Inheritance Tax Planning 2026/27: Key Changes and Planning Strategies

Introduction

Inheritance tax rules are changing significantly in the coming months, particularly around pensions and business/agricultural reliefs. If you have assets you hope to pass on to family, understanding the current position and upcoming changes is important.

This guide covers the 2026/27 inheritance tax rules and the critical changes coming in April 2026 and April 2027 — and why now is a good time to review your planning.

Current Inheritance Tax Thresholds (2026/27)

In the 2026/27 tax year, everyone has an inheritance tax-free allowance of £325,000, with 40% normally charged on any amount above that. However, there's important additional allowance for homeowners:

Residence Nil-Rate Band (RNRB): A home can add £175,000 more, meaning you can pass on up to £500,000 tax-free if your home passes to a direct descendant.

Married couples: A married couple can leave up to £1 million tax-free (2 x £325,000 tax-free allowances + 2 x £175,000 main residence allowances).

Important caveat: Where an estate exceeds £2m, the RNRB is gradually withdrawn — for every £2 your estate is valued over the £2m threshold, £1 is deducted from your RNRB allowance.

The Frozen Threshold Issue

The £325,000 nil rate band has been frozen since April 2009, and the freeze has now been extended to 5 April 2031. This frozen threshold, combined with rising property values, means more estates are caught in inheritance tax than before — even though rules haven't changed.

Business and Agricultural Property Changes (April 2026)

From April 2026, significant changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) come into effect:

From 6 April 2026, the maximum combined relief for 100% APR and BPR will be capped at £2.5 million per individual, with IHT payable at an effective rate of 20% on agricultural and business property above the £2.5 million allowance.

Crucially for couples: The new allowance will be fully transferable between spouses and civil partners, meaning couples can potentially shelter up to £5 million of qualifying property from IHT.

What this means practically: For a business owner with qualifying assets of £4 million, the single allowance of £2.5 million means £1.5 million of qualifying assets receives 50% relief — £750,000 is taxable at 40%, generating £300,000 of IHT.

If you own a business or farm, this will likely require urgent estate planning to ensure wills are structured to maximise both spouses' reliefs. Many existing wills may need amending.

The Big Change: Pensions from April 2027

This is the most significant change for most people. From 6 April 2027, the treatment of pensions will fundamentally shift:

Currently, pensions don't form part of your estate for inheritance tax purposes, meaning money left in your pension when you die is exempt from inheritance tax. But this is set to change from the 2027/28 tax year, when pensions will start forming part of your estate and counting towards your inheritance tax-free allowance.

In practical terms: From 6 April 2027, unused pension funds will generally be included within the value of your estate for IHT.

Why This Matters

It is estimated that the pension changes will bring 49,000 estates within the scope of IHT for 2027/28 alone.

For families with significant pension wealth, this could mean:

• A pension previously outside your taxable estate now counts towards your IHT liability
• Your beneficiaries may face a larger tax bill than you'd planned
• Strategies that worked previously (passing pensions to children tax-free) will change

Example: Someone with a £400,000 home, £200,000 in savings, and a £400,000 pension:

• Currently (2026/27): The pension doesn't count — the estate is only £600,000, so modest IHT
• From April 2027: The estate becomes £1 million, triggering substantially higher IHT

Common IHT Planning Strategies

While individual circumstances vary significantly, several approaches are commonly considered:

1. Seven-Year Gifting

Gifts made more than seven years before your death generally fall outside your taxable estate. This requires early planning but can be highly effective over time.

2. Annual Exemption

You can give away £3,000 per tax year without IHT implications. Many people overlook this simple annual opportunity.

3. Charitable Giving

Leaving 10% or more of the net estate to charity drops the rate on the rest from 40% to 36%. For some families, this is a meaningful tax saving and aligns with personal values.

4. Life Insurance in Trust

A policy held in trust pays out outside the estate and can cover the IHT bill, so the family isn't forced to sell the house or the business to pay HMRC.

5. Maximising Spouse Exemptions

Transfers between spouses are entirely tax-free, and your spouse's inheritance tax allowance rises by the percentage of your allowance you didn't use.

6. Reviewing Pension Arrangements

Given the April 2027 changes, many people are reassessing whether pensions should be drawn in retirement to reduce the eventual estate subject to IHT, or whether lifetime or death-benefit charitable giving might be valuable.

7. Using Your Business and Agricultural Relief Allowance

With the April 2026 changes, you now have a £2.5 million allowance for 100% relief on qualifying business and agricultural assets. This is a major planning opportunity:

• If your business or farm is worth less than £2.5m, you can pass it on tax-free (at 100% relief)
• If it's worth more than £2.5m, the excess receives only 50% relief, triggering a 20% effective tax rate on the overage
• For couples, structuring wills to ensure both spouses' £2.5m allowances are fully utilised can make a significant difference
• Existing wills often need amending to take advantage of this — many were written before these rules existed

Given the £2.5m BPR allowance, some clients find it valuable to review their overall investment strategy with a financial adviser — both to ensure their investments are positioned optimally for returns and risk, and to understand how their investment choices interact with their IHT planning.

This is particularly valuable if you're planning to pass a business to the next generation, as getting the structure right can save substantial tax.

Why Professional Guidance Matters — Especially Now

Two major changes are coming (April 2026 for business/agricultural reliefs, April 2027 for pensions), making current review particularly important. A financial adviser can:

• Calculate your current IHT position and model how it changes with both upcoming changes
• Identify whether business or agricultural relief applies and how the £2.5m cap affects you
• Model the impact of pension inclusion from April 2027
• Recommend strategies tailored to your circumstances (gifting, trusts, insurance, charitable giving)
• Ensure your planning coordinates with your will, powers of attorney, and wider financial plan
• Review and adjust regularly as rules evolve

For families with pensions, property, businesses or farms, professional review before April 2026 could be particularly valuable.

Key Questions to Ask

• How large is my estate likely to be?
• How will the April 2026 business/agricultural relief changes affect me?
• How will the April 2027 pension changes affect me?
• Am I maximising my allowances (and my spouse's)?
• Could I benefit from any reliefs (business, agricultural, charitable)?
• Does my will reflect my IHT situation?
• When was my IHT plan last reviewed?
• Should I consider any lifetime gifting or restructuring?

Getting Started

IHT planning works best when done in good time. With significant changes coming in April 2026 and April 2027, now is an ideal time to review if you haven't done so recently. There's no obligation or cost to have an initial conversation about whether planning might help your family.

We work with families across Norfolk — Wroxham, Aylsham, North Walsham, Fakenham and surrounding areas — to develop inheritance tax strategies suited to their circumstances and priorities.

Important: This article is for information only and does not constitute financial or tax advice. Inheritance tax rules are complex, vary significantly by individual circumstances, and are subject to change. Major changes come into effect in April 2026 (business and agricultural reliefs) and April 2027 (pensions), both affecting many families. We strongly recommend working with a qualified financial adviser and tax professional to develop an inheritance tax strategy suited to your specific situation, particularly if you have significant pension wealth, business assets, agricultural property, or a spouse or civil partner.

For a confidential discussion about inheritance tax planning in light of the April 2026 and April 2027 changes, please get in touch.