A Changing Landscape of Inheritance Tax: What You Need to Know
The UK is undergoing the largest intergenerational wealth transfer in history, with baby boomers expected to pass on over £7 trillion to younger generations*. As this shift accelerates, recent changes to Inheritance Tax (IHT) rules mean that many more families could face significant tax bills before assets can be passed on.
From April 2027, unspent pension pots will be included in your estate for IHT purposes — a major change from current rules. Combined with frozen tax thresholds and reforms to Business Relief, these developments make estate planning more important than ever.
Why is IHT becoming a bigger issue now?
• Pension Reform from April 2027: Unspent pensions will be taxed as part of your estate — currently they are excluded.
• Frozen Thresholds: Nil-rate bands remain frozen until 2030, meaning more estates will exceed the limits.
• Business Relief Reform (April 2026): Individuals and trusts will only receive 100% relief on the first £1 million of qualifying business and agricultural assets. Above this, relief drops to 50%, resulting in a 20% IHT charge.
• Unlisted Shares: Assets such as AIM shares will only qualify for 50% relief, regardless of value.
Who is most likely to be affected?
You may be impacted if your estate includes:
• Individuals or couples with property, savings, investments, and pensions exceeding £500,000 for a single person or £1 million for a couple, and those with estates over £2 million where the Residence Nil Rate Band begins to taper, may be affected.
• Substantial pension assets — exposed to both IHT and Income Tax from 2027
• Business assets or unlisted shares — subject to reduced relief from 2026
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
What can I do to reduce my IHT liability?
1. Use Your Gifting Allowance
• Gift up to £3,000 per year tax-free (or £6,000 as a couple)
• Carry forward unused allowance for one year
2. Make Larger Gifts
• Gifts above the allowance may be taxed if you die within seven years
• Consider short-term insurance to cover potential tax
3. Gift from Surplus Income
• Regular gifts from income are immediately exempt
• Must not affect your standard of living
4. Leave a Legacy to Charity
• Charitable gifts are IHT-exempt
• Leave 10% or more of your estate to charity to reduce IHT rate to 36%
5. Use Discretionary Trusts
• Trusts can remove assets from your estate after seven years
• Trustees manage distribution, offering control and protection
6. Take Out a Whole of Life Insurance Policy
• Policies written in trust can cover your IHT bill
• Payouts are outside your estate and available immediately
Seek Advice – whilst these are all potential actions to help reduce your IHT liabilities, IHT planning is complex and needs structure. Seeking professional advice will ensure you maximise the opportunities in the most effective way.
How will the 2027 pension changes work?
Currently, most pension funds are outside the estate for IHT. From April 2027, this benefit is expected to end, meaning:
• Pension funds could face IHT on death
• Beneficiaries may also pay Income Tax when drawing funds
Planning ahead may involve:
• Reviewing beneficiary nominations and “expression of wishes”
• Modelling whether to draw and reposition pension funds
• Considering gifting or protection solutions while flexibility remains
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
What's changing for business or farm owners?
From April 2026, Business Relief (BR) and Agricultural Property Relief (APR) will be reformed:
• £1 million allowance per individual at 100% relief
• Value above this may attract only 50% relief
• Stricter qualifying rules expected
Early review of ownership structures, valuations, and succession plans is essential to avoid future tax shocks.
Should trusts be considered?
Yes. When used correctly, trusts remain one of the most effective tools to control and protect family wealth. They offer a balance between:
• Access
• Control
• Protection
• IHT efficiency
Each trust type has its own tax and reporting requirements, so qualified advice is essential.
What if I don't want to give assets away?
Many families prefer to retain control of capital. In this case, a whole-of-life insurance policy in trust can:
• Create liquidity to pay future IHT
• Avoid reducing your estate during your lifetime
• Be funded using surplus income, keeping it outside the estate
Do I need to move abroad to reduce IHT?
Not at all. While residency can affect your tax position, there are many UK-based strategies to reduce or eliminate IHT exposure, including:
• Gifting
• Trust structures
• Pension planning
• Protection-based solutions
What should I do before 2026 - 2027?
Over the next 12–18 months, consider:
• Reviewing your Will, trusts, and pension nominations
• Obtaining an up-to-date valuation of your estate
• Using gifting allowances strategically
• Assessing business and agricultural relief eligibility
• Exploring protection options for residual IHT exposure
Starting early allows you to take advantage of today’s rules before they tighten.
Inheritance tax planning is complex and best handled by professionals.
At Pinnacle Wealth Management, we help clients model their estate position through our Pinnacle Life Plan, identify risk areas and create joined-up plans to protect family wealth across generations.
*Source: Unbiased: the Great Wealth Transfer, Financial Conduct Authority
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