IHT on an Estate Over £1 Million UK: Inheritance Tax Planning for Large Estates (2026)
Above £1 million — the combined couple's threshold — every pound is taxed at 40%. The RNRB tapers away above £2 million. For large estates, the right planning (BPR/APR, lifetime PETs, charitable giving, trust structures, pension drawdown) can reduce a six-figure IHT bill significantly.
IHT at Different Estate Sizes (Married Couple, Second Death)
| Estate | NRB Used | RNRB Used | Chargeable | IHT Bill |
|---|---|---|---|---|
| Estate: £1,500,000 (couple, second death) | £650,000 | £350,000 | £500,000 | £200,000 |
| Estate: £2,000,000 (couple, second death) | £650,000 | £350,000 | £1,000,000 | £400,000 |
| Estate: £2,500,000 (couple, second death) | £650,000 | £100,000* | £1,750,000 | £700,000 |
| Estate: £3,000,000 (couple, second death) | £650,000 | £0* | £2,350,000 | £940,000 |
Assumes home passes to direct descendants for RNRB. Both NRBs fully transferred from first death.
Planning for Large Estates
Why the £1 million threshold is the key planning boundary
A married couple or civil partners can shelter up to £1 million from IHT: NRB (£325,000) × 2 + RNRB (£175,000) × 2 = £1,000,000. Every pound above this is charged at 40% — unless a specific relief applies. For single people, the threshold is £500,000 (one NRB + one RNRB). The combined thresholds have been frozen since 2020 and are confirmed frozen until April 2030 at least — while house prices and investment values continue to rise. Many moderate professional families with a house worth £700,000 and reasonable savings now exceed the single-person threshold, and some exceed the couple threshold on second death. The IHT charge on a £1.5m couple's estate is £200,000; on a £2m estate it is £400,000; on a £3m estate it rises to £940,000 once the RNRB is fully tapered away.
The RNRB taper above £2 million
The Residence Nil Rate Band (£175,000 per person, up to £350,000 for a surviving spouse) is progressively withdrawn above a net estate of £2,000,000. The taper is £1 for every £2 of estate above £2m. For a single person using one RNRB (£175,000), the taper removes it entirely at £2,350,000. For a surviving spouse with both RNRBs (£350,000 combined), it is fully removed at £2,700,000. Above these levels, only the NRB (£325,000 per person, up to £650,000 per couple) remains. This creates an effective marginal IHT rate above £2m: estates between £2m and £2.35m pay IHT at an effective rate higher than 40% (because each additional £1 of estate also removes £0.50 of RNRB, generating an additional £0.20 of IHT). For estates above £2.35m (single) or £2.7m (couple), this taper trap does not apply — the effective marginal rate reverts to 40%.
Business Property Relief: the most powerful tool for large trading estates
100% BPR on qualifying trading businesses, unquoted shares, and sole trader/partnership interests eliminates IHT on those assets entirely. From 6 April 2026, the 100% relief is capped at £1 million per person (combined BPR and APR). Each spouse has a separate £1m cap — so careful advance planning can distribute business assets between both spouses to double the combined £2m protected amount. Above the £1m cap, relief is 50% (effective 20% IHT on the excess). The trading test must be met — businesses 'wholly or mainly' engaged in investment do not qualify. Specialist valuation of unquoted shares and business interests is required for IHT400. Where BPR is available, it is the single most valuable IHT relief for business owners and should be the starting point for large estate planning.
Lifetime PETs at scale: the 7-year strategy for large estates
For large estates where neither BPR nor APR applies, the most direct strategy is reducing the estate through lifetime gifts (PETs). Each PET starts a separate 7-year clock. If the donor survives 7 years, the gift is fully exempt — regardless of amount. The challenge for large estates: significant gifts take years to clear. A £1m gift (above the NRB) made today would need to survive the full 7 years to be fully exempt. But even partial completion is valuable — the taper means that dying at year 5 saves 60% of the IHT on that gift. For very large estates, multiple large PETs can be made to multiple children — each runs its own clock, and each year the donor survives is progress. The key action: do not wait. Every year of delay is another year of potential IHT accumulating in the estate.
