Key takeaways
- The Budget is on 28 October 2026 and no inheritance tax measure has been announced for it. The nil rate band is £325,000, as it has been since 6 April 2009.
- On confirmed rules, a £1 million estate owes £270,000 with the nil rate band alone, £200,000 if a home passes to children, and nothing on a widowed estate holding both sets of bands.
- In the tax year 2023 to 2024, 30,400 estates paid inheritance tax. That is 4.72% of 644,000 UK deaths, and the average effective rate was 13%, not 40%.
- From 6 April 2027 unused pension funds count. A £400,000 pot added to a £1.8 million estate lifts the bill from £320,000 to £520,000, because the £2 million taper bites too.
- HMRC's ready reckoner of June 2025 prices 1 percentage point on the standard rate at £240 million, and £5,000 on the nil rate band at a cost of £140 million.
What Budget 2026 has confirmed about inheritance tax, and what it hasn't
You want to know what the Budget does to the bill on your estate. The honest answer is that nothing has been announced, so nobody can tell you. What can be done is the arithmetic on the rules that are already law, and that is what the rest of this page is.
The date is confirmed. The Chancellor wrote to the Treasury Select Committee on 31 July 2026, and the letter says "The Budget will be held on 28 October 2026." No UK Budget 2026 inheritance tax measure has been published alongside that letter.
These rules are in force now. The inheritance tax threshold in 2026 is £325,000, and HMRC's own table of thresholds carries that figure from 6 April 2009 through to 5 April 2031. Above the threshold the standard rate is 40%. It falls to 36% where at least 10% of the net estate goes to charity. If you own your home and leave it to children or grandchildren, the threshold rises to £500,000, provided the estate is worth less than £2 million. Unused bands pass to a spouse or civil partner, which is why HMRC says "some estates can transfer up to £1 million before tax becomes due".
Two changes are already legislated rather than rumoured. Restrictions to agricultural and business property relief started in April 2026. And from 6 April 2027, most unused pension funds and death benefits come into the scope of inheritance tax, under a policy paper HMRC published on 26 November 2025.
One more thing is settled, and it does more work than any single measure: the thresholds don't move. HMRC's receipts bulletin of 22 September 2026 attributes rising receipts partly to "the government's decisions at various recent fiscal events to maintain the tax free thresholds at their 2020 to 2021 levels up to and including 2030 to 2031". The residence band has been £175,000 since 6 April 2020.
What the bill is today on estates of £500,000, £1 million and £2 million
Three households, identical rules, very different answers. The first has the nil rate band only: no home passing to direct descendants, no transferred allowance. The second owns a home and leaves it to children. The third is widowed and inherited both unused bands from a spouse, giving the £1 million threshold HMRC describes.
| Net estate | Nil rate band only (£325,000) | Home to children (£500,000) | Widowed, home to children (£1 million) |
|---|---|---|---|
| £500,000 | £70,000 | Nil | Nil |
| £1 million | £270,000 | £200,000 | Nil |
| £2 million | £670,000 | £600,000 | £400,000 |
Read down the first column and the tax looks brutal. Read across and you can see where the £500,000 and £1 million figures people quote actually come from, and how far apart two estates of the same size can land. At £2 million the gap between the first column and the third is £270,000 of tax on the same money.
Working out which row you are in needs the estate as a single number: the house, the pensions that count from 2027, the ISAs, and anything given away in the previous 7 years. LedgerTouch keeps that total current.
Fewer than 1 in 20 estates pays anything
HMRC published detailed estate data for the tax year 2023 to 2024 on 30 July 2026. In that year 30,400 estates paid inheritance tax, out of 644,000 UK deaths. That is 4.72%, which HMRC notes is "the highest it has been since 2006 to 2007", and still "fewer than 1 in 20 estates".
Liabilities came to £7.03 billion. Across the taxpaying estates that averages £231,000 each, up 9% on the year before. But the headline 40% almost never describes what anyone actually pays. HMRC's figure for the average effective tax rate across all 30,400 estates is 13%.
