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    Inheritance Tax Planning - A Complete Guide

    Inheritance tax is charged at 40% on estates above the available thresholds. For millions of UK families the combination of rising property values, frozen nil rate bands and the April 2027 pension changes means the inheritance tax bill their families face is larger than they expect. This guide covers everything you need to know - and what you can do about it.

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    What is inheritance tax?

    Inheritance tax (IHT) is charged at 40% on the value of an estate above the available thresholds. The estate includes everything you own at death - property, savings, investments, business interests, personal possessions, certain trust assets, and (from April 2027) unused pension funds.

    Inheritance tax must usually be paid before probate can be granted, which creates a real cash-flow challenge for families dealing with an estate where most of the value is locked up in property. The tax is paid by the estate, not by the beneficiaries - but it directly reduces what the beneficiaries actually receive.

    The rate is a flat 40% above the available bands, with a reduced rate of 36% available where 10% or more of the estate is left to charity.

    The nil rate band and residence nil rate band

    The nil-rate band is £325,000 per person and has been frozen since 2009. It is currently frozen until at least 2028. Anything left to a UK-domiciled spouse or civil partner is exempt, and unused nil-rate band transfers between spouses - so a married couple can typically combine to £650,000 of standard nil-rate band on second death.

    The residence nil-rate band gives up to £175,000 per person of additional allowance where the main residence passes to direct descendants. Combined across a married couple, this gives a potential £1m of total IHT-free allowance - but the £1m figure is frequently misunderstood.

    The residence nil-rate band tapers away on estates over £2m at a rate of £1 for every £2 above the threshold - meaning it is lost entirely on estates above £2.7m. Many families discover their effective threshold is lower than the headline £1m once the property value alone pushes the estate above the £2m tapering threshold.

    What changed in April 2026

    Business Property Relief and Agricultural Property Relief have been capped at £1m combined for 100% relief from April 2026. Above the cap, only 50% relief applies - an effective 20% inheritance tax charge on assets that, until April 2026, were entirely free of IHT.

    The change primarily affects trading-business shareholdings, AIM portfolios held for BPR, working farms and agricultural land. Business owners and farmers who built their estate plan around unlimited BPR or APR need an immediate reassessment of how their structure performs under the new rules.

    For directors and business owners specifically, see our inheritance tax planning for company directors page.

    Start with a no-obligation consultation.

    A 30-minute conversation that leaves you with a clear picture of your inheritance tax exposure and the options available to reduce it. No charge. No obligation.

    What is changing in April 2027 - the most significant shift in a generation

    From 6 April 2027, unused pension assets will be included in the taxable estate for inheritance tax for the first time. This is set out in the Finance Act 2026, which received Royal Assent in March 2026 - it is law, not consultation.

    Until April 2027, pensions sit entirely outside the estate. They pass to nominated beneficiaries without inheritance tax, and they have historically been one of the most tax-efficient legacy vehicles in the UK system. From April 2027, the pension is inside the estate.

    For families whose estate already exceeds the available nil-rate bands - which, given current property values, is millions of households - every pound of pension wealth on death will attract IHT at 40%. The change represents the most significant shift in UK inheritance tax in a generation.

    See our detailed article on the April 2027 pension inheritance tax change.

    The main inheritance tax planning strategies

    Lifetime gifting - using the seven-year clock, the £3,000 annual exemption, the small-gifts allowance and the powerful but underused regular-gifts-from-income exemption. Full guide to gifting and the seven year rule →

    Trust arrangements - discretionary trusts, life-interest trusts and insurance trusts to move assets outside the estate while keeping family control over how and when they pass on. Full guide to using trusts to reduce IHT →

    Writing life insurance into trust - one of the simplest and most impactful changes available, removing the policy proceeds from the estate entirely.

    Pension planning - reviewing nominations, drawdown strategy and the use of life cover to fund the April 2027 IHT charge. Read the April 2027 article →

    Business succession planning - restructuring shareholdings and using lifetime transfers to make best use of the new £1m BPR cap. See company directors.

    Will review - making best use of nil-rate bands, residence nil-rate band, trust arrangements and the available reliefs and exemptions across both spouses.

    Lasting Powers of Attorney - making sure the estate plan cannot be derailed by loss of capacity. More on LPAs →

    Why now is the most important time to act

    Two major changes inside twelve months - the April 2026 BPR cap and the April 2027 pension inclusion - represent the most significant shift in UK estate planning since the residence nil-rate band was introduced.

    Families who take advice and implement changes before April 2027 have the full range of strategies available to them, including those that depend on a seven-year survival period. Families who wait find that several of the most effective strategies are no longer available or no longer have time to mature.

    The work required is finite, specific and almost always smaller than people expect. The window to do it is shorter than it looks.

    Start with a no-obligation consultation.

