The RNRB taper trap: how your pension could cost you the residence nil-rate band

The short answer

The residence nil-rate band (RNRB) gives your estate up to £175,000 of extra inheritance tax allowance when your home passes to your children or grandchildren, but it shrinks by £1 for every £2 your estate is worth above £2,000,000, and it vanishes completely at £2.35 million for a single person (£2.7 million for a couple). Until now, most pension pots have sat outside your estate for inheritance tax, so they never touched that £2 million line. From 6 April 2027 that changes: most unused pension funds and death benefits will be counted in the estate, which means they count towards the taper threshold too.

The result is what we call the taper trap. A family whose house, savings and investments total £1.7 million, comfortably under the threshold, can find that a £500,000 pension carries the estate to £2.2 million, wiping out £100,000 of RNRB and adding £40,000 of tax on top of the tax charged on the pension itself. Nothing else in the estate has to move. If you want a quick sense of your own exposure, our pensions and IHT 2027 estimator lets you add your pension to your other assets and see in about two minutes whether the combined figure crosses the taper line. This article applies to England and Wales (the inheritance tax rules described are UK-wide) and is general information, not legal or financial advice.

A quick recap: two allowances, only one of them tapers

Every estate gets the standard nil-rate band of £325,000, frozen until 5 April 2031. It applies whoever inherits and it never reduces with the size of the estate. The residence nil-rate band of up to £175,000 is different in two ways. First, it only applies where a qualifying home (or downsized equivalent) passes to direct descendants: children, stepchildren, adopted children, grandchildren and their spouses. Second, it is means-tested against the whole estate. Both allowances can transfer between spouses and civil partners, which is how a couple can reach a combined threshold of up to £1,000,000. Our guide to the married couples' threshold and the RNRB covers the full qualifying rules; this article stays focused on the taper and what pensions do to it from 2027.

The taper itself is simple arithmetic. GOV.UK's RNRB guidance puts it this way: where the estate immediately before death is worth more than £2,000,000, the RNRB is reduced by £1 for every £2 of the excess. So:

Estate value at death	Excess over £2m	RNRB lost	RNRB remaining (single person)
£2,000,000	£0	£0	£175,000
£2,100,000	£100,000	£50,000	£125,000
£2,200,000	£200,000	£100,000	£75,000
£2,350,000	£350,000	£175,000	£0

Two details are worth pinning down. The £2 million test uses the estate's value before reliefs and exemptions are applied, per HMRC's Inheritance Tax Manual at IHTM46023. And the taper applies on each death: a transferred RNRB from a late spouse is reduced if the first estate was over £2 million, and the survivor's combined allowance is tapered again if their own estate exceeds the threshold. That is why the full-loss point for a couple is £2.7 million rather than £2.35 million.

Why the maths in the taper zone works out at 60%

Inheritance tax is charged at 40% (36% where 10% or more of the net estate goes to charity). But inside the taper zone, between £2,000,000 and £2,350,000 for a single person, each extra pound does double damage:

1. The pound itself is taxed at 40%, costing 40p.
2. That same pound removes 50p of RNRB. The 50p of value that was going to be covered by the allowance is now taxed at 40% instead, costing a further 20p.

Total: 60p of tax for every extra £1, an effective marginal rate of 60%. It is the same cliff-edge arithmetic as the personal allowance taper in income tax, transplanted into estates. Before April 2027 relatively few families brushed against it, because the assets that count towards £2 million were the visible ones: the house, savings, investments, perhaps a rental property. Pensions, often the largest single asset a person owns after their home, stood outside the calculation. From 6 April 2027 they step inside it.

What exactly changes on 6 April 2027

Under the government's policy on inheritance tax and pensions, from 6 April 2027 most unused pension funds and death benefits are brought into the estate for inheritance tax. The key features:

• Personal representatives (the executors or administrators) become legally responsible for reporting and paying any inheritance tax due on the pension element, not the pension scheme.
• Death in service benefits from registered pension schemes are excluded from the charge.
• The spouse and civil partner exemption still applies, so a pension passing to a surviving spouse or civil partner attracts no inheritance tax.
• To help with funding, up to 50% of the pension amount can be withheld by the scheme for up to 15 months towards the inheritance tax liability.
• HMRC estimates 10,500 estates a year will become liable for inheritance tax for the first time, and a further 38,500 will pay more, with the average increase for those paying more around £34,000.

