Inheritance Tax on £1.5 Million Estate UK: How Much IHT Will I Pay? (2026)
IHT on a £1.5 million estate ranges from £200,000 (married couple with full transferred NRBs and RNRBs) to £470,000 (single person, no RNRB). Strategic planning — charitable legacy, AIM BPR, lifetime PETs, or normal expenditure from income — can reduce the bill by £76,000 to £200,000.
| Scenario | Threshold | Taxable | IHT | Notes |
|---|---|---|---|---|
| Single person — RNRB applies (home to children) | £500,000 (NRB £325k + RNRB £175k) | £1,000,000 | £400,000 | Full RNRB available — estate well below £2m taper threshold |
| Single person — no RNRB (home in trust or no qualifying home) | £325,000 (NRB only) | £1,175,000 | £470,000 | RNRB lost: £70k more IHT — home in discretionary trust or no qualifying home |
| Married couple — both transferred NRBs + both RNRBs (survivor) | £1,000,000 (NRB £325k + tNRB £325k + RNRB £175k + tRNRB £175k) | £500,000 | £200,000 | Home passes to children on second death; full £1m threshold; first spouse's NRB unused |
| Married couple — transferred NRBs only (no RNRB; home in discretionary trust) | £650,000 (NRB £325k + tNRB £325k) | £850,000 | £340,000 | RNRB lost — home in discretionary trust; £350k combined RNRB lost = £140k extra IHT |
| Single + RNRB + 10% charitable legacy (36% reduced rate) | £500,000 (NRB + RNRB) | £1,000,000 (baseline; before charity) | £324,000 (36% on £900k after £100k charity gift) | s36 IHTA: 10% of £1m = £100k to charity; 36% rate; saving £76k; effective charity cost = £24k |
| Single + RNRB + AIM BPR £500k (2yr+ held) | £500,000 (NRB + RNRB) | £500,000 (£1.5m - £500k AIM exempt - £500k threshold) | £200,000 | £500k in AIM BPR qualifying shares (100% exempt after 2yr — up to £1m cap April 2026); saves £200k vs no BPR |
| Single + RNRB + PET £500k given away (survived 7 years) | £500,000 (NRB + RNRB) | £500,000 (estate reduced to £1m after PET; £1m - £500k threshold) | £200,000 | PET £500k: 7yr clock; if survived, reduces estate from £1.5m to £1m; IHT falls from £400k to £200k |
IHT rate: 40% (s7 IHTA 1984). NRB: £325,000 (frozen since 2009; frozen to 2030). RNRB: £175,000 (frozen to 2030; taper s8E IHTA above £2m — not applicable to £1.5m estate). Transferred NRB: s8A IHTA 1984 — IHT402; first spouse's unused NRB %. Transferred RNRB: s8G IHTA 1984 — IHT436. Spousal exemption: s18 IHTA 1984. Direct descendants: s8K IHTA 1984 (biological, adopted, step, foster children; grandchildren). RNRB LOST if home in discretionary trust. 36% reduced rate: s36 IHTA 1984 (FA 2012) — 10% of baseline to charity. AIM BPR: s105(1)(bb) IHTA 1984 — 100% exempt after 2yr; £1m combined BPR/APR cap April 2026. PETs: s3A IHTA 1984 — 7yr clock; taper relief s7(4) (3-7yr). Normal expenditure from income: s21 IHTA — uncapped; immediate; not PET. DC pension reform: Budget 2024 — pensions enter estate from April 2027.
IHT on £1.5 Million Estate: Complete Guide
IHT on a £1.5 million estate — the starting calculation
A £1.5 million estate is significantly above the NRB (£325,000) and RNRB (£175,000), meaning substantial IHT is likely without planning. The calculation depends on whether the RNRB applies and whether a transferred NRB/RNRB is available from a predeceased spouse: Single person with RNRB (home passes to children on death): NRB £325,000 + RNRB £175,000 = £500,000 threshold. Taxable: £1,500,000 − £500,000 = £1,000,000. IHT: 40% × £1,000,000 = £400,000. Single person without RNRB (home in discretionary trust, or no qualifying home): NRB £325,000 only. Taxable: £1,500,000 − £325,000 = £1,175,000. IHT: 40% × £1,175,000 = £470,000. The RNRB alone saves £70,000 in IHT (40% × £175,000). Married couple (survivor's estate): with both transferred NRBs and RNRBs = £1,000,000 combined threshold. Taxable: £500,000. IHT: £200,000. Without RNRB (only NRBs transferred): £650,000 threshold. Taxable: £850,000. IHT: £340,000. The combined RNRB for a couple (£350,000) is worth £140,000 in IHT savings (40% × £350,000). None of these calculations involve the RNRB taper: the taper only starts at £2 million — a £1.5 million estate is well below this threshold and the full RNRB is available.
