Key facts
- UK inheritance tax thresholds, including the nil-rate band and residence nil-rate band, are frozen until 2031.
- From April 2027, unspent pensions will be included in the taxable value of an estate.
- The main tax-free allowance is £325,000, with an additional residence allowance of £175,000 for direct descendants.
- Couples can currently pass on up to £1m tax-free, with unused allowances transferring to a surviving spouse or civil partner.
- HMRC projects that 10,500 more estates will become liable for inheritance tax in 2027-28 due to these changes.
- Rising asset values and frozen thresholds mean more estates will exceed the tax-free limit.
New inheritance tax rules set to come into effect from April 2027 will include unspent pensions in the valuation of an estate, potentially increasing the tax burden for many Britons. This change, combined with the extension of the freeze on personal tax thresholds until 2031, is expected to pull more estates into the inheritance tax net.
The UK's nil-rate band for inheritance tax remains at £325,000, with an additional residence nil-rate band of £175,000 available when a home is passed to direct descendants. These allowances allow individuals to pass on up to £500,000 tax-free, and couples up to £1m. However, the freeze on these thresholds means that as asset values, particularly property, rise, more estates will exceed these limits.
Calculations by Interactive Investor suggest that certain family structures will be disproportionately affected. For instance, individuals inheriting from an unmarried partner could face a tax bill of £110,000 on an estate worth £600,000, whereas previously no tax would have been due. This is because unmarried partners cannot benefit from the residence nil-rate band if the home is not left to direct descendants.
Chancellor Rachel Reeves confirmed the extension of the freeze on personal tax thresholds until 2031, a move that will increase Treasury receipts through fiscal drag. Official figures show that Treasury receipts from inheritance tax reached £8.2 billion in the 2024/25 financial year. Experts suggest that individuals concerned about the impact of these changes might consider lifetime gifts, utilising the annual £3,000 gift allowance or larger gifts that fall outside the estate after seven years.