Inheritance tax in 2026/27: thresholds, rates, and the pension change everyone needs to know about.
Would your estate actually pay inheritance tax? Most estates do not, but the ones that do are often surprised. Get your number in two minutes.
The thresholds, in plain English
Inheritance tax (IHT) is charged on the value of what you leave behind, but only above certain tax-free allowances. For the 2026/27 tax year:
- Nil-rate band: £325,000. Every estate gets this. Nothing below it is taxed.
- Residence nil-rate band (RNRB): up to £175,000 extra, available when you leave a home (or the proceeds of one you downsized from) to your children, grandchildren or other direct descendants.
- Anything unused transfers to a surviving spouse or civil partner. This is what produces the widely quoted figure: a married couple leaving the family home to their children can pass on up to £1 million tax free (£325,000 + £175,000, doubled).
Both bands have been frozen for years and remain frozen, which is why rising house prices keep pulling ordinary family estates into scope. The freeze, which also covers the £2 million taper threshold, is currently legislated to run to the end of the 2030/31 tax year, so 5 April 2031.
The £2 million taper
The residence nil-rate band shrinks for larger estates. For every £2 that your estate exceeds £2 million, the RNRB reduces by £1. At £2.35 million it is gone entirely for a single person (£2.7 million for a couple's combined bands). The taper is measured against your estate before most reliefs, which becomes especially important from 2027 (see below).
The RNRB also only works if the home passes to direct descendants: children, stepchildren, adopted or foster children, and their children. Leaving everything to nieces and nephews, or to a friend, means the estate falls back on the £325,000 band alone.
The rates: 40% and 36%
- The standard rate is 40% on the value above your available thresholds.
- A reduced rate of 36% applies to estates that leave at least 10% of their net estate to charity. On some estates this drops the tax bill by enough that the charity's gift costs the family relatively little. Gifts to charity are also entirely free of IHT themselves.
- Anything left to a spouse or civil partner is exempt entirely, at any value.
Worked example: a single person leaves a £600,000 estate, including a £300,000 house, to their two children. Thresholds: £325,000 + £175,000 (capped at the £175,000 maximum since the house exceeds it) = £500,000. Taxable: £100,000. Tax at 40%: £40,000.
Who actually pays, and when
IHT is paid by the estate, not by individual beneficiaries, and it is usually the executor's job to calculate and pay it. Two deadlines matter:
- Payment must start by the end of the sixth month after the month of death. After that, HMRC charges interest.
- The tax on property and certain other assets can be paid in annual instalments over up to ten years, useful when the estate is a house with little cash, though interest applies.
A practical wrinkle: tax is generally due before the grant of probate is issued, which is exactly when the estate's money is hardest to reach. The Direct Payment Scheme lets banks pay HMRC straight from the deceased's accounts, and executors sometimes bridge the gap by other means. This chicken and egg problem is one of the most common reasons executors of taxable estates seek help; our probate guide covers the mechanics.
Beneficiaries may separately face other taxes later (for example capital gains tax if an inherited asset grows in value before they sell it), but there is no UK “inheritance tax” charged on recipients personally.
Pensions join the estate from 6 April 2027
This is the biggest change to inheritance tax in a generation, and it deserves its own section.
Under current rules, most unused pension pots and many pension death benefits sit outside your estate for IHT. That has made pensions a standard way to pass wealth on tax free, and many people have deliberately spent other savings first to preserve their pension for their children.
From 6 April 2027, unused pension funds and most pension death benefits will be included in the estate for inheritance tax. In practice this means:
- Estates that are comfortably below the threshold today may be pushed over it once a pension pot is added in.
- The £2 million RNRB taper will bite harder: adding a pension to the estate can shrink or wipe out the residence band, a double hit families do not see coming.
- Beneficiaries can still be taxed twice in some cases: IHT on the pot, then income tax on withdrawals where the member died at 75 or over.
- Personal representatives will be liable for reporting and paying the IHT on unused pension funds, not the pension schemes, and estates with pensions will take longer to administer.
- Death in service benefits paid from registered pension schemes are excluded from the new rules.
HMRC's own estimate (July 2025) is that around 10,500 estates a year will become liable for inheritance tax for the first time because of this change, and a further 38,500 estates that would already pay some IHT will pay more, on average around £34,000 more.
The spouse exemption still applies, so pensions passing to a surviving spouse or civil partner remain tax free; the impact lands mainly when wealth passes to children.
If you have meaningful pension savings, the planning assumptions you (or your adviser) made before this change may now be exactly backwards. Our pensions IHT 2027 estimator shows what your combined estate looks like under the new rules, side by side with today's.
Planning basics that do not require buying anything
None of the following is advice for your specific situation, but these are the standard, long-established building blocks of reducing an IHT bill:
- Annual exemption: £3,000 per year in gifts, carried forward one year if unused. A couple who both use it and the carry-forward can move £12,000 in one year.
- Small gifts: up to £250 per person per year, to any number of people (not combinable with the £3,000 for the same recipient).
- Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
- Regular gifts out of surplus income are exempt without limit, provided they are genuinely regular and do not reduce your standard of living. Keep records.
- The seven-year rule: larger gifts fall out of your estate entirely if you survive seven years. Between years three and seven, taper relief reduces the tax on the gift (not on the rest of the estate). Gifts within seven years also use up your nil-rate band first.
- Charitable gifts are exempt, and 10% of the net estate triggers the 36% rate.
- A well-structured will matters: the RNRB, the spouse exemption and the transferable bands all depend on where assets actually go. See our wills guide.
Beyond these basics sit trusts, business and agricultural reliefs and life insurance written in trust, which are situation specific and worth discussing with a specialist rather than reading about in the abstract.
Common questions
What is the inheritance tax threshold in the UK for 2026/27?
What is the inheritance tax rate?
Who pays inheritance tax, the estate or the beneficiaries?
When does inheritance tax have to be paid?
Are pensions subject to inheritance tax?
How does the 7-year rule work on gifts?
Stop guessing about a five-figure tax bill.
Run the IHT threshold calculator to see your estate against the 2026/27 allowances, then the pensions IHT 2027 estimator to see how the April 2027 change moves your number. If the result worries you, we will connect you with a vetted estate planning specialist who can look at the whole picture.