Last updated: 14 October 2026
How can you reduce your estate below £2 million to keep the residence nil-rate band?
The residence nil-rate band (RNRB) of up to £175,000 is reduced by £1 for every £2 that your estate is worth over £2 million. It disappears completely at £2.35 million for one person. From 6 April 2027, most unused pension funds will count towards your estate, so many people will go over £2 million for the first time. Ways to reduce the estate’s value include lifetime gifts, gifts out of surplus income, drawing and spending or gifting pension income, charitable legacies, and paying for life cover in trust.
How the taper works
| Estate value (before reliefs) | RNRB available for one person |
| £2,000,000 | £175,000 |
| £2,100,000 | £125,000 |
| £2,200,000 | £75,000 |
| £2,350,000 or more | £0 |
For a couple, any unused RNRB passes to the survivor, so the taper is applied to the survivor’s estate on second death, and up to £350,000 can be lost.
Why pensions matter from April 2027
Defined contribution pension pots have usually been outside the estate for IHT. For deaths on or after 6 April 2027, most unused funds and death benefits will be included. Death-in-service benefits from registered schemes stay excluded. A £600,000 pension added to a £1.6 million estate takes it to £2.2 million, cutting the RNRB from £175,000 to £75,000, which adds £40,000 of IHT on the lost band alone (plus 40% on the pension itself above the available bands).
Ways to bring the estate below £2 million
1. Lifetime gifts
Gifts to individuals fall out of the estate after 7 years. The taper test uses the estate value on death, so gifts made more than 7 years before death reduce it.
2. Regular gifts out of surplus income
Gifts out of income that leave your standard of living unchanged are exempt immediately. Drawing pension income and gifting it can work well. See gifting money to reduce inheritance tax.
3. Spend or draw down the pension
Taking income from a pension during your lifetime, and spending or gifting it, reduces what is left at death. Income tax applies when you draw it, so plan the withdrawals.
4. Business and agricultural property
Qualifying business assets may get Business Property Relief. From April 2026, 100% relief is limited to the first £2.5 million of combined business and agricultural property, with 50% relief above that. Any unused allowance can pass to a surviving spouse or civil partner, so a couple can have up to £5 million. Investments such as AIM shares now get 50% relief. Note that the £2 million taper test uses the estate value before these reliefs.
5. Charitable gifts
Leaving at least 10% of the net estate to charity cuts the IHT rate to 36%, and it reduces the estate’s value.
6. Debts and loans
Genuine liabilities reduce the estate, but the anti-avoidance rules are strict.
Life insurance in trust
A whole-of-life policy written in trust pays out outside the estate and can cover the IHT bill. It doesn’t bring the estate under £2 million.
Frequently asked questions
Does the £2 million include my home?
Yes. It is the whole estate before reliefs and exemptions.
Does the RNRB need a home to go to children?
Yes. The home, or proceeds from downsizing, must pass to direct descendants.
Will my pension beneficiaries also pay income tax?
If you die aged 75 or over, beneficiaries pay income tax on withdrawals. IHT applies first.
Can investing in EIS help?
EIS shares can qualify for Business Property Relief after 2 years. See EIS and inheritance tax.
Related: gifting your home.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with estate and pension planning. See our inheritance tax planning service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
