above. Every £100,000 of extra estate between £2,000,000 and £2,350,000 adds £60,000 of tax: £40,000 on the asset, and £20,000 because £50,000 of band disappears. That is a 60% marginal rate. Above £2,350,000 it returns to 40%.

Why it changes the conversation

• Gifting looks stronger in the slope. A client at £2,300,000 who gives away £100,000 and survives the seven years does not only avoid 40% of it: the estate falls to £2,200,000, the band recovers £50,000, and the tax falls by £60,000. Whether to gift is the adviser's judgement, and this note does not say it is right.
• Pensions move the client into the slope. A client who sat at £1.8 million before the April 2027 change may sit at £2.3 million after it. See the pension and IHT workload plan for the volume of those conversations.
• The family home matters. If the home goes to a niece, the band is not available at all, whatever the estate size.

What to put in the file

• Date and source of each threshold used, since the figures change.
• Who receives the home, because the band depends on it.
• The estate value on the date, including the pension where relevant, and the assumptions behind it.
• The marginal rate the client is in, written down.

Tax-free cash is a separate allowance; the lump sum allowance guide covers it, and the annual review checklist is where the illustration is filed.

I did not read how the taper applies to a transferred band for a surviving spouse, nor the downsizing rules, nor the rules for a will leaving the home on trust. Those need the full guidance and a tax adviser's view before any figure goes to a client.

Overlyft builds AI staff who join your advice team and, before each review season, list clients whose estate sits between £2,000,000 and £2,350,000, draft the one-page illustration, and leave it for the adviser to review and sign.

This is general information, not financial or tax advice. Check GOV.UK and the client's circumstances before you advise.