Systematic study of the effect of isochronal annealing on the structure and magnetic properties of Cu-free HITPERM alloy (Fe40.5Co40.5Nb7B12) is described herein. Mössbauer spectroscopy (MS) and anomalous x-ray diffraction (XRD) measurement at Fe K-edge (7.112 keV) jointly provide clear evidence for the presence of atomically ordered α′-FeCo (B2 structure) phase as a nanocrystalline ferromagnetic phase. Being a short range order probe, Mössbauer spectroscopy also confirms the development of an additional non-magnetic Nb-rich phase in the nanocrystalline specimens (annealed above 723 K) with simultaneous lowering of the volume fraction of ferromagnetic phases. The fraction of Fe atoms in the non-magnetic phase is ∼15% upon annealing at 773 K for 1 h, which increases gradually and reaches to as high as ∼19% after annealing at 923 K. This phase was not detected by XRD and transmission electron microscopy (TEM) measurements, which may be attributed to tiny crystallite size and/or high degree of disorder. In the second stage of crystallization, i.e., above 923 K, the alloy becomes fully crystalline and a stable, hard magnetic fcc-(FeCo)23B6 type phase was observed as a main boride phase along with soft magnetic α′-FeCo phase and Nb rich non-magnetic phase. Thermo magnetic measurement evidenced re-crystallization process as a considerable decrease in magnetization at the second transformation stage. Simultaneous lowering of the volume fraction of magnetic phases with the formation of non-magnetic phase provides convincing origin for the decrease in magnetization at the second crystallization stage.