Do pensions count towards the £2m residence nil-rate-band taper from 2027?

Most unused pension funds and death benefits enter the estate for deaths on or after 6 April 2027. The RNRB taper value is measured after liabilities but before exemptions and reliefs, so included pension value can push it above £2 million even where the recipient is exempt.

How does the £2m RNRB taper work?

The available residence nil-rate band is reduced by £1 for every £2 by which statutory estate value E exceeds £2 million. E is after liabilities but before exemptions and reliefs. The band also depends on a qualifying residence (or a downsizing addition) passing to direct descendants.

Is the pension and RNRB interaction shown in HMRC’s pension examples?

HMRC’s pension technical notes do not provide an RNRB worked example. The interaction follows from the statute: new IHTA 1984 s.150A treats the pension as part of the estate “for the purposes of this Act”, and the taper tests the value of the estate (s.8D), so the pension value is in E.

Death benefits and IHT · Inheritance tax (from 2027)

The £2m taper: how pensions can destroy the residence nil-rate band from 2027

From April 2027 an unused pension does more than add to the estate. It can also quietly shrink the extra allowance for leaving your home to your children.

4 min read · Last reviewed 23 Sept 2026

— In short

From 6 April 2027, most unused pensions are added to the estate for inheritance tax. There is an extra allowance for leaving your home to direct descendants — the residence nil-rate band — but it shrinks once the estate is worth over £2 million, losing £1 for every £2 above that line. That £2 million test ignores exemptions, so a pension can tip the estate over the line even when it passes to an exempt spouse, civil partner or charity.

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Start with the extra allowance most people mean when they talk about “passing the house down tax-free”. Formally it is the residence nil-rate band: an extra slice of inheritance-tax allowance you get for leaving a home to your children or grandchildren. It has a catch. Once the estate is worth more than £2 million, the allowance is clawed back. And from 6 April 2027, an unused pension is added to the estate — which can be what tips it over the £2 million line. Two enacted rules, one awkward interaction.

How the £2m test works

You get the residence nil-rate band when a home (or, after downsizing, other assets) passes to direct descendants (IHTA 1984 ss.8D–8FA). From there, the allowance is reduced by £1 for every £2 the estate is worth above £2 million. The important detail is which value is tested: it is the estate after debts but before exemptions and reliefs are taken off. HMRC calls that figure E. Because exemptions are ignored at this step, even money that will ultimately pass tax-free still counts towards the £2 million line (HMRC IHTM46023).

How the taper runs — the rule, not a worked case

A home passes to direct descendants: You qualify for the allowance
Estate value E: After debts; before exemptions and reliefs
E is £2m or under: Full allowance
E is over £2m: Lose £1 of allowance for every £2 over
Unused pension added from 6 April 2027: Re-run the test on the bigger figure

Why the pension can shrink the allowance

From April 2027 the pension is part of the value counted for inheritance tax. So it can push an estate over the £2 million line, or deepen the clawback where the estate was already above it. When that happens, the extra tax reflects two things at once: the pension being counted, and some or all of the home allowance being lost.

And because the £2 million test ignores exemptions, a pension left to a spouse, civil partner or charity can still enlarge that figure — even though the pension itself is exempt and bears no tax. Being exempt and counting towards the £2 million line are two separate steps.

HMRC’s pension technical notes do not give a worked example of this. It follows from the statute: new IHTA 1984 section 150A treats the pension as part of the estate ‘for the purposes of this Act’, and the taper tests the value of the estate (section 8D). HMRC’s manuals for the 2027 rules are still due.

Compare the estate twice

The clean way to see it is to run the same estate — same home, same other assets, same debts, same people — twice: once without the unused pension and once with it. The gap shows both any home allowance lost and the wider inheritance-tax change. Compare those two estate views on the Pension IHT calculator.

The wider rules sit in pensions, death benefits and inheritance tax. The enacted scope, exclusions and personal-representative role are in pensions and inheritance tax from April 2027. For planning and illustration only; this guide does not recommend a course of action.

Finance Act 2026 · IHTA 1984 s.8D–8M · IHTM46023 · HMRC “Inheritance Tax on pensions” technical note (updated 29 May 2026) · abrdn Techzone “Pensions and IHT”

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Common questions

Do pensions count towards the £2m residence nil-rate-band taper from 2027?: Most unused pension funds and death benefits enter the estate for deaths on or after 6 April 2027. The RNRB taper value is measured after liabilities but before exemptions and reliefs, so included pension value can push it above £2 million even where the recipient is exempt.
How does the £2m RNRB taper work?: The available residence nil-rate band is reduced by £1 for every £2 by which statutory estate value E exceeds £2 million. E is after liabilities but before exemptions and reliefs. The band also depends on a qualifying residence (or a downsizing addition) passing to direct descendants.
Is the pension and RNRB interaction shown in HMRC’s pension examples?: HMRC’s pension technical notes do not provide an RNRB worked example. The interaction follows from the statute: new IHTA 1984 s.150A treats the pension as part of the estate “for the purposes of this Act”, and the taper tests the value of the estate (s.8D), so the pension value is in E.

Sources

Based on Finance Act 2026, HMRC’s May 2026 “Inheritance Tax on pensions” technical note and IHTM46023 (the residence nil-rate-band taper).

HMRC Inheritance Tax Manual, IHTM46023 — Calculating the RNRB: terms used: the 'taper threshold' gov.uk
Inheritance Tax Act 1984, section 8D — Extra nil-rate band on death if interest in home goes to descendants etc legislation.gov.uk
Technical note: Inheritance Tax on pensions gov.uk
Finance Act 2026 legislation.gov.uk
Inheritance Tax Act 1984, section 150A — Certain pension interests treated as part of estate legislation.gov.uk

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