Worked estates
Inheritance tax on a £2 million estate: the taper line
Two million pounds is not a tax-free limit. It is where the residence band begins to melt away, and pension money now counts towards it.
Inheritance tax on a death from 6 April 2027
£460,000
That is £260,000 more than for a death before that date, because the pension now counts.
| Before 6/4/27 | From 6/4/27 | |
|---|---|---|
| Estate counted | £1,500,000 | £2,100,000 |
| Tax-free bands used | £1,000,000 | £950,000 |
| Inheritance tax at 40.0 % | £200,000 | £460,000 |
| of which on the pension | £0 | £131,429 |
| Heirs’ income tax on the pension | £269,934 | £210,791 |
| Each of 2 heirs keeps | £815,033 | £714,604 |
Of each £100 of pension passed on, tax takes £57 from April 2027, against £45 before.
Residence band £300,000, cut by £50,000 above £2 million. Estimate only, not advice.
The £2,000,000 figure decides whether an estate keeps its residence nil-rate band. Above it the band is reduced by £1 for every £2 of excess, and the estate measured for that test is everything owned less debts, before the spouse exemption and before reliefs. From 6 April 2027 the unused pension is part of that measure. Picture a widower with a £900,000 house, £600,000 of savings and £600,000 in a pension, both bands inherited in full from his late wife. Dying before the change, his estate is £1,500,000, the full residence band of £350,000 applies and the tax is £200,000. From that date the pension lifts the estate to £2,100,000, £50,000 of residence band is lost and the bill becomes £460,000, of which £131,429 falls on the pension. With a transferred band, nothing is left once the estate reaches £2,700,000.
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
The taper explained with real money
The residence nil-rate band does not vanish at once on a large estate: it shrinks. The rule is simple arithmetic: take the estate after debts, subtract £2,000,000, halve the result, and remove that much from the residence band, including any band transferred from a late spouse. The nil-rate band is untouched. Because the measure is taken before the spouse and charity exemptions, a generous will does not move the estate back under the line.
A pension that switches the band off
Until now a pension paid at the scheme's discretion was invisible to this test. Section 66 of the Finance Act 2026 changes that for deaths from 6 April 2027: the pot counts in the estate, and therefore in the taper. The table keeps the widower's house and savings and tries five pension values.
| Pension | Estate for the taper | Residence band left | Inheritance tax | Extra tax from the reform |
|---|---|---|---|---|
| £300,000 | £1,800,000 | £350,000 | £320,000 | £120,000 |
| £400,000 | £1,900,000 | £350,000 | £360,000 | £160,000 |
| £600,000 | £2,100,000 | £300,000 | £460,000 | £260,000 |
| £800,000 | £2,300,000 | £200,000 | £580,000 | £380,000 |
| £1,200,000 | £2,700,000 | £0 | £820,000 | £620,000 |
The extra tax in the last column has two parts: the pension taxed at 40 % once the bands are full, and the residence band lost because the pension pushed the estate over the line. With a pot of £1,200,000, the band has gone entirely.
The effective rate inside the taper zone
Between £2,000,000 and the point where the band runs out, each extra pound in the estate is taxed at 40 % itself and also removes fifty pence of band, which is then taxed at the same rate. The combined cost is 60 % of each pound in that stretch. Above it, the rate falls back to 40 %. That is why growth in a pension pot near the line is unusually expensive from April 2027, and why the taper page spends time on where each estate sits.
The widower's ledger
The calculator above starts on the same case. The table below uses exactly its inputs, with two children earning £45,000 and a death at 78.
| Death before 6 April 2027 | Death from 6 April 2027 | |
|---|---|---|
| Estate counted for inheritance tax | £1,500,000 | £2,100,000 |
| Nil-rate band and residence band used | £1,000,000 | £950,000 |
| Inheritance tax | £200,000 | £460,000 |
| of which on the pension | £0 | £131,429 |
| Income tax paid by the heirs on the pension | £269,934 | £210,791 |
| Each of 2 heirs keeps | £815,033 | £714,604 |
The bands are frozen until 5 April 2031 by section 86 of the Finance Act 2021, as amended, and the taper still starts at £2,000,000. The page on a £1 million pot shows the same estate size reached mostly through a pension. For a real estate near the line, the executors and a solicitor or regulated adviser check the values used.