Inheritance Tax Thresholds in the UK: What’s changing in 2026?

The nil-rate band has been frozen at £325,000 since April 2009 and is now frozen until April 2030. In that same period, average UK house prices have also increased. More families are crossing the inheritance tax threshold not because they have become meaningfully wealthier, but because the threshold has stood still while property values have not.

From 6 April 2026, the rules around Agricultural Property Relief and Business Property Relief have changed significantly. And the pension change bringing inherited pension pots into IHT scope follows in April 2027, not 2026. For most families, the thresholds themselves are unchanged. For farming families, business owners and pension holders, the picture is more involved.

Key Takeaways:

• The UK inheritance tax threshold for 2026–27 remains at £325,000 frozen since 2009 and now frozen until April 2030, so more estates may have to pay tax as property values rise.
• Married couples and civil partners can combine allowances, giving a combined IHT-free threshold of up to £1,000,000 when a family home is left to direct descendants.
• From 6 April 2026, Agricultural Property Relief and Business Property Relief have been capped: 100% relief now applies only to the first £2.5 million of combined qualifying assets per individual, with 50% relief above that level.
• From 6 April 2027 inherited pension pots will be brought into IHT scope for the first time. Anyone relying on pensions as a tax-free wealth transfer tool should review their position before that date.

What is the UK Inheritance Tax Threshold in 2026?

The inheritance tax threshold in the UK is shaped by two main allowances: the nil-rate band and the residence nil-rate band. Together, they define how much of an estate passes free of tax and for many families, the interaction between the two is where the real planning happens.

The Current Thresholds:

Threshold	Amount	Who it applies to?
Nil-rate band (NRB)	£325,000	All individuals
Residence nil-rate band (RNRB)	£175,000	Those leaving a main home to direct descendants
Combined individual threshold	£500,000	Individuals qualifying for both NRB and RNRB
Combined couple threshold	£1,000,000	Married couples/civil partners qualifying for both bands
IHT rate on excess	40%	On the value of the estate above the available threshold
Reduced rate	36%	Where 10% or more of the net estate is left to charity

For a single person who does not own a qualifying residential property to leave to direct descendants, the inheritance tax threshold is £325,000, the nil-rate band only. The £175,000 residence nil-rate band does not apply.

A few things worth knowing about how these work in practice:

• Both the NRB and RNRB are frozen at these levels until April 2030, confirmed under the Finance Act 2025.
• The NRB has been stuck at £325,000 since April 2009 a 17-year freeze and counting.
• IHT is paid by the estate. The personal representative (executor) must file an IHT return with HMRC and pay any tax due within six months of the date of death.

How is Inheritance Tax calculated?

IHT is charged at 40% on the portion of the estate above the available threshold.

For example:

Estate value: £700,000

Available threshold (NRB + RNRB): £500,000

Taxable amount: £200,000

IHT owed: £200,000 × 40% = £80,000

For a single person without the RNRB:

Estate value: £600,000 – Threshold: £325,000 – IHT owed: £275,000 × 40% = £110,000

How the Nil-Rate Band works for Married Couples?

For married couples and civil partners, the inheritance tax allowance doesn’t have to be used or lost on first death. Unused allowances transfer to the surviving spouse and understanding this is central to making the most of what is available.

The Transferable Nil-Rate Band

When the first spouse dies and leaves their entire estate to the surviving spouse which is fully exempt from IHT their nil-rate band is unused. That unused £325,000 transfers to the survivor. On the second death, the surviving spouse has a combined nil-rate band of up to £650,000.

The Transferable Residence Nil-Rate Band

The same principle applies to the RNRB. If the first spouse’s RNRB is unused, it transfers to the survivor, giving a combined RNRB of up to £350,000. When added to the transferred nil-rate band, a qualifying couple can shelter up to £1,000,000 from inheritance tax provided the family home passes to direct descendants.

The RNRB Taper for Larger Estates

The RNRB is not available to everyone in full. For estates above £2 million, it reduces by £1 for every £2 over that threshold:

• It tapers to zero at £2.35 million for an individual (based on gross estate value, before deductions for debts or liabilities).
• It tapers to zero at £2.7 million for a couple with both allowances transferred

For high-value estates, this taper can significantly reduce or eliminate the RNRB benefit. If your estate may exceed £2 million, it is worth calculating the RNRB taper before assuming the full £175,000 allowance is available HMRC’s IHT calculator can assist with this.

What’s changing in 2026 Agricultural & Business Property Relief?

This is the most significant IHT change taking effect in 2026. It directly affects farming families and business owners and it has been through several revisions since it was first announced. Getting the final figure right matters many articles written before December 2025 still quote an incorrect figure.

What were the rules before 6 April 2026:

Under the old rules, qualifying agricultural and business property could attract 100% relief from IHT with no cap. A farm or family business of any value could pass to the next generation entirely free of inheritance tax, provided the qualifying conditions were met.

What has changed from 6 April 2026

Under the Finance Act 2026, the rules are now:

• 100% relief applies to the first £2.5 million of combined qualifying APR and BPR assets per individual
• 50% relief applies to qualifying assets above that threshold
• This means the effective IHT rate on the excess is 20% the standard 40% rate applied to 50% of the value
• Tax on qualifying assets above £2.5 million can be paid in equal annual instalments over 10 years, interest-free

The £2.5 million figure is the final legislated amount. The original proposal announced at Autumn Budget 2024 was £1 million that figure was increased to £2.5 million in December 2025 following sustained lobbying from farming and business communities. Any source still quoting £1 million is out of date.

