Inheritance Tax thresholds for 2027/28 — both nil-rate bands confirmed frozen, but a significant change to pensions takes effect this year.
Last reviewed: May 2026.
IHT Thresholds — 2027/28
| Allowance | 2026/27 | 2027/28 | Change |
|---|---|---|---|
| Nil-rate band | £325,000 | £325,000 | Frozen |
| Residence Nil-Rate Band | £175,000 | £175,000 | Frozen |
| Potential individual threshold | £500,000 | £500,000 | Frozen |
| Potential couple threshold | £1,000,000 | £1,000,000 | Frozen |
| IHT rate on excess | 40% | 40% | Unchanged |
| Charitable IHT rate | 36% | 36% | Unchanged |
Both thresholds are frozen until at least April 2030.
⚠️ Major Change: Pensions Included in Estate from April 2027
From 6 April 2027, unspent defined contribution pension funds are part of your IHT estate. This is the most significant IHT change in decades.
Before April 2027:
- Pension pot on death → passes to nominated beneficiaries outside the estate, IHT-free
From April 2027:
- Pension pot on death → added to your estate, subject to IHT at 40% above nil-rate bands
- Combined estate (assets + pension pot) assessed against nil-rate band and RNRB
Example impact:
| Before April 2027 | From April 2027 | |
|---|---|---|
| Estate (property + savings) | £500,000 | £500,000 |
| Pension pot | £300,000 | £300,000 |
| IHT estate | £500,000 | £800,000 |
| Tax (couple, full NRB + RNRB used) | £0 | £0 (under £1m threshold) |
| Tax (single, £500k threshold) | £0 | £120,000 |
For large DC pension holders, the change could add tens or hundreds of thousands of pounds to IHT bills.
RNRB Taper — 2027/28
The Residence Nil-Rate Band is reduced by £1 for every £2 of net estate over £2 million:
| Net estate | RNRB taper reduction | RNRB available (per person) |
|---|---|---|
| £2,000,000 | £0 | £175,000 |
| £2,100,000 | £50,000 | £125,000 |
| £2,350,000 | £175,000 | £0 |
Note: with pensions now in the estate, more estates may be pushed above the £2 million taper threshold.
Annual Gift Exemptions — Reducing IHT Liability
Gifts made during your lifetime can reduce the size of your estate. Key exemptions for 2027/28:
| Gift type | Annual limit | Notes |
|---|---|---|
| Annual gift exemption | £3,000 | Unused allowance can be carried forward one year |
| Small gifts | £250 per person | To as many people as you like; cannot combine with annual exemption for same person |
| Wedding/civil partnership gift — child | £5,000 | Per child; must be made before the ceremony |
| Wedding/civil partnership gift — grandchild | £2,500 | Per grandchild |
| Wedding/civil partnership gift — other | £1,000 | Per person |
| Regular gifts from income | Unlimited | Must be habitual, from income (not capital), and not affect your standard of living |
| Gifts to spouse/civil partner | Unlimited | Tax-free between UK-domiciled spouses |
| Gifts to UK charities | Unlimited | Fully exempt; also reduces rate to 36% if 10%+ of net estate goes to charity |
Gifts above the exemption limits are Potentially Exempt Transfers (PETs) — they fall out of the estate after 7 years. Gifts made within 3–7 years before death receive taper relief on the 40% rate.