by Asim Abbas
11 November 2026 
Inheritance Tax in 2026: allowances, pensions and business relief changes
Inheritance Tax in 2026: allowances, pensions and business relief changes
Inheritance Tax is changing more in this decade than at any time in a generation. Business and agricultural relief was capped from April 2026, and most unused pensions come into the estate from April 2027.
- Nil rate band £325,000, frozen to 2031
- Residence nil rate band up to £175,000
- 100% business and farm relief capped at £2.5 million
- Unused pensions inside the estate from April 2027
At the same time, the nil rate bands are frozen until 2031, so more families are being drawn in each year.
This guide explains the current allowances, the key changes and the main planning options.
The main allowances
| Allowance | Amount |
|---|---|
| Nil rate band | £325,000 |
| Residence nil rate band | Up to £175,000, when a home passes to direct descendants |
| Transferable to a spouse | Unused bands pass to the surviving partner |
| Couple’s maximum | £1 million |
| Rate above the bands | 40%, or 36% if 10% goes to charity |
The residence nil rate band tapers away by £1 for every £2 the estate exceeds £2 million. Both nil rate bands are frozen until April 2031.
Business and agricultural relief from April 2026
From 6 April 2026, 100% Business Property Relief and Agricultural Property Relief apply only to the first £2.5 million of combined qualifying property. Above that, relief is 50%, an effective IHT rate of 20%. Unused allowance can pass to a surviving spouse, so a couple can shelter up to £5 million. Shares in AIM companies now get 50% relief only. Tax on relievable property can be paid in ten annual interest-free instalments.
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Pensions from April 2027
From 6 April 2027, most unused pension funds and death benefits will be included in the estate for Inheritance Tax. Personal representatives will be responsible for reporting and paying. Death-in-service benefits from registered schemes are excluded. Where the member dies after 75, beneficiaries may also pay Income Tax on withdrawals.
A widow leaves a house worth £600,000 to her children, £250,000 of savings and a £300,000 pension pot. With her late husband’s unused bands, the estate has £1 million of nil rate bands. Before April 2027, her £850,000 estate is below that and no IHT is due. After April 2027, the pension takes it to £1.15 million, so £150,000 is taxable at 40%, £60,000.
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- Annual exemption: £3,000 a year, with one year’s carry forward
- Small gifts: up to £250 per person
- Wedding gifts: £5,000 from a parent, £2,500 from a grandparent
- Gifts out of surplus income: regular and unlimited if they don’t affect your standard of living
- Potentially exempt transfers: free of IHT if you survive seven years, with taper relief after three
Planning steps
- Update your will, especially for residence nil rate band
- Review pension nominations ahead of April 2027
- Consider gifts from surplus income
- Check business and farm values against £2.5 million
- Consider life insurance written in trust
See HMRC’s guide to Inheritance Tax, and our inheritance tax planning and executor and estate services.
What should I do next?
Include pensions from 2027.
Home to direct descendants.
Use annual exemptions.
Frequently Asked Questions
What is the Inheritance Tax threshold in 2026?
£325,000 nil rate band plus up to £175,000 residence nil rate band, frozen until 2031.
Are pensions subject to Inheritance Tax?
From 6 April 2027, most unused pension funds and death benefits will be included in the estate.
What changed for business relief in April 2026?
100% relief now applies only to the first £2.5 million of combined business and agricultural property, with 50% above.
Can a couple pass on £1 million tax-free?
Yes, if both nil rate bands and residence nil rate bands are available and the home goes to direct descendants.
How much can I gift each year?
£3,000 under the annual exemption, plus small gifts and gifts from surplus income.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Stephen Reynold
I’m Stephen Reynold, an accountant at Wingate Accountants. I work with sole traders and small companies, turning tax rules into clear, practical next steps.