The Spousal Transfer Rule

The £2.5 million allowance is fully transferable between spouses and civil partners including where the first death occurred before 6 April 2026. This means:

• A married couple or civil partners can shelter up to £5 million of qualifying agricultural or business assets from IHT
• When combined with two nil-rate bands of £325,000 each, a couple can pass on qualifying assets worth up to £5.65 million tax-free
• According to HMRC’s Tax Information and Impact Note (December 2025), only around 185 estates claiming APR are expected to pay more IHT in 2026–27 – 85% of APR estates will be unaffected.

For farming families and business owners whose estates approach or exceed the £2.5 million threshold, the interaction of this cap with nil-rate bands, the RNRB and existing will structures requires careful modelling.

For estates approaching or exceeding the £2.5 million threshold, a structured review of will structures and succession planning under the new rules is advisable before the liability crystallises.

How to Plan for April 2027 Pension Changes?

From 6 April 2027, most unused pension funds and death benefits will be brought within the value of a person’s estate for IHT purposes. Currently, pension death benefits sit outside the estate for IHT making pensions one of the most tax-efficient ways to pass wealth to the next generation. That changes from April 2027.

In IHT scope from April 2027	Still outside IHT scope
Most unused pension funds on death	Death in service benefits
Drawdown pots left unspent	Assets passing to a UK-domiciled spouse
Defined contribution pension death benefits	Assets left to a registered UK charity
	State pension (not an asset)

Key points to understand:

• Death in service benefits from registered pension schemes will remain outside IHT scope
• Spousal and charitable exemptions still apply assets passing to a UK-domiciled spouse or to a registered charity remain exempt
• Personal representatives (executors), not pension scheme administrators, will be responsible for reporting and paying IHT on pension assets
• HMRC’s Autumn Budget 2024 Impact Assessment estimates around 10,500 estates will become liable for IHT for the first time in 2027–28 as a result of the pension change.

Agricultural Property Relief and Business Property Relief

Category	Before 6 April 2026	From 6 April 2026
Relief on qualifying assets	100% – no cap	100% on first £2.5m, 50% above
Effective IHT rate above cap	N/A	20% (40% applied to 50% of value)
Payment option above cap	N/A	Equal instalments over 10 years, interest-free
Spousal transfer	Full relief transferred	£2.5m allowance transferable (total £5m per couple)

Note: This £2.5 million limit applies per individual at the point of death – it is not a lifetime cap and is not reduced by prior lifetime gifts of qualifying assets.

What to do before April 2027?

There is time to plan but not indefinitely. Anyone who has deliberately kept pension funds undrawn as a wealth transfer strategy should review:

• Beneficiary nominations: Nominating a spouse (who benefits from the spousal exemption) may be more tax-efficient than nominating children in some cases
• Drawdown timing: Drawing down pension funds before death may reduce the IHT exposure for beneficiaries
• Asset balance: The overall split between pension and non-pension assets in the estate may need to shift

The interaction between the pension change, the nil-rate band, the RNRB and the new APR/BPR rules makes estate planning more complex than it has been for a generation.

Key IHT Exemptions and How do they work?

The nil-rate band is not the only protection available. Several exemptions used consistently can materially reduce what an estate ultimately owes.

Spousal and Civil Partner Exemption

Assets transferred to a UK-domiciled spouse or civil partner whether as lifetime gifts or on death are fully exempt from IHT, regardless of value. This is the foundation of most married couple estate planning.

Charitable Gifts

Assets left to a registered UK charity are fully exempt from IHT. If 10% or more of the net estate above the nil-rate band goes to charity, the IHT rate on the remainder drops from 40% to 36%.

Annual Gifting Exemption

Each individual can give away up to £3,000 per year completely free of IHT. Any unused allowance from the previous year can be carried forward once. Small gifts of up to £250 per recipient per year to any number of people are also exempt.

Potentially Exempt Transfers (PETs)

Larger gifts to individuals are potentially exempt from IHT. They become fully exempt if the donor survives seven years from the date of the gift. If the donor dies within seven years, taper relief reduces the IHT charge as follows:

Years between gift and death	IHT Rate on the gift
0–3 years	40%
3–4 years	32%
4–5 years	24%
5–6 years	16%
6–7 years	8%

Note: Taper relief applies to the IHT charge on the gift, not the value of the gift itself.

How to reduce your Inheritance Tax Bill legally?

Reducing an inheritance tax bill legally comes down to planning early and using available reliefs, allowances and structures effectively.

• Review your will and estate structure
  Ensure the will reflects current rules like RNRB and recent APR/BPR changes so allowances are not lost, especially for married couples and civil partners.
• Use the gifting rules systematically
  Make use of annual exemptions, small gifts and PETs over time to gradually reduce the taxable estate.
• Consider trusts for specific assets
  Use trusts to move assets out of the estate while retaining some control, particularly for business and agricultural assets.
• Review pension nominations before April 2027
  Check pension nominations and overall asset balance ahead of April 2027, when pensions may fall within IHT scope.

Conclusion

The inheritance tax threshold has been frozen at £325,000 since 2009 and will stay there until 2030. House prices have not followed the same path. The result is that more estates are being pulled into IHT scope every year without any real change in underlying wealth.

For most families, the current inheritance tax allowance and exemptions mean there is no urgent problem. But for those approaching the limits, particularly homeowners in high-value areas, the April 2026 APR and BPR changes and the April 2027 pension change both reward early planning over late decisions.

A proactive review of your estate now, before a liability becomes unavoidable, is the most efficient step available.

Not sure where your estate stands? Daniel Wolfson tax advisory team works with individuals and families across Hertfordshire and North-West London. Call 01923 856 008 to book a consultation.

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