Crucially for this article, once the pension is inside the estate, it is inside the estate for every purpose, including the £2 million RNRB taper test. Most coverage of the 2027 reform focuses on the direct 40% charge on the pension. The taper effect is quieter, and it catches people whose estates were never near the danger zone before. For the broader question of whether the reform touches you at all, see our companion piece on who is affected by the pension IHT changes; this page deals with the specific sub-case where the pension attacks your RNRB.

Worked example: the £600,000 pension that costs £160,000 more in tax

Meet a widower in the South East. His late wife left everything to him, so he has two full nil-rate bands and two full RNRBs available. His estate:

• Home: £900,000, left to his two children
• Savings and investments: £550,000
• Other assets (car, contents, a small buy-to-let share): £250,000
• Estate as counted today: £1,700,000
• Unused defined contribution pension: £600,000, nominated to his children

If he dies before 6 April 2027

The pension sits outside the estate. £1.7 million is tested against the taper threshold, comfortably under £2 million, so both RNRBs survive in full. His allowances are £650,000 of nil-rate band plus £350,000 of RNRB, a total of £1,000,000. Tax: 40% of (£1,700,000 minus £1,000,000) = £280,000. The £600,000 pension passes to the children with no inheritance tax at all.

If he dies on or after 6 April 2027

The pension joins the estate. The taper test now sees £2,300,000. The excess over £2 million is £300,000, so the RNRB is reduced by £150,000, leaving £200,000 of the couple's £350,000. His allowances fall to £650,000 plus £200,000 = £850,000. Tax: 40% of (£2,300,000 minus £850,000) = £580,000.

The difference is £300,000 of extra tax. £240,000 of that is the direct 40% charge on the £600,000 pension. The remaining £60,000 is pure taper trap: tax on home, savings and other assets that would have been sheltered by the RNRB, lost only because the pension pushed the estate over £2 million. On the £300,000 slice above the threshold, the family pays £120,000 direct plus £60,000 of lost allowance, £180,000 in total, exactly the 60% effective rate. Had his pension been £900,000 or more, the estate would have passed £2.7 million and both RNRBs would have gone entirely.

Notice what did not happen in this example. He did not buy anything, inherit anything or get richer. The same assets, on a different date, produce £300,000 more tax, and a fifth of the increase comes from an allowance most families have never had to think about losing.

Who the taper trap is most likely to catch

The profile is not "the very wealthy", who lost the RNRB long ago and have planned around it. It is households that have always sat safely under £2 million on paper:

• Owners of £800,000 to £1.5 million homes in London and the South East with typical professional pension savings. A £1.2 million house plus modest other assets leaves surprisingly little headroom before a pension crosses the line.
• People who deliberately preserved their pensions. Under the current rules it was rational to spend other assets first and leave the pension untouched as a tax-efficient inheritance. That strategy is precisely what maximises the unused pension counted from 2027.
• Business owners with a valuable home, company pension contributions built up over decades, and other assets. The taper test uses the estate's value before reliefs, so even estates expecting business relief can find the RNRB tapered. Our business owners hub covers the wider estate issues for this group.
• Surviving spouses holding combined household wealth. Everything concentrates in the second estate, which is exactly where the taper is tested last and hardest.

Because the spouse exemption continues to apply, a pension nominated to a surviving spouse or civil partner does not itself create a tax charge on the first death. The pressure point is the second death, when the combined assets and any remaining pension are tested together against the taper. Our hub for pension holders collects the full 2027 reading list, and our pensions and inheritance tax 2027 research sets out the national numbers behind the reform.

Can anything reduce the risk?

This site does not give financial or pension advice, and nothing here is a recommendation to move, withdraw or restructure a pension. What we can say factually is that the taper is calculated from the estate's value at death, so anything that lawfully reduces that value over time, such as regular gifting within the exemptions, charitable legacies or spending in retirement, also reduces taper exposure, each with its own rules and trade-offs covered in our inheritance tax pillar guide and our explainer on the UK inheritance tax threshold. Decisions that involve pensions themselves, including how benefits are nominated and drawn, are regulated territory: a financial adviser authorised by the FCA is the right person for those, and the numbers involved in the taper zone mean advice usually pays for itself many times over.

The first step is simply knowing where you stand. Run your figures through the pensions and IHT 2027 estimator to see the combined estate the 2027 rules would test, and use the IHT threshold calculator to model how close your non-pension assets already sit to the £2 million line. If the results put you in or near the taper zone, we can connect you with a vetted estate planning specialist who deals with exactly this situation; an initial conversation costs nothing and turns an abstract worry into a concrete plan.