UK IHT Mitigation Strategies Complete Guide 2026/27
UK IHT mitigation 2026/27 - NRB + RNRB use, 7-year gifts, BPR April 2026 cap, charitable bequests, pension as IHT shelter until April 2027, AIM shares, trusts.
IHT thresholds 2026/27
| Allowance | Value |
|---|---|
| Nil Rate Band (NRB) | £325,000 |
| Residence NRB (RNRB) | £175,000 |
| RNRB taper threshold | £2,000,000 |
| Combined individual max | £500,000 |
| Combined married couple max | £1,000,000 |
| IHT rate | 40% (36% with 10%+ to charity) |
The 10 IHT mitigation strategies
- Use both spouse allowances - £1M combined
- Use annual £3,000 gift exemption
- Small gifts £250/person - unlimited recipients
- Regular gifts out of income - no cap if demonstrably from income
- 7-year gift rule - large lifetime gifts
- Business Property Relief - 100% within a £2.5m allowance combined with APR from April 2026, 50% above
- AIM shares - 50% relief in all cases from April 2026, outside the allowance
- 10% charitable bequest - reduces IHT rate 40% → 36%
- Pension as IHT shelter - until April 2027 reform
- Insurance policies in trust + discounted gift trusts
Critical 2026-2027 reforms
- April 2026: BPR + APR 100% relief limited to a £2.5m allowance per individual, transferable to a spouse (50% above)
- April 2027: DC pension pots enter IHT estate
- April 2031: NRB + RNRB thresholds remain frozen
Worked example: £2M estate single person
- NRB + RNRB available: £500,000
- Above thresholds: £1,500,000
- IHT at 40%: £600,000
- With 10%+ to charity (£150,000 to charity): IHT on £1,350,000 at 36% = £486,000
- Net charity giving saves the estate ~£114,000 of IHT for £150,000 of charity giving = £36,000 net IHT reduction
Related pages
Frequently asked questions
What's the IHT free amount for 2026/27?
£325,000 NRB + £175,000 RNRB = £500,000 per individual. Married couples can combine: £1,000,000 if both NRB + RNRB transferred. All frozen until April 2031. Above thresholds: 40% IHT (36% if 10%+ to charity). RNRB tapers above £2M estate value.
How does the 7-year gift rule work?
Gifts above £3,000/year exemption fall outside estate if donor survives 7 years from gift. Taper relief if death between 3-7 years: 80%, 60%, 40%, 20% of Inheritance Tax (IHT) rate progressively. Useful for large lifetime giving but requires 7-year survival from each gift.
What are the £3,000 annual gift exemptions?
(1) Annual £3,000 exemption - can give freely; (2) Carry forward 1 year if unused (so £6,000 max in year following no-use year); (3) Small gifts £250/person/year to any number of people; (4) Wedding gifts: £5,000 parents, £2,500 grandparents, £1,000 others; (5) Regular gifts out of income (no limit if can demonstrate "out of income" without depleting standard of living).
What is Business Property Relief?
BPR gives 100% IHT relief on qualifying business assets (50% on some): trading businesses, sole trader assets, partnership interests, unlisted shares, AIM shares (most). From 6 April 2026: the 100% rate is limited to a £2.5m allowance combined with APR, with 50% relief above it. Announced at £1m at Autumn Budget 2024, made transferable between spouses at Budget 2025 and raised to £2.5m on 23 December 2025.
Are AIM shares still IHT-free in 2026?
Until April 2026: 100% BPR on most AIM shares held 2+ years. From April 2026: AIM shares drop to 50% relief in all cases and cannot use the £2.5m allowance at all, so there is no 100% band for them at any value. AIM-focused IHT portfolios that previously sheltered millions now only shelter £1M before partial relief. Major hit for previous strategy users.
How does the April 2027 pension IHT change work?
From 6 April 2027: defined-contribution pension pots enter the IHT estate for the first time. Previously DC pensions outside estate - one of the most valuable IHT planning opportunities for past 20 years. HMRC estimates ~10,500 additional estates per year pulled into IHT from this single reform.
How does 10% charitable bequest reduce IHT?
Leave 10%+ of "net estate" (after NRB+RNRB) to qualifying charity. IHT rate on remainder reduces from 40% to 36%. Saves approximately £4,000 per £100,000 of taxable estate. Most powerful for estates well above thresholds where IHT is substantial.
What are loan-back / discounted gift trusts?
Insurance-based trust structures. You contribute capital to trust + receive ongoing income (varies). Capital outside estate after 7 years (or sooner for some structures). Useful for substantial estates where pure gifting reduces income. Complex - requires specialist legal + tax advice. Typical setup cost £2,000-£10,000.
Should I use a deed of variation after a death?
Yes - powerful retrospective IHT planning. Within 2 years of death, beneficiaries can redirect inheritance to other people/trusts. Treated for IHT purposes as if deceased made the redirection. Useful when: original will distributes inefficiently for IHT, intended beneficiaries don't need the money, charitable bequest could reduce rate to 36%.