Reducing a £1.5m estate IHT bill — the most effective strategies
With £400,000 of IHT payable (single person with RNRB), several strategies can significantly reduce the bill: (1) 10% charitable legacy (s36 IHTA 1984 — 36% rate): baseline amount = £1,000,000 (taxable estate above threshold); 10% of £1m = £100,000 charitable legacy in the will; IHT at 36% on remaining £900,000 = £324,000; saving = £76,000; effective cost of the £100,000 charity donation to the remaining estate = only £24,000 (HMRC subsidises 76% of the donation). (2) AIM BPR investing (s105(1)(bb) IHTA 1984): invest £500,000 in qualifying AIM shares; after 2 years = 100% IHT-exempt (up to the £1m combined BPR/APR cap from April 2026). Estate: £1,500,000 − £500,000 AIM (exempt) = £1,000,000; less threshold £500,000; taxable = £500,000; IHT = £200,000; saving £200,000. AIM shares carry investment risk — the value can fall. (3) Lifetime PETs (s3A IHTA 1984): give away £500,000 to children now; 7-year clock; if survived, estate falls to £1,000,000 − £500,000 threshold = £500,000 taxable; IHT = £200,000; saving £200,000. Taper relief reduces the IHT on the PET if the donor dies between 3-7 years (from year 3+: 20% reduction per year). (4) Normal expenditure from income (s21 IHTA): gift surplus income each year; immediately outside the estate; uncapped; reduces the estate progressively each year without a 7-year clock. (5) Annual exemption (s19 IHTA): £3,000/yr immediately exempt; £6,000 if prior year unused.
Married couple with £1.5m estate — second death planning
For a married couple whose combined estate is £1.5m (held on the survivor's death), the IHT position depends critically on whether the full £1m combined threshold is available: Full threshold (£1m — both transferred NRBs + transferred RNRBs): IHT = 40% × £500,000 = £200,000. Conditions: first spouse's NRB must be unused; home must pass to direct descendants (children) on the survivor's death; estate must be below £2m (RNRB taper not applicable here). If RNRB is unavailable (home in discretionary trust, or home sold without downsizing addition): threshold = £650,000 (NRBs only); IHT = 40% × £850,000 = £340,000. The difference between getting the full RNRB and losing it: £140,000 extra IHT. For a couple planning to leave the home to children: joint tenancy with the home (automatic survivorship to first death spouse; RNRB on survivor's death when home passes to children) is the simplest structure — provided the survivor's will correctly directs the home to the children (or through an IPDI trust, not a discretionary trust). Additional planning for a couple's £1.5m estate: charitable legacy (10% of £500k taxable estate = £50k to charity; IHT 36% × £450k = £162k vs £200k; saving £38k); AIM BPR investment (invest £500k in AIM qualifying shares; IHT = £0 on the AIM shares); pension planning (before April 2027, pension funds outside the estate — maximise pension contributions to reduce the IHT-exposed estate).
AIM BPR and the April 2026 £1m cap — planning for £1.5m estates
Business Property Relief (BPR) on AIM qualifying shares (s105(1)(bb) IHTA 1984) is a highly efficient IHT planning tool for larger estates — particularly those above £1 million where the full RNRB and NRB combined threshold are already absorbed. For a £1.5m estate: £500,000 invested in AIM BPR qualifying shares (held for 2+ years): 100% IHT-exempt under BPR; saving = 40% × £500,000 = £200,000. However: from April 2026, the £1 million combined BPR and APR cap at 100% must be considered. If the estate also includes a farm or qualifying business assets: the AIM shares and business assets count toward the same £1m cap. Only the first £1m of qualifying BPR/APR assets is 100% exempt; the excess is 50% exempt (20% effective IHT). For a pure AIM portfolio investor: up to £1m in AIM BPR qualifying shares is 100% exempt (saving up to £400,000 IHT on a £1.5m single-person estate with RNRB). Risks of AIM BPR: AIM shares are illiquid and volatile; company may cease to qualify (converts from trading to investment company); value at death may be lower than at investment; ongoing management required. Not suitable for all investors — seek independent financial advice. Alternative: a managed AIM BPR portfolio service spreads risk across 20-30+ qualifying companies.
