IHT Threshold Freeze will Cost £270,000 By 27/28 Tax Year
London, 12th May 2026 – Inheritance tax (IHT) thresholds would be £270,000 higher by the 27/28 tax year if they had risen in line with inflation, new analysis1 from Chesnara Life (UK) Ltd shows.
The onshore investment bond provider calculates that the £325,000 nil rate band for IHT would be set at £537,000 by the 27/28 tax year while the £175,000 resident nil rate band would be £233,000 if both had indexed in line with inflation taking them to a combined £770,000 before IHT would kick in.
Instead, both have been frozen, the nil rate band since April 2009 and the resident nil rate band since April 2020 and will remain at current levels until April 2030 with the result that total IHT nil rate bands for an individual remain at a total of £500,000 where a family home is left to direct descendants.
Government data2 shows the percentage of estates likely to be subject to IHT will rise to 7% by 2032/33, nearly double the 4% which paid the tax in 2020/21.
The inclusion of unused defined contribution pensions in estates from 2027/28 is estimated to raise an additional £5,46 billion in IHT by 2030/313. Around 10,500 estates will have an IHT liability in 2027/28 which they would not previously have had and a further 38,500 will pay more IHT as a result.
Mark Lambert, Head of Onshore Bond Distribution, Chesnara Life (UK) Ltd said:
“The freeze on IHT nil rate and resident nil rate bands has already had a significant impact on estate planning and means ever increasing numbers of advisers and their clients will need to plan for IHT. The inclusion of unused pension funds in estates from April 2027 will add to that pressure and is already having an impact as advisers and clients look for strategies.
“We are seeing growing interest in onshore investment bonds and trusts from advisers and we are expanding our support so that they can confidently advise on the full range of estate planning solutions.”
Chesnara Life’s expanded support for advisers includes the launch of a comprehensive Estate Planning Manual and adapted support services to reflect the growing complexity in supporting clients with estate planning solutions.
Chesnara Life’s adviser tools include an IHT calculator as well as estate planning solutions such as onshore investment bonds and detailed resources covering key issues including lifetime trusts, life assurance, wills, and estate planning.
Onshore investment bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%. Capital gains realised within the Bond are subject to UK life fund taxation.
This “fund level” taxation treatment of income and capital gains results in a full basic rate income tax credit being available to the investor when a chargeable event arises. This, in effect, means that the policyholder is treated as having already paid basic rate income tax on these gains. Top slicing relief and 5% p.a. tax deferred rules on withdrawals remain. Lifetime transfers by way of assignment without consideration are generally treated as not being taxable events for income tax purposes, subject to individual circumstances and prevailing tax rules.
For more information, view Chesnara Life’s Estate Planning Manual here: https://www.chesnaralife.co.uk/supporting-your-estate-planning-advice/
Notes to Editors:
- Technical Connection – Q42025.
- Inheritance Tax – Office for Budget Responsibility.
- https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits
About Chesnara Life (UK) Ltd
Chesnara Life (UK) Ltd, formerly HSBC Life (UK) Limited, is a UK subsidiary of Chesnara plc. Chesnara Life offers its open architecture Onshore Investment Bond as a stand-alone offering or through a range of third-party investment platform partners. The Chesnara Life Business Development Team supports all versions of our Bond. The Chesnara Life Onshore Investment Bond provides individual investors with access to over 4,800 funds (Investment Trusts, Open Ended Investment Companies, Unit Trusts and Exchange Traded Funds) from more than 200 Fund Managers. chesnaralife.co.uk
Chesnara Life (UK) Ltd is authorised by the Prudential Regulation Authority (“PRA) and regulated by the Financial Conduct Authority (“FCA) and the Prudential Regulation Authority (“PRA”). Our Financial Services Register number is 133435 and our registered office is at: 2nd floor, 33-34 Winckley Square, Preston, Lancashire, PR1 3JJ, United Kingdom. Registered in England number 88695.
Media Contact:
CDR – Jonathan Flint – Jonathan.Flint@cdrconsultancy.com