UK Inheritance Tax thresholds 2026/27 (per gov.uk Inheritance Tax policy paper):
- Standard nil-rate band: £325,000 per person — unchanged since 2009.
- Residence nil-rate band: £175,000 per person — additional allowance when leaving the main home to direct descendants.
- Combined: up to £500,000 per individual / up to £1,000,000 for married couples with full transferable allowances.
- Rate above the threshold: 40% (reduced to 36% if 10%+ of net estate is left to charity).
- Taper threshold: £2 million — RNRB reduces by £1 for every £2 of estate over this level.
All three thresholds are frozen until 5 April 2031 following the Autumn 2025 Budget extension (Finance Bill 2025-26). From 6 April 2026, agricultural and business property reliefs are subject to a combined £1 million allowance for 100% relief, with 50% above. From 6 April 2027, most unused pension funds fall within the IHT scope.
Inheritance Tax (IHT) is a tax on the value of someone's estate when they die — and despite repeated political talk of reform, the Autumn 2025 Budget did the opposite. The nil-rate band freezes have been extended to April 2031, and from 6 April 2027 unused pensions will fall into the IHT net for the first time.
👉 Free download: For the full 62-page guide on this topic — Section 24, FHL, MTD ITSA, CGT, SDLT, incorporation, IHT and HMRC enquiry triggers — get our 2026/27 UK Landlord Tax Playbook (free PDF, no follow-up calls).
UK inheritance tax is 40% on estates above £325,000 (the nil-rate band), with an additional £175,000 residence nil-rate band where a main home passes to direct descendants. Combined, a married couple can pass £1 million tax-free. Both bands are frozen until April 2031, and pension pots will join the IHT estate from April 2027.
👉 Part of our pillar series: This article goes deep on one specific tax. For the full picture of how UK taxes fit together for individuals and small business owners, see our pillar guide: How Much Tax Do I Pay in the UK? 2026/27.
This guide sets out where IHT stands in the 2026/27 tax year, what is changing, and the practical steps that help families pass on more of what they have built.
⚠️ Two Major Upcoming Changes
- 6 April 2026: BPR/APR 100% relief capped at £1 million — already in force
- 6 April 2027: Unused pension pots brought into the IHT estate — plan now
How IHT Works in 2026/27
IHT is charged at 40% on the value of an estate above the available nil-rate bands. A reduced rate of 36% applies if at least 10% of the net estate is left to charity.
🏠 The Two Main Allowances
- Nil-rate band (NRB): £325,000 per person. Frozen since 2009/10 and confirmed frozen until April 2031.
- Residence nil-rate band (RNRB): £175,000 — applies where a qualifying main residence is left to direct descendants. Tapered away by £1 for every £2 the estate exceeds £2 million.
Combined, a married couple or civil partners can typically pass on up to £1 million tax-free — by combining both allowances and the spouse exemption. Any unused NRB and RNRB transfers to the surviving spouse or civil partner.
The Big April 2027 Change: Pensions Enter the IHT Net
From 6 April 2027, most unused defined contribution pension pots and certain death benefits will form part of the deceased's estate for IHT purposes. This reverses one of the most generous estate-planning features of the current system.
⚠️ Three Immediate Consequences
- Estates previously below the nil-rate bands may suddenly become taxable once the SIPP is added in
- For deaths after age 75, beneficiaries face income tax on withdrawals as well as IHT on the underlying pot — combined effective rates can exceed 60%
- New procedural step: personal representatives can direct the pension scheme administrator to settle the IHT due, which delays distributions
✓ What Remains Exempt
- Death-in-service lump sums from registered pension schemes are excluded from the new rules
- Spousal pension transfers remain exempt
Key Exemptions and Reliefs
Spouse and Civil Partner Exemption
Unlimited transfers between UK-domiciled (and from April 2025, long-term resident) spouses and civil partners are exempt from IHT. This is the most powerful IHT relief available and should be central to any estate plan.
Annual Gift Exemption
£3,000 per donor per year, with one year's unused allowance carried forward. Also exempt:
- Small gifts of up to £250 per recipient (no limit on number of recipients)
- Gifts on marriage: £5,000 from a parent, £2,500 from a grandparent, £1,000 otherwise
Normal Expenditure Out of Income
Regular gifts made out of surplus income — not capital — are immediately exempt from IHT with no upper limit, provided they leave the donor's standard of living unaffected. This is one of the most under-used reliefs and is becoming significantly more valuable now that pensions are entering the IHT net. For directors drawing pension income, gifting the surplus each year can be highly effective.
Business and Agricultural Property Relief (BPR / APR)
Currently provides up to 100% relief on qualifying business and agricultural assets. From 6 April 2026 — already in force — the combined 100% relief is restricted to the first £1 million of qualifying assets. The excess attracts only 50% relief (an effective 20% IHT rate). The £1m allowance is frozen until April 2031.
💼 Business Owners: Review Your BPR Exposure Now
Families with significant trading business or agricultural value above £1 million need to model their IHT exposure under the new rules. Assets that were previously fully relieved may now attract a 20% effective IHT charge on the excess — requiring updated wills, life cover or gifting strategies.