The spread by estate size is the part worth reading. There were 2,300 taxpaying estates valued between £300,000 and £400,000, and their average bill was £13,800 at an effective rate of 4%. The 7,770 estates between £1 million and £1.5 million paid an average of £151,000 at 12%. The 2,930 estates between £1.5 million and £2 million paid £324,000 at 19%. Those are the rungs the arithmetic above sits on.
In cash terms the tax is small. Inheritance tax receipts were £3.8 billion from April 2026 to August 2026, against £391.6 billion of total HMRC receipts over the same months. That is 0.97% of what the Exchequer collected.
An unused pension pot counts from April 2027, and the £2 million taper makes it cost more than 40%
Take the widowed estate from the table, with the full £1 million of combined bands, and give it a value of £1.8 million. The tax is £320,000.
Now add a £400,000 pension pot that was never drawn. From 6 April 2027 it forms part of the estate. The estate becomes £2.2 million, which is £200,000 past the £2 million taper point, so the residence bands are cut by £1 for every £2 of that excess. The £350,000 of combined residence band becomes £250,000, the threshold falls to £900,000, and the tax is £520,000.
The pot added £200,000 of tax on £400,000 of pension. That is an effective 50%, not 40%, and it happens with no change to the headline rate at all. HMRC's commentary sets out the mechanism: the residence band tapers "at a rate of £1 for every £2 that the estate exceeds the £2 million taper point", and "as soon as an estate is worth £2.7 million or more, no RNRB can be used".
The chart above traces the same widowed estate from £1 million to £2.6 million. The first £400,000 above the threshold costs £160,000. The next £400,000 costs £160,000 again. The one after that costs £200,000, and the one after that £240,000. That steepening is the taper, not the rate.
The mechanics of collection are published too. Personal representatives are liable for reporting and paying, and they can direct a scheme to "withhold 50% of the taxable benefits for up to 15 months from the date of death". Funds under £1,000, continuing annuities and death in service benefits sit outside the measure. The income tax a non-spouse beneficiary pays on what is left is a separate layer, and the arithmetic on pension inheritance tax from 2027 covers it by pot size.
The gift options that are already written down
Inheritance tax on gifts uses the seven year rule. Give something away, live for those 7 years, and it sits outside your estate. Die sooner and it counts, with a sliding scale from the fourth year onwards. Underneath that sit fixed exemptions: £3,000 a year, gifts of up to £250 per person, and £5,000 to a child who is marrying. Alongside them sits one exemption with no monetary cap at all, because the gifts out of surplus income rules test a pattern of giving rather than an annual limit.
The sliding scale is narrower than it sounds. HMRC is explicit that "taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold". Below that line, taper is irrelevant.
The options for changing any of this are not speculation. They are written down, officially, and dated. The Office of Tax Simplification's second inheritance tax report, published on 5 July 2019, recommended that the government "reduce the 7 year period to 5 years, so that gifts to individuals made more than 5 years before death are exempt from Inheritance Tax" and "abolish taper relief", as one package. A separate recommendation would replace the annual exemption and the marriage exemption with "an overall personal gifts allowance".
Put a £400,000 gift through both versions, made by someone whose nil rate band is already spent:
- Given 4 years before death, taper cuts the rate to 24%, so £96,000. With taper abolished, the rate is 40% and the tax is £160,000.
- Given 6 years before death, taper cuts the rate to 8%, so £32,000. With the window shortened to 5 years, the gift is exempt and the tax is nil.
So the package cuts both ways, and that is why the OTS proposed it as a package rather than as two separate measures. It raises tax on recent large gifts and removes it from older ones. The OTS also had the data for why the later years are cheap to give up. In 2015-16, only £7 million of inheritance tax related to gifts made more than 5 years before death, out of £4.38 billion in total, and less than 10% of the £71 million raised from all taxable lifetime gifts.
It had the data on how few people this reaches, as well. In 2015-16, 4,860 estates recorded lifetime gifts made less than 7 years before death, about 20% of taxpaying estates, with a total value of £870 million.
None of it is policy. In a letter to the OTS dated 23 March 2021, written on behalf of the Chancellor, the Treasury said the government "will respond to the recommendations made in your second Inheritance Tax report on simplifying the design of inheritance tax in due course".
