How much residence nil-rate band can a pension cost?

It depends on the estate. In the ratified £2.3m demonstrator, a £500,000 pension pushes the taper value £300,000 over the £2m threshold, so the £175,000 residence nil-rate band tapers by £150,000 to just £25,000. A larger estate can lose the band entirely.

Is the extra £260,000 of tax all “pension inheritance tax”?

No. The £260,000 is the whole-estate increase from including the pension — part of it is the residence nil-rate band lost at the taper stage. A separate “modelled pension share” of the bill is a different figure and stays labelled modelled while HMRC’s detailed attribution guidance is pending.

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The £2m RNRB taper, worked: when a pension costs £150,000 of nil-rate band

The rule says a pension can erode the residence nil-rate band. One worked estate shows the size of it: £500,000 of pension turns £175,000 of band into £25,000, and £520,000 of tax into £780,000.

Based on Finance Act 2026, HMRC’s May 2026 technical note, IHTM46023, the ADR-055 ratification pack demonstrator, and abrdn’s technical guide.

6 min read · Last reviewed 20 Jul 2026

— In short

On a ratified £2.3m demonstrator, a £500,000 in-scope pension pushes the taper value past the £2m threshold. The residence nil-rate band tapers by £1 for every £2 over £2m, so £175,000 of band falls to £25,000 — £150,000 lost. Estate inheritance tax rises from £520,000 without the pension to £780,000 with it, a £260,000 increase driven partly by the lost band.

Put the rule to work

Run the calculation

Use the Pension IHT (April 2027) with your figures and see the working. Free, with no sign-up required.

Run the calculator

A companion guide sets out why an unused pension can erode the residence nil-rate band from 6 April 2027: the £2m RNRB taper and pensions walks the rule. This one puts a number on it, using the ratified demonstrator that also runs on the calculator.

The estate

Take a self-contained case: a £500,000 qualifying residence passing to direct descendants, £1,300,000 of other free-estate assets, and a £500,000 in-scope pension. Liabilities and other exemptions are nil, there is one full £325,000 nil-rate band, the maximum residence nil-rate band is £175,000, and no transferred bands apply.

The estate (ratified demonstrator)

Qualifying residence to direct descendants: £500,000
Other free-estate assets: £1,300,000
Free estate excluding the pension: £1,800,000
In-scope pension: £500,000
Nil-rate band: £325,000
Maximum residence nil-rate band: £175,000

Without the pension

The free estate is £1,800,000 — below the £2m taper threshold — so the residence nil-rate band is available in full. With £325,000 + £175,000 of bands, £1,300,000 is taxable at 40%.

Without the pension — £1.8m estate, full RNRB

Estate value: £1,800,000
Nil-rate band: £325,000
Residence nil-rate band (full): £175,000
Taxable estate: £1,300,000
Inheritance tax at 40%: £520,000

With the pension

Add the £500,000 pension and the taper value becomes £2,300,000 — £300,000 over the £2m threshold. The residence nil-rate band tapers by £1 for every £2 of that excess, a £150,000 reduction, leaving just £25,000. Now £1,950,000 is taxable at 40%.

With the pension — £2.3m taper value, RNRB tapered

Taper value (E): £2,300,000
Excess over the £2m threshold: £300,000
RNRB reduction (£1 per £2): £150,000
Residence nil-rate band remaining: £25,000
Taxable estate: £1,950,000
Inheritance tax at 40%: £780,000

The inheritance tax rises from £520,000 to £780,000 — a £260,000 increase from a £500,000 pension. Part of that is the pension’s own value entering the estate; part is the £150,000 of residence nil-rate band lost purely because the pension pushed the taper value over £2m.

What the £260,000 is — and is not

The £260,000 is the whole-estate increase from including the pension. It is not the same as “the pension’s inheritance tax”. Finance Act 2026 requires tax to be identified as attributable to pension property, but HMRC has not yet published the detailed attribution calculation, so any pension “share” of the bill is a modelled figure that stays labelled modelled and guidance-pending. The estate-level change and the modelled pension share are different concepts and must never share one label — the calculator shows them on separate lines.

The enacted scope, exclusions and personal-representative role are in pensions and inheritance tax from April 2027, and the wider framework is in pensions, death benefits and inheritance tax. Run this exact comparison on the Pension IHT calculator. For planning and illustration only; this guide states the rules and does not recommend a course of action.

Finance Act 2026 · IHTA 1984 ss.8D–8M · IHTM46023 · HMRC “Inheritance Tax on pensions” technical note §§3.1, 3.4 · ADR-055 ratification pack (E2E-RNRB-TAPER) · abrdn Techzone

Common questions

How much residence nil-rate band can a pension cost?: It depends on the estate. In the ratified £2.3m demonstrator, a £500,000 pension pushes the taper value £300,000 over the £2m threshold, so the £175,000 residence nil-rate band tapers by £150,000 to just £25,000. A larger estate can lose the band entirely.
Is the extra £260,000 of tax all “pension inheritance tax”?: No. The £260,000 is the whole-estate increase from including the pension — part of it is the residence nil-rate band lost at the taper stage. A separate “modelled pension share” of the bill is a different figure and stays labelled modelled while HMRC’s detailed attribution guidance is pending.

Sources & grounding

Finance Act 2026 brings most unused pension funds and death benefits into the estate for deaths on or after 6 April 2027; the taper value “E” is measured after liabilities but before exemptions and reliefs, so in-scope pension value counts. HMRC technical note §§3.1, 3.4. https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions · https://www.legislation.gov.uk/ukpga/2026/11/contents/enacted
Primary sources:https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions https://www.legislation.gov.uk/ukpga/2026/11/contents/enacted
Residence nil-rate-band taper: available RNRB is reduced by £1 for every £2 by which E exceeds the £2,000,000 threshold. HMRC IHTM46023. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46023
Primary sources:https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46023
Worked figures (all ratified, not invented): the ADR-055 ratification-pack self-contained RNRB-taper demonstrator — £500,000 qualifying residence to direct descendants, £1,300,000 other free estate, £500,000 non-exempt pension, one £325,000 NRB, £175,000 maximum RNRB, no transferred bands. Without the pension the £1.8m estate keeps full RNRB and IHT is £520,000; with it the £2.3m taper value leaves £25,000 RNRB and IHT is £780,000, a £260,000 increase. The same case is computed live on the Pension IHT calculator (corpus case E2E-RNRB-TAPER).
Mechanics cross-check: abrdn Techzone pensions-and-IHT nil-rate-band worked interpretation. https://techzone.aberdeenadviser.com/public/pensions/Tech-guide-pensions-IHT

For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.