Estate Planning

Inheritance Tax Changes 2026 UK: Budget Updates, NRB Freeze and Pensions

The Autumn 2025 Budget locked IHT thresholds until 2031 and is about to drag pension pots into taxable estates. Here is what changed and what you need to do.

12 May 2026·8 min read

Key changes at a glance

NRB frozen to April 2031: Nil-rate band stays at £325,000; residence NRB stays at £175,000.
Pension IHT from April 2027: Unused pension pots will be included in your estate and subject to 40% IHT.
Fiscal drag: As property prices rise, more estates will exceed the threshold automatically.
Action needed now: Review pension nomination forms and update wills before April 2027.

Current inheritance tax thresholds (2026/27)

Allowance	Amount	Frozen until	Conditions
Nil-Rate Band (NRB)	£325,000	April 2031	Available to all estates
Residence NRB (RNRB)	£175,000	April 2031	Must leave qualifying home to direct descendants; tapered above £2m estate
Single person max	£500,000	—	NRB + RNRB combined
Married couple max	£1,000,000	—	Both allowances transfer to surviving spouse

Above these thresholds, inheritance tax is charged at 40%. If you leave 10% or more of your estate to charity, the rate reduces to 36%.

The NRB freeze: why it matters more each year

The nil-rate band has been frozen since 2009, when the average UK house price was around £162,000. The current average UK house price is over £290,000. As property values rise while the threshold stays fixed, more and more estates that would previously have been below the IHT threshold are now caught.

Extending the freeze to April 2031 means the nil-rate band will have been frozen for 22 years by the time it is next reviewed. A couple who bought a house in the 1980s for a modest sum may now find their estate is well above the £1,000,000 combined threshold once the RNRB conditions are not met.

The pension IHT bombshell: April 2027

Currently, defined contribution pension pots pass completely outside your estate for IHT purposes. This has made pensions a highly efficient inheritance planning vehicle — leaving pension funds to pass to children while spending other assets first.

From April 2027, unused pension funds will be brought into a person's taxable estate. The Government announced this in the October 2024 Budget, with implementation deferred to allow pension administrators to adapt.

What you should do before April 2027

Review your pension nomination forms (expression of wishes) to ensure they reflect your current wishes
Consider whether you want to drawdown pension funds before 2027 to use them rather than have them taxed
If your total estate including pension pots exceeds £500,000 (single) or £1,000,000 (couple), consult a financial adviser about options
Update your will to coordinate with your pension planning — who inherits what in which order matters now more than ever

Understanding the residence nil-rate band (RNRB)

The RNRB is an additional £175,000 tax-free allowance but it has important conditions:

You must leave a qualifying residential property to direct descendants (children, stepchildren, adopted children, grandchildren)
The property must have been your main residence at some point
The RNRB tapers away at £1 for every £2 if your estate exceeds £2,000,000
If you downsize or sell your home, a downsizing addition may preserve the allowance

Crucially, the RNRB is lost if you leave your home to, say, a cohabiting partner who is not your civil partner, or if you leave it to a trust rather than directly to descendants. Your will must be structured correctly to claim it.

Spousal exemption: still fully available

All transfers between married spouses and civil partners remain fully exempt from IHT, with no upper limit. The unused NRB and RNRB also transfer to the surviving spouse. This makes a coordinated will strategy for couples critically important — ensuring the surviving spouse's will is structured to claim both sets of allowances on the second death.

How a will helps with IHT planning

Your will is the primary tool for IHT planning. Without one, the intestacy rules determine who inherits — and they are not designed for tax efficiency. A well-drafted will can:

Ensure the spousal exemption applies on first death
Claim both nil-rate bands on second death
Include charitable legacies to reduce the IHT rate to 36%
Leave the qualifying property to direct descendants to claim the RNRB
Coordinate with pension nomination forms to minimise the combined IHT burden from April 2027

Frequently asked questions

What is the inheritance tax threshold in 2026/27?▼

The nil-rate band (NRB) is £325,000 per person. The residence nil-rate band (RNRB) is £175,000, available when you leave a qualifying property to direct descendants. A single person can therefore pass up to £500,000 tax-free; a married couple up to £1,000,000. Both bands are frozen until April 2031.

How long are the IHT thresholds frozen for?▼

The November 2025 Autumn Budget extended the freeze on both the nil-rate band (£325,000) and the residence nil-rate band (£175,000) until April 2031. The original freeze was set at 2025, then extended to 2028, and now to 2031. This fiscal drag means more estates will exceed the threshold as property prices rise.

Will pensions be subject to inheritance tax?▼

Yes — from April 2027, unused pension funds will be brought into a person's estate for inheritance tax purposes. Currently, defined contribution pension pots pass outside the estate and therefore outside IHT. From April 2027, pension funds above the nil-rate band will be subject to 40% IHT. This is one of the most significant IHT changes in decades.

Does my spouse have to pay inheritance tax when I die?▼

No. Transfers between married spouses and civil partners are fully exempt from inheritance tax, regardless of value. The unused nil-rate band also transfers to the surviving spouse, potentially doubling the available threshold.

What is the residence nil-rate band and who qualifies?▼

The residence nil-rate band (RNRB) is an additional £175,000 tax-free allowance available when you leave your primary residence to direct descendants — children, stepchildren, adopted children, foster children, or grandchildren. It is tapered away for estates worth more than £2 million (£1 for every £2 above the threshold).

How does inheritance tax affect my estate planning?▼

With thresholds frozen until 2031 and rising property prices, more estates will exceed the nil-rate band each year. Key planning steps include: making a will to ensure spouse exemption applies correctly; reviewing pension nomination forms before April 2027; considering lifetime gifting strategies; and consulting a specialist if your estate is likely to exceed £500,000.

Can I reduce my inheritance tax bill?▼

Yes. Common strategies include: using the annual gift exemption (£3,000 per year), making charitable legacies in your will (reduces IHT rate to 36% for estates giving 10%+ to charity), using business property relief, and placing life insurance in trust (so the payout falls outside your estate). A solicitor or financial adviser can assess which strategies apply to your situation.

Make sure your will is IHT-efficient

With thresholds frozen until 2031 and pensions entering IHT in 2027, now is the time to review your estate plan. A WillSafe will kit ensures the right structure from £39.99.

Review will options

Inheritance tax thresholds UK 2026

Full rates and bands explained

Inheritance tax UK: a basic guide

How IHT works from the beginning

What happens to your pension when you die UK?

Nomination forms and the 2027 changes

What happens if you die without a will UK?

Intestacy and why your will structure matters

This article is for general information only and does not constitute tax or legal advice. Tax rules are subject to change; the April 2027 pension IHT changes are subject to finalisation of secondary legislation. Consult a qualified financial adviser or solicitor for advice specific to your estate. Correct as of May 2026.