Charity Exemption
Anything left to a UK-registered charity is fully exempt. Leaving 10% or more of the net estate to charity reduces the IHT rate on the rest of the estate from 40% to 36%.
Estate Planning Done Properly
Comprehensive IHT review including BPR, APR, gifting strategy and trust planning.
The Seven-Year Rule
Lifetime gifts to individuals are Potentially Exempt Transfers (PETs). They fall fully outside the estate if the donor survives seven years. Die within seven years and the gift is added back, with taper relief reducing the IHT due:
| Years Between Gift and Death | Taper Relief | Effective IHT Rate on Gift |
|---|---|---|
| 0–3 years | 0% | 40% |
| 3–4 years | 20% | 32% |
| 4–5 years | 40% | 24% |
| 5–6 years | 60% | 16% |
| 6–7 years | 80% | 8% |
| 7+ years | 100% | 0% |
⚠️ Important: Taper Relief Is Often Misunderstood
Taper relief only reduces the IHT on the gift itself — it does not reduce the value added back to the estate for NRB purposes, and it does not apply if the gift falls within the nil-rate band (where there is no tax to taper).
The New Residence-Based IHT Rules
From 6 April 2025, IHT is determined by long-term UK residence rather than domicile. An individual is within the scope of UK IHT on their worldwide assets if they have been UK-resident for at least 10 of the previous 20 tax years.
After leaving the UK, an IHT 'tail' continues for between 3 and 10 years depending on length of prior UK residence. This is a fundamental change for internationally mobile clients and replaces the long-standing domicile-based system.
🌐 Internationally Mobile? Get Advice Now
If you have lived overseas, are planning to relocate, or have assets in multiple jurisdictions, the new residence-based IHT rules may significantly change your exposure. This particularly affects those considering a Dubai or UAE relocation — the IHT tail must be factored into the exit planning timetable.
When IHT Is Due
IHT must be paid by the end of the sixth month after the month of death. Interest accrues from that date. Tax on certain assets (such as land and shares in unquoted companies) can be paid in 10 annual instalments.
Executors must obtain a grant of probate (or letters of administration), which generally requires the IHT account (form IHT400 or IHT205) to be submitted first.
✅ Key Takeaways — 2026/27
- Use both spouses' nil-rate bands by structuring the will properly — failing to use the first deceased spouse's allowance is one of the most common avoidable IHT mistakes
- Plan now for the April 2027 pension IHT change — for many estates, drawing pension income (and gifting it) is becoming more efficient than preserving the pot
- Use the £3,000 annual gift exemption every year — it is small, but compounds significantly over a lifetime of giving
- For business owners, review BPR exposure now — the £1 million cap (live from April 2026) affects families with significant trading-business value
- Consider whole-of-life cover written in trust to fund the IHT bill — particularly relevant for illiquid estates such as property and unquoted shares
- If you have lived overseas (or plan to), the new residence-based IHT rules from April 2025 may significantly change your worldwide estate exposure
- Use the IHT estimator to model your potential liability — then book a free discovery call for a personalised plan
Frequently Asked Questions
What is the IHT nil-rate band for 2026/27?
The nil-rate band (NRB) remains at £325,000 for 2026/27, frozen since 2009/10 and now confirmed frozen until April 2031. An additional Residence Nil-Rate Band (RNRB) of £175,000 applies where a qualifying main residence is left to direct descendants.
Will pensions be subject to IHT from 2027?
Yes — from 6 April 2027, most unused defined contribution pension pots and certain death benefits will be brought into the deceased’s estate for IHT purposes. This reverses one of the most generous estate planning features of the current system.
What is the seven-year rule for IHT?
Lifetime gifts to individuals are Potentially Exempt Transfers (PETs). They fall fully outside the estate if the donor survives seven years. Taper relief reduces the IHT on gifts made between three and seven years before death, from 32% at 3-4 years down to 0% after seven years.
📚 Related reading
- Group Structures: 2026/27 Tax Benefits — Holding companies and family investment vehicles are core tools alongside BPR for IHT planning.
- Employee Share Schemes 2026/27 — Founders often use share schemes alongside IHT planning to dilute control gradually.
- Setting Up a UK Charity 2026 — Charitable bequests reduce the IHT rate to 36% — and a CIO is the modern structure for new charities.
Shamim specialises in IHT planning, estate structuring and cross-border succession for high-net-worth individuals, business owners and internationally mobile families. He holds the CTA — the UK's highest tax qualification — and works across both UK and UAE tax jurisdictions.
Need help with your personal tax position?
For our broader Personal Tax service — Self Assessment, CGT 60-day reporting, residency planning, FIG regime, IHT — Chartered Tax Adviser-led, with same-working-day response on first contact.
👉 Non-resident or non-UK domiciled? UK property is always within UK IHT, and the rules changed under the residence-based system from April 2025. See our dedicated guide: UK Inheritance Tax for Non-Residents 2026/27.
🔗 Related reading
Planning an exit or sale? Tax readiness can protect your valuation — see tax readiness for private equity and investment.