Inheritance tax in 2026: which Labour reforms are live, which are still proposals
LONDON · By Teja Pagidimarri · Published May 23, 2026 · 5 min read
The 2024 Autumn Budget's inheritance-tax package staged its biggest changes for the 2026-27 and 2027-28 tax years. The nil-rate band freeze runs to April 2030, agricultural and business property relief is capped above GBP 1 million from April 2026, and unused pension pots fall inside the estate from April 2027. Here is what is live now and what is still in consultation.
- Nil-rate band
- GBP 325,000 frozen until April 2030 (set in the 2024 Autumn Budget).
- Residence nil-rate band
- GBP 175,000, also frozen to 2030. Tapered away above a GBP 2 million estate.
- Agricultural / Business Property Relief
- 100 per cent relief up to GBP 1 million combined; 50 per cent above that, from April 2026.
- Pensions inside the estate
- From April 2027, unused defined-contribution pots become part of the IHT estate.
UK IHT thresholds and rates from 2026-27
| Item | Threshold or rate | Tax-year live |
|---|---|---|
| Nil-rate band (NRB) | GBP 325,000 | Frozen to 2030 |
| Residence nil-rate band (RNRB) | GBP 175,000 | Frozen to 2030 |
| IHT main rate above thresholds | 40 per cent | Unchanged |
| Reduced rate (10%+ to charity) | 36 per cent | Unchanged |
| APR / BPR over GBP 1m | 50 per cent (down from 100) | From 6 April 2026 |
| Unused DC pension pots | Inside the estate | From 6 April 2027 |
What is live in 2026-27
The cap on Agricultural and Business Property Relief is the headline change for 2026-27. Estates passing on farmland or trading-business shares get the first GBP 1 million combined at 100 per cent relief but only 50 per cent above that, an effective 20 per cent IHT rate on the excess. AIM shares, previously eligible for full relief, also move to 50 per cent.
The nil-rate and residence band freezes continue, so fiscal drag pulls more estates into charge every year through 2030 even without any cash growth.
Background: how inheritance tax is structured
Inheritance tax is charged on an estate above the available tax-free bands. The GBP 325,000 nil-rate band is taxed at 0 per cent, and the residence nil-rate band adds up to GBP 175,000 where a home is left to direct descendants. Anything above is taxed at 40 per cent, or 36 per cent where at least 10 per cent of the net estate goes to charity.
The bands are not lost on the first death of a couple: transfers between spouses are exempt, and the unused percentage of both bands passes to the survivor. That is how a couple can reach up to GBP 1 million tax-free. The residence band is then clawed back by GBP 1 for every GBP 2 an estate exceeds the GBP 2 million threshold, so it is fully gone by GBP 2.35 million for a single person. Because all three figures are frozen, not inflation-linked, the share of estates paying IHT climbs every year. You can model your own bands with the UK inheritance tax calculator.
Gifts and the seven-year rule are unchanged
The 2024 package left lifetime gifting alone, the main lever for reducing an estate. Most gifts to individuals are potentially exempt transfers: give the money away, survive seven years, and it falls out of the estate. Die within seven years and the gift is brought back in, though taper relief reduces the tax once total gifts exceed the nil-rate band.
Several gifts are exempt straight away. The annual exemption lets you give GBP 3,000 a year (with one unused year carried forward). Small gifts of up to GBP 250 per person, regular gifts out of surplus income, and certain wedding gifts are also outside the estate. These allowances are unchanged and, combined over time, can move meaningful sums. The UK money and tax hub gathers the related guidance.
Still ahead: the 2027 pension change
From 6 April 2027, unused defined-contribution pension pots will form part of the IHT estate at death. The Treasury opened a 2024 consultation on the mechanics, with draft legislation expected in spring 2026 ahead of commencement.
Defined-benefit pensions and survivor income are NOT in scope. The change matters because a defined-contribution pot has, until now, generally sat outside the estate, which made pensions a tax-efficient way to pass wealth down. Bringing unused pots in removes that advantage for deaths from April 2027, and where the pot is also subject to income tax in the beneficiary's hands the combined effect can be heavy. As the draft rules are not final, treat the mechanics as unsettled until the legislation is published.
What to watch, and what is still only a proposal
It is worth separating enacted policy from speculation. Confirmed: the band freezes to April 2030, the relief cap from April 2026, and unused defined-contribution pensions entering the estate from April 2027. Everything else in commentary, including calls to reform or scrap the residence nil-rate band, change the seven-year rule, or cap lifetime gifts, is proposal or speculation, not law, and should not be acted on as settled.
For most families the takeaways are unchanged: use the spouse exemption and transferable bands, keep gift records and dates, use the annual and surplus-income exemptions, and review any plan that relied on a pension pot sitting outside the estate before April 2027. The UK pension tax relief calculator covers the pension angle and the UK income tax calculator shows how a beneficiary's income interacts with an inherited pension from 2027.
Frequently asked questions
Has the IHT threshold actually risen?
No. Both the GBP 325,000 nil-rate band and the GBP 175,000 residence nil-rate band are frozen to April 2030.
Will my children pay IHT on my pension pot if I die in 2026?
No, not for deaths in the 2026-27 tax year. The change applies to deaths on or after 6 April 2027.
Can a married couple pass on GBP 1 million tax-free?
Potentially, yes. Each person has a GBP 325,000 nil-rate band plus a GBP 175,000 residence nil-rate band, and unused bands transfer to the surviving spouse or civil partner. Reaching the full GBP 1 million depends on leaving a qualifying home to direct descendants and on the estate staying below the GBP 2 million taper threshold.
Is the residence band or the seven-year rule being scrapped?
No such change is enacted. Calls to reform the residence nil-rate band, alter the seven-year gifting rule, or cap lifetime gifts circulate regularly, but they are proposals and speculation, not law. The confirmed measures are the band freezes, the relief cap from April 2026, and pensions entering the estate from April 2027.
Related calculators
Teja founded 3tej in 2024 to make multi-country tax and salary math less painful. He builds and maintains the calculators, writes the editorial guides on policy changes, and signs off every rate update before publish.