The residence nil rate band is often assumed to be a fixed part of inheritance tax planning. In reality, it is one of the most fragile allowances once estate values approach key thresholds.
The residence nil rate band is currently worth up to £175,000 per person when a main residence is left to direct descendants. It is tapered away once the estate exceeds £2 million. The taper is steep and once it begins, the allowance falls away quickly.
At present, most pension funds sit outside the inheritance tax estate. For many families, that exclusion is what keeps the estate below the £2 million line.
When pension funds form part of the estate for inheritance tax purposes from 6th April 2027, the position will change without anything else needing to move. The same property, the same savings, the same intentions but a higher estate value on paper.
This matters most in London and the South East, where a home valued at £1.2–£1.5 million is no longer unusual. Add other assets and an estate can sit close to the taper threshold before pensions are even considered.
Once pension value is included, the residence nil rate band may be reduced or lost altogether. The result is a higher inheritance tax bill, even where the home is left exactly as intended. In that situation, the pension has not created a problem in isolation, an allowance has reduced or been completely lost which was designed to protect the family home.
Understanding how close an estate is to the residence nil rate band taper and how pension wealth could affect that position is an important part of inheritance tax planning in higher-value property areas.
Where this risk exists, Wingate Financial Planning helps clients understand how pensions and property interact and where thresholds or legacy assumptions could create unintended inheritance tax outcomes over time.
