Inheritance Tax Threshold 2026: Nil Rate Band, Pensions, and What's Changing

Inheritance Tax catches more families every year — not because the rules changed, but because the thresholds haven't. The nil rate band has been frozen at £325,000 since 2009, while property values have roughly doubled. And from April 2027, unused pension pots will be dragged into the IHT calculation for the first time.

Current IHT Thresholds (2026/27)

Nil Rate Band (NRB): £325,000 Every estate gets this tax-free allowance. Anything above it is taxed at 40%.

Residence Nil Rate Band (RNRB): £175,000 An additional allowance available when you leave your main home to direct descendants (children, grandchildren). This brings the effective threshold to £500,000 for a single person.

Transferable allowances for couples: £1 million If a spouse dies first and doesn't use their full NRB and RNRB, the unused portion transfers to the surviving spouse. A married couple can therefore pass up to £1 million to their children tax-free.

The taper: The RNRB is reduced by £1 for every £2 the estate exceeds £2 million. At £2.35 million, the RNRB is completely eliminated.

What Is an Excepted Estate?

An excepted estate is one where no IHT is due and reporting requirements are simplified. Your estate qualifies as excepted if:

• The gross value is below £325,000, or
• The gross value is below £650,000 and you're using a transferred NRB from a predeceased spouse, or
• The entire estate passes to a surviving UK-domiciled spouse, civil partner, or qualifying charity (values up to £3 million)

For excepted estates, executors don't need to file the full IHT400 form. Since January 2022, the old IHT205 form has been abolished — estate values are entered directly into the HMCTS digital probate portal or summarised on form NIPF7 for paper applications.

When You Need the IHT400

If the estate isn't excepted — meaning IHT is potentially payable — the executor must complete and submit the comprehensive IHT400 form to HMRC. This requires a full valuation of every asset: property, bank accounts, investments, life insurance policies, gifts made in the seven years before death, and trust interests.

After processing the IHT400 (typically around 20 working days), HMRC issues a unique 10-digit reference code. This code is essential — HMCTS will reject any probate application submitted without it, causing significant delays.

Timing trap: IHT must be paid within six months of the end of the month in which the death occurred. But the full IHT400 must be filed within 12 months. If you're selling property to pay the tax, this creates a tight window — you may need to use the "direct payment scheme" to pay tax from the deceased's bank accounts before probate is granted.

The 2027 Pension Changes

From April 2027, unused pension pots will be included in the IHT calculation for the first time. This is the most significant change to IHT in decades and will pull thousands of additional estates above the taxable threshold.

Currently, defined contribution pension funds (like SIPPs and workplace pensions) sit outside the estate for IHT purposes. Many families have deliberately accumulated pension wealth precisely because it was IHT-free. From April 2027:

• The value of unused pension funds will count toward the estate's gross value
• Executors will become jointly liable with pension scheme administrators for reporting and paying the tax
• Pension schemes will need to withhold funds for up to 15 months while IHT liability is calculated

For families where the deceased has significant pension savings on top of property and other assets, this change could trigger unexpected IHT bills of tens of thousands of pounds.

How to Reduce IHT Liability

Several legitimate strategies can reduce or eliminate the IHT bill:

Spouse/civil partner exemption: Everything left to a UK-domiciled spouse or civil partner is IHT-free. There's no limit.

Charity reduction: Leaving 10% or more of the net estate to charity reduces the IHT rate from 40% to 36%.

Business and agricultural relief: Qualifying business assets and agricultural property can qualify for 100% or 50% relief.

Lifetime gifts: Gifts made more than seven years before death fall outside the estate entirely. Gifts within seven years are taxed on a sliding "taper relief" scale.

Annual gift allowance: Each person can give away £3,000 per year without any IHT implications.

What Survivors Should Do Now

If your partner has recently died or you're the executor of an estate:

1. Get a professional property valuation as of the date of death — HMRC can challenge values years later
2. Calculate whether the estate is excepted or requires a full IHT400
3. Check whether transferable nil rate band applies from a predeceased spouse
4. If pensions form a significant part of the estate, take professional tax advice before April 2027

The England Survivor Benefits Navigator includes an IHT assessment checklist that helps executors determine which reporting pathway applies and identifies the key deadlines to avoid penalties.

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