Structure of death estate computation:

Free estate assets (at market value at death):
UK residential property, commercial, chattels	X
Bank accounts, investments (quoted shares, bonds)	X
Private company shares (subject to BPR)	X
Pensions (usually outside scope)	−
Joint property (share of joint tenancy)	X
Settled property (subject to special rules)	X
Gross estate	X
Less: debts and liabilities (valid at date of death)	(X)
Less: funeral expenses (reasonable amounts)	(X)
Less: exemptions (spouse, charity)	(X)
Less: BPR, APR	(X)
Net chargeable estate	X
Less: NRB (adjusted for earlier cumulation) + RNRB (if available)	(X)
Taxable estate	X

Tax on net chargeable estate:

Above NRB (+ RNRB): 40% (or 36% if 10% left to charity)

Residence Nil Rate Band (RNRB):

£175,000 (2024/25) — additional NRB for residence passed to direct descendants
Direct descendants = children (including adopted, step, foster), grandchildren, and their spouses
Only available for a RESIDENCE (not other property) that has been the deceased's residence at some point
TAPERED by £1 for every £2 of estate value over £2m (fully lost at £2.35m + depending on RNRB amount)
Unused RNRB can be transferred to spouse (same as main NRB)
"Downsizing addition" — if you sold your home before death (e.g., moved to smaller or care home), can still claim RNRB if direct descendants inherit the cash or smaller home

Transferable NRB and RNRB:

Any UNUSED NRB from a pre-deceased spouse/civil partner can be TRANSFERRED to the surviving spouse
Claim made by the executors at the second death (IHT402)
Transferred as a PERCENTAGE of the NRB at the first death — applied to the NRB at the second death
Example: First spouse died in 2010 using 40% of NRB. On second death in 2024: surviving spouse has £325,000 + 60% × £325,000 = £325,000 + £195,000 = £520,000
Same principle for RNRB (since its introduction in 2017)

Quick Succession Relief (QSR):

Prevents DOUBLE IHT charges when assets pass through two deaths within 5 YEARS
Relief = tax paid on first death × (value on second death / value on first death) × time-based %
Time-based % tapers:
- Within 1 year: 100%
- 1-2 years: 80%
- 2-3 years: 60%
- 3-4 years: 40%
- 4-5 years: 20%
Claimed against IHT on second death

Charitable reduced rate (36%):

If 10% or more of "net estate" passes to charity, the rate on the chargeable portion is reduced from 40% to 36%
"Net estate" = gross estate less exemptions other than charitable legacies, less BPR/APR, less the NRB, less reliefs
Often encourages individuals to leave at least 10% to charity — can be tax-efficient

Comprehensive example — death estate:

Maria died in January 2025. Her estate:

Main residence: £700,000 (left to son)
Investments: £200,000
Cash: £150,000
Private company shares: £400,000 (qualifying for BPR)
Chattels: £50,000
Debts: £20,000
Funeral: £5,000
Legacies: £50,000 to charity; residue to son
No previous lifetime transfers. Husband died in 2015 using NO NRB (fully transferred).

Calculation:

Main residence	£700,000
Investments	£200,000
Cash	£150,000
Private company shares	£400,000
Chattels	£50,000
Gross estate	£1,500,000
Less: debts	(£20,000)
Less: funeral	(£5,000)
Less: BPR at 100% on private co shares	(£400,000)
Less: charity exemption	(£50,000)
Chargeable estate	£1,025,000

Apply NRB and RNRB:

Own NRB: £325,000
Transferred NRB (100% of £325,000): £325,000
Own RNRB: £175,000 (residence to son — direct descendant — qualifies)
Transferred RNRB: £175,000 (husband died 2015 when RNRB didn't exist, but can still claim transfer)
Total allowances: £325k + £325k + £175k + £175k = £1,000,000
RNRB tapering: estate £1.5m < £2m — no taper

Taxable estate: £1,025,000 − £1,000,000 = £25,000
Is 10% left to charity? Test: charity £50,000 vs baseline amount. In this case £50,000/£1,050,000 (estate + BPR excluded value) — may or may not reach 10% threshold for the reduced rate. If not: IHT = £25,000 × 40% = £10,000. If yes: 36% = £9,000.

Note: RNRB taper starts at £2m — Maria's £1.5m gross estate is below the threshold, so full RNRB available. For estates over £2m, each £2 over reduces RNRB by £1.

Tax Compliance