Key takeaways
- Budget 2026 made one inheritance tax change on 28 October 2026, an anti-avoidance rule on trust liabilities that HMRC scores at nil in every year to 2031 to 2032.
- The thresholds didn't move. The nil rate band is still £325,000, the residence nil rate band is still £175,000, and the rate above them is still 40%.
- From 6 April 2027 most unused pension funds count as part of an estate. A £400,000 pot beside a £1,200,000 estate lifts the bill from £280,000 to £440,000.
- A £600,000 pot that carries an estate from £1,900,000 to £2,500,000 costs £310,000, because the residence band tapers away. That is 51.7% of the pot.
- The OBR's October 2026 forecast has 8.30% of UK deaths taxed in 2027 to 2028, against 5.91% the year before.
What the inheritance tax changes in 2027 cost on six estates
You want to know what Budget 2026 did to the bill on your estate. For almost every estate, it did nothing. The nil rate band is still £325,000, the residence nil rate band is still £175,000, and the rate above them is still 40%.
The change that moves real money was already law when the Chancellor stood up. From 6 April 2027 most unused pension funds count as part of an estate. That single line is the substance of the inheritance tax changes in 2027, and here is what it does.
Every row below assumes one person, not a widow or widower, leaving a home to their children. That gives a £500,000 threshold: the £325,000 nil rate band plus the £175,000 residence nil rate band. Nothing passes to a spouse or to charity, and no agricultural or business relief applies.
| Estate excluding pension | Pension pot | Tax today | Tax from 6 April 2027 | Difference |
|---|---|---|---|---|
| £600,000 | None | £40,000 | £40,000 | Nil |
| £600,000 | £200,000 | £40,000 | £120,000 | £80,000 |
| £1,200,000 | None | £280,000 | £280,000 | Nil |
| £1,200,000 | £400,000 | £280,000 | £440,000 | £160,000 |
| £2,500,000 | None | £870,000 | £870,000 | Nil |
| £1,900,000 | £600,000 | £560,000 | £870,000 | £310,000 |
Read the first four rows and the new charge looks simple. A pot adds 40% of itself to the bill, the same rate as everything else above the threshold. The £200,000 pot costs £80,000 and the £400,000 pot costs £160,000. Read the last row and that stops being true.
Budget 2026 touched inheritance tax once, and HMRC scored it at nil
The Budget 2026 document names inheritance tax in exactly one measure. It amends how liabilities attached to property held in trust are valued, to "align the treatment of liabilities affecting trust property with personal liabilities, and strengthen anti-avoidance provisions". It has effect "for deaths and other chargeable events occurring on or after 28 October 2026".
The impact note puts the Exchequer effect at nil in every year from 2026 to 2027 through to 2031 to 2032. The measure is "expected to affect a small number of individuals with arrangements involving liabilities relating to settled property". That is the whole of the Budget 2026 inheritance tax changes for a reader with a house and a pension. The inheritance tax changes in 2027 came from an earlier Budget, and were legislated months ago.
What the Budget did to personal tax sits elsewhere. Income tax rates on savings income rise by 2 percentage points from 6 April 2027, taking the savings basic rate to 24%, the higher rate to 44% and the additional rate to 49%. Property income rises by the same 2 points. The inheritance tax thresholds were left alone, and HMRC's own table still carries the £325,000 nil rate band to 5 April 2031 and the £175,000 residence band to 5 April 2030.
The pension change was already law, and it is the one that moves the bill
HMRC's technical note is unambiguous about timing. "Finance Act 2026 received Royal Assent on 18 March 2026", and the reforms have effect "for deaths on or after 6 April 2027". Die before that date and today's rules apply, even if the money reaches the beneficiary later.
HMRC sized the measure when it published the impact note on 26 November 2025. Of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 face a bill where none would have arisen, and roughly 38,500 pay more than they would have. The average liability rises by about £34,000. The Treasury scores the change at £710 million in 2027 to 2028.
Three exclusions matter. Death in service benefits from a registered pension scheme stay outside the estate. So do exempt benefits, funds under £1,000 and continuing annuities. And the spouse exemption survives intact, so a pot left to a husband, wife or civil partner is not caught.
Where tax does fall on the pot, personal representatives can direct a scheme to "withhold 50% of the taxable benefits for up to 15 months from the date of death". Where the member died at 75 or over, income tax lands on what is left as well. HMRC's note puts it in one line: "If the member was over age 75, all death benefits are taxable." We work that second charge through in inheritance tax on pension pots. This page stays on the estate-level bill.
A pot that carries an estate past £2,000,000 is taxed above 40%
The residence nil rate band isn't available to every estate that leaves a home to children. HMRC's manual sets the limit out: "For estates above the taper threshold the amount of available RNRB is reduced by £1 for every £2 of value by which it is exceeded." The taper threshold is £2,000,000. HMRC's statisticians put the end point plainly, that "as soon as an estate is worth £2.7 million or more, no RNRB can be used".
