How the value of your estate affects a key Inheritance Tax allowance

Book an introduction call

How the value of your estate affects a key Inheritance Tax allowance

by RMI Independent Financial Advice Category: News

Inheritance Tax (IHT) is a growing concern for many people in the UK, with increasing numbers of estates facing a rising tax liability.

Each year, the amount of IHT paid to HMRC is increasing. By 2030/31, the Office for Budget Responsibility (February 2026) forecasts that IHT receipts will reach £14.5 billion, up from £8.3 billion in 2024/25.

Frozen tax-efficient allowances are a key driver behind this trend. As your estate grows, a larger portion could exceed the threshold and become subject to IHT.

What’s more, once your estate reaches £2 million, your tax-efficient allowance can start to reduce, exposing more of your wealth to IHT.

Read on to learn how the value of your estate could affect the amount you can leave behind tax-efficiently.

The nil-rate bands allow you to pass on some assets tax-free

Your IHT allowances are known as “nil-rate bands”.

As of 2026/27, the nil-rate band is £325,000. This is the amount you can leave behind when you die without the value being included in IHT calculations. The portion of your estate exceeding the nil-rate band is usually taxed at 40%.

You may also have a residence nil-rate band if you leave a primary residence to a direct descendant. This can be up to £175,000, as of 2026/27, bringing your potential tax-efficient allowance to £500,000.

If you’re married or in a civil partnership, the spousal exemption usually allows partners to leave assets to one another tax-free. Any unused nil-rate band typically transfers to the surviving spouse, potentially allowing couples to pass on up to £1 million tax-efficiently.

The nil-rate bands are expected to remain frozen until at least 2031, meaning a larger portion of your estate could be taxable than if the thresholds had risen with inflation.

You could start to lose your residence nil-rate band when your estate exceeds £2 million

The residence nil-rate band usually begins tapering once the value of your total estate reaches £2 million.

For every £2 your estate exceeds the threshold, you lose £1 of your residence nil-rate band. So, if your estate were £100,000 over the threshold, your allowance would reduce by £50,000.

The taper continues until your estate reaches £2.35 million, at which point you lose your full residence nil-rate band. This can mean an additional £175,000 of your estate could be subject to 40% tax, potentially increasing your IHT bill by £70,000. For a couple losing the full allowance, the IHT bill could rise by £140,000.

While married and civilly partnered couples can typically transfer unused nil-rate bands to potentially double their tax-efficient allowance, the taper threshold remains fixed at £2 million. In some cases, if assets are transferred to a surviving spouse, their total estate could exceed the threshold, and they could lose both partners’ residence nil-rate bands.

More estates are passing the threshold

MoneyWeek (February 2026) reports that the number of estates valued at over £2 million could rise from 3,620 in 2023 to 16,000 by 2030/31.

The level at which the residence nil-rate band begins to taper is set to remain frozen at £2 million until at least 2031, having not changed since it was introduced in 2017.

According to the Bank of England’s (April 2026) inflation calculator, the threshold would have risen to over £2.7 million if it had grown with inflation since 2017.

As earnings rise and asset values increase with inflation, more estates could pass the £2 million threshold and start losing their tax-efficient allowance.

In particular, rising property prices are pushing up the total net value of many estates. With the threshold frozen, it’s important to consider how the value of your assets might grow over the long term when planning to pass them on tax-efficiently.

What’s more, from April 2027, your unused pension pots could be included in your estate for IHT purposes when you pass away. Depending on how much is left in your pension when you die, this could add a significant amount to your estate’s net value, potentially pushing your total over the £2 million threshold.

3 ways to potentially mitigate an Inheritance Tax bill

If you’re worried about your estate exceeding the taper threshold and losing your nil-rate band, you might consider taking proactive steps to mitigate your estate’s IHT liability.

1. Give gifts in your lifetime

Gifting wealth in your lifetime could be an effective way to reduce the value of your estate. Gifts that do not qualify for an exemption may be included in your estate for up to seven years after they were given. If you die within seven years, the value could be subject to IHT.

However, when it comes to determining whether you have exceeded the £2 million taper threshold, only assets you owned at the time of death are usually included in calculations. Therefore, gifts made within the seven years prior to death typically do not count towards the threshold.

So, by gifting your wealth, you may reduce the likelihood of losing your residence nil-rate band, while reducing the size of your estate being taxed.

That said, it’s important to ensure gifts are affordable and will not impact your current financial wellbeing or long-term financial goals. A financial planner can support you in incorporating tax-efficient gifting into your wider financial plan.

2. Leave a charitable legacy

If you leave 10% or more of your net estate to charity when you die, your IHT rate could reduce from 40% to 36%. In addition, gifts left to charities when you pass away are not included in IHT calculations. Depending on your circumstances, it could be an effective strategy to reduce your IHT bill while supporting a cause close to your heart.

Additionally, giving to charity during your lifetime can help reduce the size of your estate to mitigate an IHT bill and prevent your residence nil-rate band from being reduced.

3. Place assets in trust

You may be able to mitigate an IHT bill by putting assets in a trust.

