Last updated: 14 October 2026
What Inheritance Tax changes have been made, and what’s still speculation?
There’s always speculation about Inheritance Tax (IHT) before a Budget, but several big changes are now law. The nil-rate band stays at £325,000 and the residence nil-rate band at £175,000 until April 2031. Business and agricultural relief at 100% is capped at £2.5 million per person from 6 April 2026. Most unused pension funds come into IHT from 6 April 2027. And since 6 April 2025, IHT on worldwide assets depends on long-term UK residence, not domicile. Planning should be based on these confirmed rules, not rumours.
Confirmed IHT rules
| Change | Effective |
| Nil-rate band £325,000 and residence nil-rate band £175,000 frozen | To April 2031 |
| Residence-based test for worldwide estates (10 of the last 20 years) | 6 April 2025 |
| 100% APR/BPR capped at £2.5 million, 50% above | 6 April 2026 |
| AIM shares get 50% BPR | 6 April 2026 |
| Unused pension funds included in the estate | 6 April 2027 |
| Death in service benefits excluded | 6 April 2027 |
What’s often speculated about
- Changes to the 7-year rule for lifetime gifts
- Limits on the normal expenditure out of income exemption
- A lifetime gifts allowance
- Changing the 40% rate
None of these has been announced. If they are, they’d normally apply only from a future date, so don’t rush into gifts that don’t suit you just because of rumours.
How the frozen thresholds affect families
Because the thresholds are frozen while house prices and savings rise, more estates pay IHT each year. A married couple can usually pass on £1 million with no IHT, using both nil-rate bands and residence nil-rate bands, if their home goes to direct descendants and the estate is under £2 million.
Example
A widow dies in 2027/28, leaving a £700,000 home to her children, £200,000 of savings and a £300,000 pension fund. Her late husband left everything to her. With both nil-rate bands (£650,000) and both residence nil-rate bands (£350,000), £1 million is tax-free. Under the new rules, her pension fund is included, making the estate £1.2 million. £200,000 is taxed at 40%, which is £80,000. Before April 2027, the pension would usually have been outside the estate.
Planning that still works
- Make gifts using the £3,000 annual exemption and regular gifts from surplus income
- Leave 10% of your net estate to charity to cut the rate to 36%
- Put life insurance in trust
- Review how pension death benefits will be paid from April 2027
- Keep your will up to date
Pensions and estate planning from 2027
The pension change matters most for people who planned to leave their pension untouched as an inheritance. Some may now draw more from pensions in retirement and gift surplus income instead, or use the money to pay life insurance premiums held in trust.
Frequently asked questions
Will the 7-year rule change?
There’s no announcement; it still applies.
Can my spouse inherit tax-free?
Yes, if both are UK-domiciled or long-term residents.
Does a gift into a trust still work?
Yes, but there may be 20% entry and periodic charges above the nil-rate band.
Should I wait for the next Budget?
Plan on confirmed rules, and review after each Budget.
Related: gifting money to reduce IHT, IHT on life insurance payouts and the farm relief changes.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with Inheritance Tax planning. See our small business accountants 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.