Today a pension pot doesn't form part of the estate for that test, because most UK schemes are discretionary ones. From 6 April 2027 it does. So a pot can carry an estate across the taper line, and then it costs more than its own 40%.
Look again at the last row. A £1,900,000 estate with a £600,000 pot pays £560,000 today, because only the £1,900,000 is counted and the full £175,000 residence band survives. From 6 April 2027 the estate is £2,500,000, the residence band tapers to nothing, and the bill is £870,000. The pot has cost £310,000, which is 51.7% of it.
That is arithmetic on two published rules rather than a worked example HMRC has printed. The technical note on pensions doesn't mention the residence nil rate band anywhere. If you want the taper on its own it is set out in our guide to the inheritance tax threshold.
The OBR expects the taxed share of deaths to step up in 2027 to 2028
The chart plots the OBR's October 2026 forecast for the share of UK deaths that end in an inheritance tax charge. It runs at 4.87% in 2024 to 2025 and 5.91% in 2026 to 2027, steps to 8.30% in 2027 to 2028, then keeps climbing to 10.48% by 2031 to 2032.
In counts rather than shares, that is 38,878 deaths taxed in 2026 to 2027 and 55,015 in 2027 to 2028. The average bill falls at the same time, from £246,634 to £204,609, because the estates joining the net are smaller than the ones already in it. Receipts move the other way, to £10.8 billion in 2027 to 2028 from £9.1 billion the year before, and on to £15.1 billion by 2031 to 2032.
These are forecasts, and the OBR is candid about its record on this particular tax. "Since June 2010, IHT receipts have been consistently stronger than our forecasts."
The Budget did cut one charge on pension death benefits
One measure in the Budget pack goes the reader's way. Until 28 October 2026, a tax-free lump sum death benefit became taxable if the scheme paid it more than two years after learning of the member's death. The rule bit even where neither the scheme nor the family had caused the delay. HMRC has removed it for payments made on or after Budget day, where the member died under 75.
The cost tells you how narrow it is: £5 million in 2026 to 2027, then £15 million a year. It is a fairness fix and not a change in the shape of the tax.
The strongest objection is that fewer than 1 in 20 estates pay anything
The table above is a bill for people who have one, and most estates don't. In the tax year 2023 to 2024, 30,400 UK deaths out of 644,000 resulted in a charge, which is 4.72%. HMRC's own summary is that "IHT is payable on fewer than 1 in 20 estates, as it has been since 2007 to 2008".
The headline 40% also overstates what taxpaying estates hand over. The average effective rate in the tax year 2023 to 2024 was 13%, "around one-third of the headline rate", once allowances, the spouse exemption and reliefs have done their work.
HMRC flags that its own estate counts sit at the top of the range rather than the middle. The estimates "are static and do not take into account potential behavioural changes, such as tax planning or drawing down pension funds faster", and "should be viewed as a maximum". Since 79% of inheritance tax is paid by estates of people aged 75 or over, there is a long window in which that behaviour can change.
What these numbers cannot tell you
The six rows are arithmetic on rules as published, not a prediction about your estate. They assume a valuation on the day of death, one unmarried person, a home passing to children, and no business or agricultural property. Change any of those and the answer moves, usually a long way. A widowed estate holding both sets of bands can pass up to £1 million before anything is due.
Two of the sources here disagree about that £2,000,000 line, and the newer one wins. HMRC's manual still says the taper threshold holds "for the tax years 2017-18 to 2027-28", with CPI uprating after that. HMRC's own Budget 2025 measure overrides it, fixing the thresholds "for one further tax year in 2030 to 2031", including the "RNRB taper, starting at £2 million". The manual is guidance and the measure is law, so the £2,000,000 line holds across the whole of the forecast above. A reader checking the manual alone would be three tax years out.
The table also stops at inheritance tax. It says nothing about the income tax a beneficiary pays on an inherited pot where the member died at 75 or over, which is a second charge on the same money.
What would change the conclusion
If the thresholds start moving, every row moves with them. HMRC states the default: "The current legislative default is for the NRB, RNRB and threshold for the RNRB taper to increase in line with the Consumer Prices Index (CPI) in each year from 2030 onwards." The Budget 2025 measure pushed the freeze out by one more year. Until then, fiscal drag does the work no announcement has to do. "The NRB has been fixed at £325,000 since the tax year 2009 to 2010."
If a later Budget lifted the £2,000,000 taper point, the last row would soften and the 51.7% would fall back towards 40%. If the behavioural response HMRC flags is larger than it assumed, the 10,500 and the 38,500 come down with it.
The number to watch is a single one: your estate including the pension, measured against £2,000,000. LedgerTouch keeps that total current across property, investments and pensions, and a spreadsheet updated once a year does the same job more slowly. Below the line, a pot is taxed at 40% and the arithmetic is linear. Above it, the residence band is being withdrawn at £1 for every £2, and the pot does damage out of all proportion to its size.