Assets held in a trust may still be liable for IHT, depending on the type of trust used and when you pass away. However, typically, the value will not be considered when calculating whether your estate exceeds the £2 million threshold for losing your residence nil-rate band.

The rules for placing assets in trust and the IHT implications can be complex and vary between different trust types. Usually, you will be unable to remove assets from a trust once you have transferred them in. So, it’s important to seek legal and financial advice before making any irreversible decisions.

Get in touch for estate planning support

If you’re worried about your estate’s IHT liability, get in touch to find out how we can support you to pass on wealth tax-efficiently.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, Inheritance Tax planning, or trusts.

What our clients say

I was recommended Paul and Bryony as financial advisers by a friend. My husband and I were particularly interested to think about where to invest our savings. They have helped us to think about what level of risk we are prepared to engage with and explained the different possibilities very clearly and thoroughly, enabling us to maximise the potential of our investments. They also provide regular updates. We have been very pleased with their service and have already recommended them to others.

Dr C Oliver

London

I have been a client of RMI since their foundation. Prior to that, I dealt with the directors for my own personal pension and our business pensions. This relationship as existed for the last 25 years. During this time, I have received first-class support and advice. I have always been kept informed on financial trends and opportunities. To this end I was able to plan retirement early if I wished. More importantly, I was able to choose the right opportunity as when to retire. Since retiring, I continue to receive the highest service and advice on fund management.

Mr. M Moore

Ex General Manager

Leicester

We have dealt with Paul and his staff for over 20 years and have received a first-class service that is completely to our entire satisfaction. We would have no hesitation in recommending the company to anyone who is seeking financial advice.

Mr J Channing

Ex Non-Executive Director, Earl Shilton Building Society

Leicestershire

It’s a great comfort to have Paul Eason and his team on call if I have any queries or concerns about my finances.

Ms M Topham

Oxford

Paul Eason and Bryony Evans have competently managed our investments for the past twelve years. Their service has been managed diligently; they have provided consistency of advice for positive results. This has given us satisfaction and confidence in their ability to handle our personal affairs. Their research and advice are in-depth, concise and clear. They have demonstrated a thoroughness in all aspects of our personal financial planning.

Mr & Mrs S Price

Devon

Following a personal recommendation from a colleague some two years ago, Bryony and Paul provided advice to my wife and myself on planning for my forthcoming retirement. Latterly they have helped another family member on how best to invest a lump sum inheritance. On both occasions, they have guided us through the various options available, indicating the pros and cons in an easily understandable way. They continue to provide regular updates on how the investment is performing. We have always found them to be attentive, knowledgeable and a pleasure to deal with. We would have no hesitation in recommending them to a friend seeking an adviser.

Mr & Mrs P Teasdale

Rutland

When you are investing, you need confidence to make decisive commitments. Paul Eason and Bryony Evans at RMI are true professionals that you can trust implicitly for commercial and personal advice and transactions.

Mr D Matthews

Chairman, Cellular Mouldings Ltd

Northants

RMI not only deal with all our company's employee benefits schemes, but also provide invaluable support for us on a personal level. Nothing is too much trouble and we have found their service to be effective, efficient and friendly. We would recommend RMI to any company or private individual looking for a comprehensive and personal service.

Mr & Mrs I Bates

Ex Directors of The Bright Consultancy Ltd

Bournemouth

Paul and Bryony have advised us for over ten years. They bring strong market knowledge and analysis to provide balanced views for investment decision making. This is then backed up by thorough administration - all delivered in a professional and easy-going manner.

Mr & Mrs I Morton

Concept Shape Ltd

Cheshire

RMI Independent Financial Advisers have been assisting our clients with knowledge and insight into the world of pensions and protection for over 10 years. They have helped many of our company and personal clients navigate their options and meet the legislative duties around pensions and auto-enrolment in the most efficient way, whilst giving them the confidence to plan effectively for their future. We have no hesitation whatsoever in recommending their services to not only our clients, but to other professional connections.

Sunflower Accounts Ltd

Accountants

Wiltshire

Paul has been a trusted adviser to our business for over 20 years and he and Bryony continue to support us with our company pension scheme whilst providing first class financial advice. We would highly recommend RMI for anyone seeking a quality financial advisory service.

Mr J Turner

Managing Director, LINAK UK Ltd

Birmingham

I was looking at my potential retirement options and RMI were able to come up with a bespoke pension solution that enabled me to retire earlier than I had expected.

B Kilfeather

Not knowing how to plan for the future, I required advise about pensions and insurance policies and Paul has helped by being constantly available, calm and pragmatic.

Dr R Singh

Director

Paul was recommended to me by one of his clients and I was looking for a financial adviser who could help with a pension scheme for my employees and also for my personal plan.

Paul helped all the members of my team. He had time and patience and everyone individually with their various circumstances. He was also very helpful with my personal pension during the time I have my business. My personal circumstances have now changed and Paul’s advice has been invaluable.

D Harrison

Business Owner

Get In Touch

If you’d like to learn more about our services, please book a 30-minute meeting using the booking link below. We’ll use this opportunity to discuss your requirements and current situation.

Book your free introduction call

RMI Independent Financial Advice
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.