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ATT Budget Representation - IHT Simplification

17 September, 2026

The ATT has submitted a representation for Autumn Budget 2026 on the subject of Inheritance Tax.

Inheritance tax is a very complex tax for those affected by it. We have two suggestions for simplification - both of which will come with a tax cost, but would result in a fairer system, with people better able to understand more clearly when they are likely to have IHT to pay. As HMRC is currently working to digitalise the IHT system by April 2027, it would make sense to simplify the IHT system as far as possible before the new service is fully developed and launched.

Merging the Residential and Nil Rate Bands 

IHT could be both simplified and made fairer by merging the RNRB and NRB into a single nil rate band. 

The creation of the RNRB has introduced substantial complexity into the administration of IHT since it was introduced in 2017. The provisions are not clear or easy to understand. The RNRB creates distortions, as two estates of equal value can have different IHT liabilities depending on the value of residential property held by the deceased and whether or not they have children who are inheriting that property. 

As further changes bring unused pension assets and death benefits into scope from April 2027, many more families will find themselves having to grapple with the complex provisions of the RNRB and it would be much simpler if there was a single, enhanced NRB instead. 

Making pension property a separate component of the estate for the reduced rate of IHT 

Where at least 10% of the net estate is left to charity, a reduced rate of 36% applies, instead of the standard 40% IHT rate. 

In order that individuals are not discouraged from gifting to charity on their death we would like to see notional pension property considered a separate ‘component’ for the tests for the 36% rate. This should protect access to the reduced rate for those who have planned to make gifts under the existing rules, while enhancing the flexibility for those who are motivated to make charitable gifts to reduce IHT on their pension assets only.