The complete UK Inheritance Tax guide (2026/27)

The 2026/27 headline figures

NRB has been frozen since 2009 at £325,000. RNRB has been frozen since 2020/21 at £175,000. Both are confirmed frozen until April 2030 — a major fiscal drag effect.

The £1m couple allowance — when it works

The headline "couples can pass £1m IHT-free" requires specific conditions:

• Married or civil partners
• First spouse leaves everything to the surviving spouse (uses spouse exemption, doesn't use NRB)
• Second spouse's estate uses their own £325k NRB + transferable £325k NRB = £650k
• Plus £175k own RNRB + £175k transferable RNRB = £350k (if home passes to direct descendants)
• Total: £1,000,000
• Caveat: above £2m total estate, the RNRB tapers — reducing the £1m

Full mechanics: Transferable nil-rate band explained.

The 7-year gift rule

Most lifetime gifts become IHT-free if you survive 7 years from the date of the gift. Die within 7 years and the gift is added back to your estate, with taper relief reducing the tax (not the gift) for years 3-7.

Critical: taper relief reduces the tax, not the gift's value — and only on gifts exceeding the nil-rate band. A £200k gift made 4 years before death is fully covered by NRB and tax-free, but it uses up NRB needed for the estate.

Full mechanics: The 7-year gift rule explained.

Gifts out of normal income — the most under-used exemption

Under section 21 IHTA 1984, regular gifts made from your surplus income (not capital) are immediately exempt — no 7-year rule, no upper limit. Three tests must be met:

1. The gift is part of your normal expenditure (a pattern).
2. The gift is made out of income.
3. After all gifts, you have enough income to maintain your standard of living.

Reportedly used in <10% of eligible estates, mostly because of the evidential burden. Keep a contemporaneous record each tax year showing income, normal expenditure, and the resulting surplus.

Full mechanics: Gifts out of normal income explained.

Business Property Relief (BPR) — the April 2026 cap

BPR removes qualifying business assets from your estate for IHT. Historically:

• 100% relief on unincorporated trading businesses, unquoted shares (including AIM)
• 50% relief on controlling shareholding in a quoted company, or land/equipment used in your business
• 2-year ownership rule

From April 2026, the Autumn 2024 Budget capped BPR + APR combined at £1m per individual at 100% rate, with 50% relief on the excess. This is the biggest IHT change since the introduction of RNRB.

Estate of £5m in qualifying business assets: pre-2026 paid £0 IHT (full 100% BPR); post-April-2026 pays £800,000 IHT.

Full mechanics: Business Property Relief explained.

Deeds of variation — fixing a will after death

Within 2 years of death, beneficiaries can redirect their inheritance via a deed of variation. For IHT and CGT purposes, the variation is treated as if the deceased had made it — retrospectively.

Common uses:

• Generation-skipping (children pass to grandchildren) to reduce future IHT in the children's estates
• Equalising bequests where the will is outdated
• Redirecting to a charity to trigger the 36% rate
• Setting up a discretionary trust

Full mechanics: Deeds of variation explained.

Gifts and exemptions you can use today

Tools and deeper guides

• Inheritance tax calculator
• The 7-year gift rule + taper relief
• Business Property Relief
• Gifts out of normal income
• Deeds of variation
• Transferable nil-rate band
• UK IHT guide (companion piece)

Sources

• gov.uk — Inheritance Tax
• gov.uk — IHT rates and allowances
• HMRC Inheritance Tax Manual
• Inheritance Tax Act 1984

How the residence nil-rate band taper works above £2m

The residence nil-rate band (RNRB) is the part of the system most people misjudge, because it is withdrawn on larger estates. For every £2 the net estate exceeds £2,000,000, you lose £1 of RNRB. At £350,000 of combined couple RNRB, the allowance is fully gone once the estate reaches £2,700,000.

• The £2m threshold is tested on the estate before reliefs such as Business Property Relief or Agricultural Property Relief are applied, but after debts and liabilities — a point that catches out estates holding a valuable trading company alongside the family home.
• The RNRB only applies where a "qualifying residential interest" — a home the deceased lived in at some point — passes to direct descendants: children (including step, adopted and foster), grandchildren, and their spouses or civil partners. It does not cover nephews, nieces or siblings.
• A "downsizing addition" preserves the RNRB if someone sold a larger home after 8 July 2015 and either downsized or stopped owning a home, provided assets of equivalent value still pass to descendants.

Because the taper removes £1 of relief for every £2 of excess, the effective marginal IHT rate in the £2m–£2.7m band can reach 60% once the lost RNRB is taken into account — mirroring the income-tax "60% trap" higher up the income scale.

A worked estate calculation (2026/27)

Take a widow who dies in 2026/27. Her husband died years earlier leaving everything to her, so both his nil-rate band (NRB) and residence nil-rate band (RNRB) transfer in full. Her estate is the £500,000 family home (passing to her two children), £450,000 of investments and cash, and £50,000 of personal possessions — a £1,000,000 estate.

The estate is fully covered — the headline "£1m for a couple" working exactly as intended. Now change one fact: the home is left to a nephew rather than the children. The RNRB (her own £175,000 plus the transferred £175,000) is lost because the home no longer passes to direct descendants, so only the £650,000 of combined NRB applies:

The same £1,000,000, the same family — but a £140,000 swing driven entirely by who inherits the home. If the will instead left at least 10% of the net estate to charity, the rate on the taxable amount would drop from 40% to 36%.

Pensions coming into IHT from April 2027

The single biggest change on the horizon is the bringing of unused pension funds and death benefits within the scope of Inheritance Tax from 6 April 2027, announced at the Autumn 2024 Budget. Today most defined-contribution pensions (SIPPs, personal pensions, drawdown pots) sit outside the estate and pass free of IHT — which is why pensions have become a popular estate-planning tool. That advantage is being withdrawn.

• From April 2027, the value of most unused pension pots on death is expected to be added to the estate and tested against the same nil-rate bands and 40% rate as everything else.
• The existing income-tax treatment of inherited pensions is unaffected by the change: where the holder dies before age 75, beneficiaries can usually draw the fund free of income tax; where death is at or after 75, withdrawals are taxed at the beneficiary's marginal rate. After April 2027 a large pot could therefore face both IHT in the estate and income tax in the beneficiary's hands.
• Death-in-service lump sums from registered schemes are expected to remain outside the IHT net, and spousal transfers continue to be exempt.

For anyone who has deliberately run down ISAs and taxable savings while preserving a pension "for the next generation", the logic reverses from 2027. We cover the detail and the planning response on the dedicated 2027 pensions-into-IHT reform page.

Paying the bill and the reporting deadlines

Knowing the reliefs is only half the job — the executors then have to report and pay, often before they can access the money. The key practical points for 2026/27:

• IHT is due six months after the end of the month of death. Miss it and HMRC charges interest (the rate is linked to the Bank of England base rate and is reviewed regularly).
• Tax on land, buildings and some business assets can be paid in 10 annual instalments, though interest still accrues on the outstanding balance.
• Executors usually face a chicken-and-egg problem: they cannot get the grant of probate until IHT is paid, but cannot release estate funds until they have probate. The Direct Payment Scheme lets banks pay HMRC directly from the deceased's accounts to break the deadlock.
• Smaller and simpler estates are typically "excepted" and need no full IHT account, but a return is still required where tax is due or the estate is large.

For the step-by-step administration route, see our companion guide on probate and Inheritance Tax.