What a rate or threshold change would raise, on HMRC's own ready reckoner
HMRC publishes a ready reckoner of what illustrative tax changes do to receipts. Its June 2025 edition prices three inheritance tax levers for the financial year 2027 to 2028. One percentage point on the standard rate raises £240 million. £5,000 on the nil rate band costs £140 million. £5,000 on the residence nil rate band costs £55 million.
That last pair is the interesting one. The residence band costs less than half as much to raise, because only estates leaving a home to direct descendants can use it. 31,000 estates used it in 2023 to 2024, sheltering £7.79 billion of chargeable value from a charge.
The bulletin says its estimates "can be scaled up or down to provide a rough guide to the potential effects". On that basis a 5 percentage point rise in the standard rate comes to roughly £1.2 billion a year. Set that against the £7.03 billion the tax already creates in liabilities and the rate looks like a small lever. Most of the money sits in the thresholds and the reliefs.
The strongest objection to treating any of this as the shape of the risk
Here is the case against the whole exercise. Modelling the nil rate band and the 40% rate assumes that change arrives through those two numbers, and over the last two years it hasn't. The two inheritance tax changes HMRC flags from Autumn Budget 2024 onwards both came through reliefs and scope instead. HMRC's own commentary names them: restrictions to agricultural and business property reliefs from April 2026, and unspent pension pots from April 2027.
The average effective rate of 13% is the tell. The distance between 13% and 40% is made of reliefs, exemptions and allowances, and that is where the money is. Agricultural and business property relief alone was set against £5.96 billion of assets in 2023 to 2024. The spouse exemption accounted for £6.8 billion. An estate can face a materially different bill with the £325,000 band and the 40% rate both untouched.
That objection holds, and it is the reason the gift section above is built on an official recommendation rather than on anyone's forecast. Arithmetic on confirmed rules tells you where you stand today. It does not tell you which lever moves next.
What this arithmetic cannot tell you
The estate statistics are a year behind, by design. HMRC's own note says the 2023 to 2024 publication excludes the April 2026 relief restrictions and the April 2027 pension change, "since they relate to a previous tax year". Anyone reading the 4.72% as a current number is reading a pre-reform world.
The sample changed, too. Since 1 January 2022 excepted estates no longer report their valuations, so HMRC warns that "comparisons across years should be treated with caution". The series measures what estates report, not what estates are.
The ready reckoner is a forecast, and a dated one. It rests on the OBR forecast published on 26 March 2025, assumes implementation in April 2026, and excludes anything that came to light after that Spring Statement. It is not a costing of any proposal, and nothing in it forecasts a Budget 2026 inheritance tax measure.
The table holds a great deal still, as well. One person, no trusts, no business or agricultural assets, no lifetime gifts in the previous 7 years, and a home that genuinely passes to direct descendants. Change any of those and the answer moves. The UK inheritance tax thresholds and the residence nil rate band taper are set out in full separately. And the OTS gift recommendations are proposals from 2019 that remain unadopted: GOV.UK still sets out the 7 year rule, the taper table and the £3,000 annual exemption.
What would change these numbers
If the thresholds unfreeze. The £325,000 band has stood since 6 April 2009 and is scheduled to stand to 5 April 2031. HMRC attributes part of the growth in receipts to that freeze. Indexation would reverse it quietly, with no rate change at all, and the ready reckoner prices the direction: every £5,000 on the band costs £140 million.
If the gift rules change in either direction. The 7 year rule and taper relief are the two parts of inheritance tax that already have an official published alternative, from 2019, and neither has moved since. The gap between £96,000 and £160,000 on a £400,000 gift given 4 years before death is what that package would move.
If the £2 million taper point moves. That one number, rather than the 40% rate, is what turns a £400,000 pension pot into £200,000 of tax instead of £160,000.
The figure to watch on 28 October 2026 is the £2 million taper point, together with the gift exemptions and the reliefs. Between them they account for the whole distance from a headline rate of 40% to an average effective rate of 13%.