Pension planning before April 2027 — last chance for a £1.5m estate
For a £1.5m estate, the DC pension fund is a critical element to consider before the April 2027 reform (Budget 2024: DC pensions enter the IHT estate from 6 April 2027). Currently: an unspent DC pension (SIPP, personal pension, employer DC scheme) is OUTSIDE the IHT estate — nominated beneficiaries receive the fund free of IHT on the pension scheme member's death. From 6 April 2027: the unspent DC pension fund will enter the IHT estate at 40% above the threshold. Planning before April 2027: (1) Spend the pension first in drawdown (taking taxable income); reduce the pension fund; the drawn income is taxable (income tax) but reduces the future IHT exposure; (2) Reinvest drawn pension income in AIM BPR qualifying shares (100% IHT-exempt after 2yr — until the April 2026 £1m cap applies); (3) Invest pension income in charitable giving or lifetime PETs; (4) For a £1.5m estate with a £500k pension: currently the estate effectively = £1m (£500k pension outside IHT) — IHT payable only on £1m (single with RNRB = £200k). From April 2027: full £1.5m in estate = £400k IHT. The change adds £200k to the IHT bill — a significant incentive to plan before April 2027.
Frequently Asked Questions
How much inheritance tax is payable on a £1.5 million estate?
It depends on your circumstances. Single person with RNRB (home to children): £400,000 IHT (40% on £1,000,000 above the £500,000 threshold). Single without RNRB: £470,000 IHT (40% on £1,175,000 above £325,000 NRB). Married couple with both transferred NRBs and RNRBs: £200,000 IHT (40% on £500,000 above the £1,000,000 combined threshold). Married couple with NRBs only (no RNRB — home in trust): £340,000 IHT (40% on £850,000 above £650,000). The RNRB is worth £70,000 in IHT savings per person; a couple's combined RNRB saves £140,000. NRB: £325,000 (frozen to 2030). RNRB: £175,000 (frozen to 2030).
Can I reduce IHT on a £1.5 million estate?
Yes — several strategies can significantly reduce the bill. 10% charitable legacy (s36 IHTA 1984 — 36% rate): on a single-person estate with RNRB, leave £100,000 to charity; IHT = £324,000 (saving £76,000). AIM BPR £500,000 (2yr+, s105(1)(bb) IHTA): £200,000 IHT saved (100% exempt on the £500k — up to the £1m combined BPR/APR cap from April 2026). Lifetime PETs of £500,000 (survive 7yr): IHT falls from £400k to £200k. Normal expenditure from income (s21 IHTA — uncapped, immediate): reduce the estate progressively each year from income surplus. For couples: ensure the will directs the home to children (not a discretionary trust) to claim the full £350,000 combined RNRB (saving £140,000 IHT).
Does the RNRB taper apply to a £1.5 million estate?
No — the RNRB taper (s8E IHTA 1984) only starts at £2 million. A £1.5 million estate is well below the taper threshold. The full RNRB (£175,000 for a single person; £350,000 combined for a couple using transferred RNRBs) is available — subject to the qualifying conditions: home in estate; passes to direct descendant. The taper reduces the RNRB by £1 for every £2 the net estate exceeds £2 million — irrelevant for a £1.5 million estate.
How does the April 2027 pension reform affect a £1.5 million estate?
From 6 April 2027 (Budget 2024), unspent DC pension funds (SIPPs, personal pensions) enter the IHT estate. For a £1.5 million estate that currently includes a £500,000 DC pension fund: the pension is currently OUTSIDE the estate (IHT payable on only £1 million). From April 2027: the full £1.5 million (including pension) is in the estate. Single person with RNRB: IHT increases from £200,000 to £400,000 — a £200,000 additional IHT bill. Action before April 2027: draw down the pension (taxable income but removes from IHT estate); reinvest in AIM BPR qualifying shares (100% IHT-exempt after 2yr); update pension nominations; review the overall estate plan.
Is a £1.5 million estate subject to the RNRB?
Yes — the RNRB (s8D IHTA 1984) is available for a £1.5 million estate, provided: (1) a qualifying residential interest (the family home) is in the estate; (2) it passes to a direct descendant (child, grandchild, stepchild, etc. — s8K IHTA 1984). The RNRB taper (s8E IHTA) begins at £2 million — so a £1.5 million estate is unaffected. The RNRB is worth £175,000 per person (£350,000 combined for a couple). Missing the RNRB (e.g. home in a discretionary trust) costs 40% × £175,000 = £70,000 per person in additional IHT.
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