2026/27 inheritance tax changes:
what we know so far

What has changed - and what is still developing

The inheritance tax changes announced in the Autumn Budget 2024 are now in effect or taking shape. The nil-rate band remains frozen at £325,000, with no change planned before at least 2030. Agricultural and Business Property Relief has been restructured since April 2026, with a cap now applying above £2.5 million per individual. And pension funds are expected to be brought within the IHT calculation from April 2027 - though the detailed rules for how this will work are still being finalised.

For families with estates that may be liable to inheritance tax, these developments require attention. Some positions that looked comfortable before the Budget changes have shifted materially. And because several of the rules are still developing, up-to-date advice - rather than assumptions based on earlier planning - is important.

The frozen thresholds: where we stand

The nil-rate band - the amount each individual can leave free of IHT - has been fixed at £325,000 since 2009. It is now frozen at that level until at least 2030. The residence nil-rate band (RNRB), which provides an additional £175,000 where a qualifying residential property is left to direct descendants, is similarly frozen.

For a married couple or civil partners, the combined threshold available is up to £1 million - both nil-rate bands and both RNRBs combined - where the surviving spouse inherits everything on first death and leaves the property to children on second death. This figure is often cited as if it were a comfortable ceiling. For many families in the South East it is not.

The effect of a threshold frozen since 2009 in nominal terms is substantial. Inflation since then has significantly reduced the real value of the nil-rate band. At the same time, house prices - particularly in Surrey and across much of the South East - have risen sharply over the same period. A house worth £300,000 in 2009 may now be worth considerably more than the nil-rate band on its own, before any savings, investments or other assets are included.

The RNRB taper also catches some families out. It begins reducing once the net estate exceeds £2 million, reducing by £1 for every £2 above that threshold. For estates with values in the range of £2m to £2.35m, careful planning can sometimes preserve more of the RNRB than would otherwise be available.

Agricultural and business property relief: the new cap

Prior to the Autumn Budget 2024, agricultural property relief (APR) and business property relief (BPR) offered 100% exemption from IHT on qualifying assets - effectively removing them from the estate entirely, regardless of value. This made them among the most powerful reliefs in the IHT system.

When first proposed in the October 2024 Budget, the government intended to cap 100% Agricultural Property Relief and Business Property Relief at a combined £1 million per individual, with anything above that only qualifying for 50% relief. Following industry consultation, this allowance was increased to £2.5 million before the changes came into force on 6 April 2026. Qualifying assets above £2.5 million now receive 50% relief, giving an effective Inheritance Tax rate of 20% on the excess. The allowance is also transferable between spouses and civil partners.

The detailed application of the new rules - including how the allowance interacts with trusts and complex ownership structures - is still developing, and specialist advice is important for affected families.

For many family farms, this is a significant change. A farm with a capital value well above £2.5 million - even one that generates modest income - may face an IHT liability on the second death that was simply not in the picture before. Succession planning for agricultural estates has become considerably more complex and more urgent.

The position for business owners is similar. A family business worth, say, £3 million would previously have passed entirely free of IHT under BPR. Under the new rules, the first £2.5 million is relieved in full, and the remaining £500,000 attracts 50% relief - meaning £250,000 is within the taxable estate. At 40%, that is a potential IHT charge of £100,000 on the business value alone, before other assets are considered.

Instalment payment provisions allow IHT on qualifying business and agricultural property to be paid over ten years without interest, which provides some cash flow relief. But the liability itself is real and planning around it - through lifetime giving, trust structures, life assurance written in trust to meet the charge, or other means - has become a priority for affected families.

Pensions and IHT from April 2027: rules still developing

From 6 April 2027, most unused pension funds and death benefits will be included within the value of your estate for Inheritance Tax purposes. This is a significant change — currently, most pension benefits fall outside the scope of IHT. Death in service benefits paid from a registered pension scheme, and benefits passing to a surviving spouse or civil partner, will remain excluded.

Personal representatives (executors) are expected to have a key role in collecting pension fund values and reporting them as part of the estate for IHT purposes. Pension scheme administrators may in some cases withhold funds pending resolution of the IHT liability - a practical consideration that could affect the timing of distributions to beneficiaries and add complexity to the administration of estates with significant pension assets.

Because the rules are still developing, pension nominations and wider estate planning should be reviewed with up-to-date advice. The interaction between the pension inclusion and the nil-rate band, the RNRB, and other reliefs will depend on the size of the estate - but for larger estates with significant pension pots, the change is likely to add materially to the IHT exposure. Assumptions based on pre-2024 planning should not be relied upon without review.

What families should be doing now

The convergence of frozen thresholds, reduced business and agricultural reliefs, and the approaching pension change means that 2026 is an unusually important year for estate planning review. Several specific actions are worth considering:

• Review your current IHT position. If you have not had a recent calculation of your likely estate value and the IHT exposure under the current rules - including the new APR/BPR cap and the effect of the pension inclusion - that is the starting point. Many families who thought they were comfortably under the threshold will find the picture has changed.
• Consider the pace of lifetime giving. The annual exemptions, the normal expenditure out of income exemption, and planned larger gifts starting the seven-year clock are all tools available now. Starting early costs nothing and may save a significant sum if circumstances change.
• Review pension nominations with up-to-date advice. The April 2027 pension change is expected to bring unspent defined contribution funds within the IHT calculation - but the detailed rules are still being finalised. Pension nominations and the wider estate planning strategy should be reviewed in light of the current position, not assumptions from earlier years.
• Consider life assurance written in trust. A whole-of-life policy written in trust, sized to meet the expected IHT liability, is one of the most straightforward ways to ensure the tax can be paid without forcing a sale of assets. Premiums paid regularly may themselves qualify as normal expenditure out of income if structured correctly.
• For business and agricultural owners: revisit succession planning. The reduced reliefs make earlier transfers, discounted gift trusts, and loan trust arrangements more relevant than they were previously. The ten-year instalment option is useful but does not eliminate the liability.
• Update your Will. The change in the pension landscape, in particular, may affect what the optimal distribution of your estate looks like - which assets should be left under the Will and which should pass via the pension. A Will written before 2024 may not reflect the best approach for the new environment.

The planning opportunity in 2026

There may be a window before April 2027 in which the pension rules still operate on the old basis - but given that the detailed rules are still developing, decisions about accelerating pension drawdown or restructuring nominations should be taken with current advice rather than assumptions. Estate planning and financial planning decisions need to work together, particularly where pension pots represent a significant part of the overall estate.

More broadly, the direction of IHT policy - frozen thresholds, reduced reliefs, a widening net - is not likely to reverse in the near term. The government's inheritance tax receipts are rising year on year, and the political calculus does not currently favour generosity to estates above the threshold. Families who have been postponing estate planning review on the basis that rates might improve are working against time.

The appropriate response is not panic. IHT, even for larger estates, is a problem with tools available to address it. But those tools take time to deploy - the seven-year clock does not start until a gift is made, a trust cannot be established retrospectively, and a Will cannot be updated after death. The planning needs to happen now, while options remain open.