UK Inheritance Tax Planning Options (2026/27)
Ways estates reduce Inheritance Tax in 2026/27: nil-rate bands, gift exemptions, the 7-year rule, the 36% charity rate, BPR and APR, and the 2027 pension change.
Most of the ways an estate pays less Inheritance Tax are written into the legislation itself: allowances, exemptions and reliefs that anyone can use. This page lists the main ones for 2026/27, with a worked charity example computed by our Inheritance Tax calculator. It is general information, not advice; anything involving trusts, business property or a home you plan to keep living in needs a solicitor or tax adviser.
Thresholds for 2026/27
| Allowance | Value |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band (home to direct descendants) | £175,000 |
| Residence band tapers above (by 1 pound for every 2 pounds) | £2,000,000 |
| Single person, both bands | £500,000 |
| Couple, with unused bands transferred | £1,000,000 |
| Rate | 40% (36% with the charity condition met) |
Sources: GOV.UK, GOV.UK residence nil rate band.
The main options
- Make sure both spouses' bands are used. Gifts and bequests between spouses and civil partners are exempt, and any nil-rate band or residence band unused on the first death can be claimed on the second (form IHT402 for the nil-rate band, IHT436 for the residence band).
- Use the annual exemption. £3,000 a tax year, with one unused year carried forward.
- Small gifts, wedding gifts and regular gifts from income. These are exempt immediately. Regular gifts from income have no cap, but they must come from income, not capital, and leave you enough to maintain your usual standard of living (IHTA 1984 s.21).
- Larger lifetime gifts. Outside the estate after 7 years. Gifts you keep benefiting from (a home you still live in rent-free) do not count as given away (Finance Act 1986 s.102). See the 7-year rule guide.
- Business Relief and Agricultural Relief. 100% within a £2,500,000 combined allowance from 6 April 2026 and 50% above it; AIM-type shares get 50% in all cases and cannot use the allowance (GOV.UK).
- Charity legacies. Exempt in full, and a large enough legacy reduces the rate on the rest to 36% (worked example below).
- Life insurance written in trust. A policy written in trust can pay out outside the estate and help fund a tax bill; the premiums you pay are themselves gifts, so check which exemption covers them.
- A deed of variation after death. Beneficiaries can redirect what they inherit within 2 years (IHTA 1984 s.142).
Changes to plan around
- 6 April 2026: the £2,500,000 Business and Agricultural Relief allowance, transferable to a spouse or civil partner.
- 6 April 2027: most unused pension funds and death benefits come into the estate; personal representatives report and pay (GOV.UK).
- To April 2031: the nil-rate band, residence band and taper threshold stay frozen.
Worked example: a £2,000,000 estate and the 36% rate
A single person leaves £2,000,000, including a home worth more than £175,000 to their children. The estate is not above the taper threshold, so both bands apply in full.
- No charity legacy: £1,500,000 is taxed at 40% = £600,000. The family receives £1,400,000.
- Charity condition: the baseline amount is the estate less the nil-rate band, £1,675,000 (the residence band is not deducted; HMRC IHTM45009). 10% of that is £167,500.
- With a £167,500 legacy: £1,332,500 is taxed at 36% = £479,700. The family receives £1,352,800.
- Result: the tax falls by £120,300, so the charity receives £167,500 at a cost to the family of £47,200. The reduced rate makes a charitable legacy cheaper; it does not leave the family better off.
Related pages
Frequently asked questions
How much can I leave before Inheritance Tax is due in 2026/27?
The nil-rate band is £325,000. A residence nil-rate band of up to £175,000 is added when a home passes to children or grandchildren, giving £500,000, and a surviving spouse or civil partner can inherit any unused bands, so a couple can reach £1,000,000. The residence band tapers away for estates over £2,000,000. Both bands are frozen until April 2031.
How does the 7-year gift rule work?
A gift to another person is outside your estate if you live 7 years after making it. If you die sooner it uses your nil-rate band first; tax is due only on gifts above the band, and taper relief cuts the rate to 32%, 24%, 16% or 8% for gifts made 3-4, 4-5, 5-6 or 6-7 years before death. The person who received the gift pays.
Which gifts are free of Inheritance Tax straight away?
The £3,000 annual exemption (one unused year carries forward), gifts of up to £250 per person if no other allowance is used on them, wedding gifts of up to £5,000 from a parent, £2,500 from a grandparent and £1,000 from anyone else, regular gifts from surplus income, and gifts to a spouse, civil partner or charity. Per GOV.UK these never enter the 7-year count.
What changed for Business Relief and Agricultural Relief in April 2026?
For deaths from 6 April 2026, 100% relief on qualifying business and agricultural property is limited to a combined £2,500,000 allowance, with 50% relief above it. An unused allowance can pass to a surviving spouse or civil partner, so a couple can have up to £5,000,000. Lifetime gifts of such property from 30 October 2024 count against the allowance if the giver dies within 7 years.
Are AIM shares still free of Inheritance Tax?
No longer fully. Business Relief on shares traded on markets HMRC treats as not listed, such as AIM, is 50% in all cases from 6 April 2026, and they cannot use the 100% allowance at all. Before then qualifying AIM shares held for 2 years could get 100% relief. On HMRC figures around 700 of the estates expected to pay more in 2026/27 hold only such shares.
How will the April 2027 pension change affect Inheritance Tax?
From 6 April 2027 most unused pension funds and death benefits will count as part of the estate, and personal representatives will be liable to report and pay the tax. Death-in-service benefits and dependants' scheme pensions from defined benefit or collective money purchase schemes are excluded, and the spouse and charity exemptions still apply. HMRC estimates 10,500 estates will have a liability in 2027-28 where they previously would not.
Does leaving 10% to charity reduce Inheritance Tax?
If at least 10% of the baseline amount (the estate after the nil-rate band, before the residence band, with the charity gift added back) goes to charity, the rate on the rest falls from 40% to 36%. On a £2,000,000 estate this cuts the tax by £120,300, but the £167,500 gift still leaves the family £47,200 less.
Can beneficiaries change a will after a death to save tax?
Yes. A variation in writing made within 2 years of the death, by the beneficiaries giving something up, can be treated for Inheritance Tax as if the person who died had made it, provided it contains a statement that it is meant to have that effect (IHTA 1984 s.142). It works for wills and intestacy. It cannot be made for payment, and if it creates more tax the personal representatives must also sign the statement.