Inheritance Tax Threshold UK Explained (2026 Update with 2027 Pension Changes)

Inheritance Tax (IHT) is no longer just a concern for the very wealthy. With frozen thresholds, rising property values, and major rule changes on the horizon, more families across the UK are being drawn into its scope.

And from 6 April 2027, there’s an important shift to be aware of: most unused pension funds will become subject to Inheritance Tax.

If you haven’t reviewed your estate recently, this change could significantly increase your exposure.

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What Is the Inheritance Tax Threshold in the UK?

Inheritance Tax is charged at 40% on the value of your estate above certain tax-free thresholds.

Your estate typically includes:

• Property (your home and any additional properties)

• Savings and investments

• Personal possessions

  
  

From April 2027, it will also include most unused pension funds.

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The Key Inheritance Tax Thresholds (UK 2026)

1. Nil Rate Band (NRB)

• £325,000 per person

• Applies to your entire estate

  
  

2. Residence Nil Rate Band (RNRB)

• Up to £175,000 per person

• Available when passing your main residence to direct descendants

  
  

3. Combined Allowance for Couples

• Up to £1 million tax-free if allowances are fully utilised and transferred

Anything above these thresholds may be taxed at 40%.

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What’s Changing in 2027? (Pensions & IHT)

Historically, pensions have been one of the most tax-efficient ways to pass on wealth.

In many cases, pension pots sat outside your estate. They were not subject to Inheritance Tax

However, from 6 April 2027:

• Most unused pension funds will be included within your estate for IHT purposes

• This means they could be taxed at 40% if your estate exceeds the available thresholds*

Now, the combination of pensions, property growth, and static allowances is reshaping Inheritance Tax in the UK.

*Certain important exemptions still apply.

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Example: How the New Rules Could Impact You

Let’s say you have:

• Property: £650,000

• Savings and investments: £150,000

• Pension pot: £300,000

Before April 2027:

• Pension excluded

• Estate value: £800,000

After April 2027:

• Pension included

• Estate value: £1.1 million

Even with full allowances:

• £1 million tax-free (for a couple)

You now have £100,000 exposed to IHT.

Potential tax: £40,000 (and that’s purely due to the rule change).

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How to Plan Ahead

With these changes approaching in regards to the Inheritance Tax threshold (UK 2026 & 2027), proactive planning becomes even more important. Key considerations include:

1. Reviewing Your Full Estate Value

Include property, savings, investments - and pensions.

2. Reassessing Pension Strategy

The role of pensions in estate planning is changing.

3. Making Use of Allowances

Ensure both partners’ (if applicable) thresholds are fully utilised.

4. Lifetime Gifting

Reducing the size of your estate over time.

5. Protection Planning

Life insurance can help cover potential IHT liabilities.

If your pension were included in your estate today, would you still be below the threshold?

Speaking to a Chartered financial professional like ourselves can help you understand your options clearly and make informed decisions.

Speak to a Chartered adviser