Key Changes

Frozen Inheritance tax (IHT) Thresholds. The nil-rate band (£325,000) and the residence nil-rate band (£175,000) remain frozen until at least 2030. As asset values, especially property, increase with inflation, more estates that were previously exempt will become liable for IHT.

Pensions Subject to IHT. From April 2027, unspent defined contribution pension funds will be treated as part of an individual’s taxable estate when calculating IHT. This is a significant change, as pensions were previously a popular IHT-efficient way to pass on wealth.

Reduced Business and Agricultural Reliefs. From April 2026, the 100% IHT relief for certain business and agricultural property will be reduced to 50% for assets valued over a £1 million per individual.

Potential Changes to Lifetime Gifting (Speculation). There is ongoing speculation about potential reforms to lifetime gifting rules, such as introducing a lifetime cap on tax-free gifts or extending the current seven-year rule (where a gift becomes fully exempt from IHT if the donor survives for seven years).

What you should do

Review Existing Wills: Current wills and trust structures may no longer be fit for purpose. You should review these to identify tax-saving opportunities and ensure your will still reflects your intentions given the changes in the tax landscape.

Reconsider Pension Strategy: With pensions becoming part of the taxable estate, individuals may choose to access their pension funds during their lifetime rather than leaving them untouched for inheritance. You could use pension funds for lifetime spending or gifting to reduce estate value, making pensions less of an IHT shelter and more of a retirement/gifting resource. This encourages earlier drawdown to gift money (avoiding IHT if you survive seven years) or using income for regular gifts.