Inheritance tax threshold 2026/27 — £325,000, £500,000 or £1,000,000?
The threshold depends on whether you leave a home to your children or grandchildren, whether you are married or in a civil partnership, and how large the estate is. From 6 April 2027, most pensions count towards it too.
- ▸Everyone has a £325,000 nil-rate band. Above it, inheritance tax is normally 40%.
- ▸Leaving a home to children or grandchildren adds a residence nil-rate band of up to £175,000, so the threshold can reach £500,000.
- ▸Married couples and civil partners can pass unused allowances to each other, giving up to £1,000,000 between them.
- ▸The residence band shrinks by £1 for every £2 an estate is above £2,000,000. All of these amounts are frozen until 5 April 2031.
The nil-rate band: £325,000
The first £325,000 of an estate is taxed at 0%. Gifts made in the 7 years before death use it first, so large gifts can leave less for the estate. Anything left to a spouse, civil partner or charity is exempt and does not use it.
The residence nil-rate band: up to £175,000
This extra band applies when a home, or a share of one, passes to direct descendants: children (including adopted, foster and stepchildren), grandchildren and their spouses. It is capped at the value of the home, so a £100,000 share of a home adds only £100,000.
Couples: up to £1,000,000
When the first spouse or civil partner dies and leaves everything to the other, their allowances are usually unused. The surviving partner’s estate can then add the unused percentage of both bands, up to £650,000 of nil-rate band and £350,000 of residence band.
The £2,000,000 taper
For estates above £2,000,000, the residence band falls by £1 for every £2 over. For one person with no transferred allowance:
| Estate value | Residence nil-rate band |
|---|---|
| £2,000,000 | £175,000 |
| £2,100,000 | £125,000 |
| £2,200,000 | £75,000 |
| £2,350,000 | £0 |
How pensions change the picture from 6 April 2027
For deaths on or after 6 April 2027, most unused pensions count towards the estate. That uses up the threshold faster and can push an estate over £2,000,000, so the residence band is reduced as well.
For example, a single person with a £900,000 home, £700,000 of other assets and a £600,000 pension: under today’s rules the estate is £1,600,000, keeps the full £175,000 residence band and pays £440,000. With the pension counted the estate is £2,200,000, the residence band falls to £75,000 and the tax rises to £720,000.
Work out your own figures with the inheritance tax calculator. Executors handling a pension after April 2027 can follow what executors must do.
- ▸The nil-rate band is £325,000, the residence nil-rate band up to £175,000 and the taper threshold £2,000,000, fixed until 5 April 2031. [GOV.UK]
- ▸The residence nil-rate band falls by £1 for every £2 above £2,000,000 and cannot exceed the value of the home passing to direct descendants. [GOV.UK]
- ▸Most unused pension funds and death benefits count towards the estate for deaths on or after 6 April 2027. [GOV.UK]