Trust planning for large estates
Discretionary trusts funded during lifetime (as CLTs, not PETs — the NRB £325,000 is the threshold before lifetime IHT at 20% applies on CLTs) can move assets outside the estate while retaining some family control. The trust is subject to the relevant property regime: periodic charges at the 10-year anniversary (up to 6% of trust value) and exit charges when assets leave the trust. These are lower than the 40% death rate on large estates and justify trust planning where the estate is very large. A series of trusts (including pilot trusts set up in advance), funded at or near the NRB threshold, can move significant assets from the estate over time — with 10-year periodic charges rather than 40% death rate applying. An NRB loan trust (lending the NRB to the trust, with the debt frozen in the estate) and discounted gift trust also have specialist applications for large estates.
Charitable giving: the 36% rate for estates above £1 million
For large estates where IHT is substantial, the charitable reduced rate (36% under Schedule 1A IHTA 1984) can generate significant savings. The 10% test is calculated on the chargeable estate above the available thresholds. On a £2m chargeable estate (couple's combined threshold = £1m), the baseline is £1m. 10% = £100,000 to charity. IHT at 36% on £900,000 = £324,000 vs 40% = £400,000. Giving £100,000 to charity saves the family £76,000 in IHT. In many cases, the IHT saving and the charitable gift come close to equalising — and where the testator had charitable intent anyway, the maths strongly favour including a 10% charitable legacy. For very large estates, the total saving can run to hundreds of thousands.
Pension planning for large estates before April 2027
For large estates, the April 2027 pension change is critical. Currently, pension death benefits (flexi-access drawdown, uncrystallised funds) pass outside the IHT estate. For a person with a £500,000 pension pot and a £1.5m estate, the current IHT on death is £200,000 (on the £1.5m estate). Post-April 2027, the combined taxable estate is £2m — IHT rises to £400,000. Actions before April 2027: draw down pension funds and gift as PETs (7-year clock); spend pension income on gifts using normal expenditure from income exemption; review pension nominations (ensure beneficiaries are named individuals, not the estate); model the combined estate including pension post-2027. For very large estates, the pension change can create a £200,000–£400,000 additional IHT charge overnight in April 2027 — advance planning is essential.
Frequently Asked Questions
How much inheritance tax will I pay on a £2 million estate?
For a married couple's combined estate of £2m on second death (where everything passed to the surviving spouse first): thresholds = NRB £650,000 + RNRB £350,000 = £1,000,000. Chargeable: £1,000,000. IHT at 40% = £400,000. The children receive £1,600,000 net. At exactly £2m, the RNRB is not yet tapered — both RNRBs are still available. If the estate exceeds £2m, the RNRB begins to taper away.
What is the IHT bill on a £3 million estate?
For a married couple's combined estate of £3m on second death: RNRB is fully withdrawn (estate above £2.7m for a couple). Thresholds = NRB £650,000 only. Chargeable: £2,350,000. IHT at 40% = £940,000. The family receives £2,060,000 net after IHT. To reduce this: BPR/APR on qualifying business/farm assets; lifetime PETs; trust planning; charitable 36% rate; pension drawdown before April 2027.
What is the RNRB taper and how does it affect large estates?
The RNRB (£175,000 per person; £350,000 per surviving spouse) tapers by £1 per £2 of estate above £2,000,000. For a couple with both RNRBs (£350,000 combined), the RNRB is fully withdrawn when the estate reaches £2,700,000. Between £2m and £2.7m, each additional £1 of estate generates £0.20 more IHT than the headline 40% rate — creating an effective marginal rate of up to 60% in that band. Above £2.7m, the effective rate reverts to 40%.
Can a large estate use Business Property Relief to reduce IHT?
Yes — 100% BPR eliminates IHT on qualifying trading business interests, unquoted company shares, and sole trader/partnership assets. From April 2026, the 100% rate is capped at £1m per person (combined BPR and APR). Above the cap, 50% relief applies. For very large estates, BPR is the most powerful available relief. Each spouse has a separate £1m cap — distributing business assets between spouses can protect up to £2m at 100% relief.
How can I reduce IHT on a large estate?
For large estates: (1) Start lifetime PETs immediately — every year the 7-year clock runs reduces the eventual charge; (2) Use BPR/APR on qualifying business or farm assets; (3) Consider a charitable legacy to trigger the 36% rate; (4) Use the normal expenditure from income exemption for regular gifts from surplus income; (5) Review pension nominations and drawdown strategy before April 2027; (6) Model trust planning — CLTs at or near the NRB threshold; (7) Life insurance in trust to fund the IHT bill from illiquid assets. The most important step: take action now — IHT planning takes years to be fully effective.
A Well-Drafted Will Is the Foundation
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