Budget 2026: Inheritance Tax

Nil rate bands, and Inheritance Tax rates

No major changes have been announced in relation to IHT, meaning that the Nil Rate Band (NRB) and Residential Nil Rate Band continue to remain frozen, despite inflation levels, at their current rates of £325,000 and £175,000 respectively. IHT rates also remain unchanged.

BPR and APR

No further announcements have been made regarding either Business Property Relief (BPR) or Agricultural Property Relief (APR). As a result, the newly introduced £2.5 million combined threshold for 100% relief will remain in place, with 50% relief applying to any excess. As announced last year, these allowances will be transferable between spouses and civil partners.

Minor technical amendments to extension of Inheritance Tax (IHT) to pensions from April 2027

From April 2027, undrawn pensions will be brought into charge for IHT purposes, which we already knew. Further legislation will now be included allowing a prospective personal representative to direct pension scheme administrators to pay the inheritance tax due to HMRC when certain conditions are met. Those administering an estate will be allowed to decide whether notional pension property is included in the ‘general’ component of the estate or as a separate component for the purposes of calculating the reduced rate of inheritance tax when part of the estate is left to charity.

Preventing unintended deductions for liabilities in Trust arrangements

Inheritance Tax is charged on the net value of property transferred on death and on certain lifetime transfers. Liabilities may be deducted in calculating taxable value but includes anti-avoidance provisions that stop liabilities arising under avoidance arrangements from inappropriately reducing Inheritance Tax charges. In certain circumstances involving settled property, liabilities may reduce Inheritance Tax charges in a way that is inconsistent with the intended operation of the legislation.

With immediate effect, legislation will provide a statutory rule for taking liabilities properly incurred by trustees into account when valuing settled property for inheritance tax purposes. It will also align their treatment with personal liabilities and extend existing debt deduction restrictions and anti-avoidance rules to ensure that certain liabilities funded using value originating from a beneficiary’s own estate cannot reduce inheritance tax charges.

National Savings and Investment tracing issue

Announced ahead of the Budget, legislation will be introduced to prevent estates affected by the National Savings & Investments (NS&I) tracing error in respect of bereavement claims from facing disproportionate administrative burdens. The changes will also provide a full IHT exemption and an income tax easement on affected amounts. These measures will be retrospective where necessary, provided they do not increase anyone’s tax liability.

Reforming the Cultural Gift Scheme

Previously announced, from April 2027 jointly owned property will be allowed to be donated under the Cultural Gift Scheme, with relief calculated by reference to each donor’s beneficial entitlement to that property. The measure will also allow donors one opportunity, within the five-year limit period, to amend their remaining tax credit allocation.