    A 30-minute conversation that leaves you with a clear picture of your inheritance tax exposure and the options available to reduce it. No charge. No obligation.

    How Inheritance Made Simple can help

    An independent estate-planning practice with 28 years of experience, working with families across Bournemouth, Poole, Dorset, Hampshire, London and nationally. We are not tied to any insurer, platform or investment house - every recommendation is selected from the whole of market.

    Our services cover Will writing, inheritance tax planning, trust arrangements, Lasting Powers of Attorney, pension coordination and lifetime gifting strategy - coordinated as a single plan rather than a sequence of disconnected engagements. We serve clients across the UK including Bournemouth, Poole and Sandbanks, Winchester and Hampshire, Mayfair, Chelsea and Knightsbridge and Belgravia and St James's.

    Every engagement begins with a no-obligation consultation - 30 minutes that leaves you with a clear picture of your current exposure and the options available. There is no charge and no obligation to proceed.

    Start with a no-obligation consultation.

    A 30-minute conversation that leaves you with a clear picture of your inheritance tax exposure and the options available to reduce it. No charge. No obligation.

    Frequently Asked Questions

    The standard nil-rate band is £325,000 per person, frozen since 2009 and currently frozen until at least 2028. The residence nil-rate band of up to £175,000 per person may apply where the main home passes to direct descendants. A married couple can combine to up to £1m of total allowance - though the residence nil-rate band tapers away on estates over £2m and is lost entirely above £2.7m.

    No. Anything left to a UK-domiciled spouse or civil partner is exempt from inheritance tax. Unused nil-rate band and residence nil-rate band also transfer to the surviving spouse, who can use both allowances on their own death. IHT typically arises on second death rather than first - which is why estate planning across both spouses, not just one, matters.

    Until April 2027, unused pension funds sit outside the estate and pass to nominated beneficiaries free of inheritance tax. From 6 April 2027, unused pension assets are included in the taxable estate at 40% where the nil-rate bands have been used. The change is law under the Finance Act 2026 and represents the most significant inheritance tax change in a generation.

    Lifetime gifts that exceed the available exemptions are potentially exempt transfers - free of inheritance tax provided the giver survives seven years from the date of the gift. If death occurs within seven years, the gift may still attract IHT, with taper relief reducing the rate on a sliding scale once more than three years have elapsed. The seven-year clock is the central timing rule in lifetime IHT planning.

    Gifting your home starts the seven-year clock, but if you continue to live in the property without paying full market rent, the gift-with-reservation rules treat the property as still inside your estate - so no IHT is saved. There are also capital gains tax consequences for the recipients. Property gifting works in narrow circumstances only and should not be attempted without specialist advice.

    You do not need a solicitor. What you need is a specialist estate planner who coordinates the Will, trust arrangements, pension nominations and lifetime gifting strategy as a single plan. Solicitors typically handle the legal documents; a specialist estate planner co-ordinates the documents, pension nominations, life cover and gifting so the plan functions as a whole.

    Business Property Relief (BPR) provides inheritance tax relief on qualifying business assets - trading-company shares, partnership interests and certain AIM holdings. From April 2026, BPR and Agricultural Property Relief are capped at £1m combined for 100% relief; above the cap, only 50% relief applies, an effective 20% IHT charge. Business owners with assets above the cap need to review their structure.

    From April 2027, unused pension assets are included in the estate at 40% where the nil-rate bands have been used. For families with significant pension wealth and an estate that already brushes against the nil-rate bands, the change creates substantial additional IHT exposure. Pension nominations and drawdown strategy should be reviewed well in advance of April 2027, not afterwards.

    A discretionary trust gives the trustees flexibility to decide which beneficiaries benefit, how much and when. Assets placed into discretionary trust fall outside the estate after seven years, provided the transfer does not exceed the available nil-rate band. Discretionary trusts are particularly useful for inheritance tax planning where family circumstances are likely to change and where the settlor wants control over how assets ultimately pass.

    Fees depend on the complexity of the estate. A simple Will and LPA package costs hundreds of pounds. A full estate plan involving trust arrangements, pension review and lifetime gifting strategy runs into the low thousands. Against the inheritance tax saved on a meaningful estate, the cost of planning is almost always small. The initial 30-minute consultation is free and carries no obligation.

    Most existing Wills do not account for the inclusion of pension assets in the estate from April 2027. Where pension wealth is significant, the existing distribution may produce a materially different IHT outcome under the new rules than was originally intended. A Will review in advance of April 2027 is strongly recommended for any client with substantial pension assets.

    A Lasting Power of Attorney (LPA) allows you to appoint trusted individuals to make decisions on your behalf if you lose capacity. There are two types - Property & Financial Affairs, and Health & Welfare. Without LPAs in place, the Court of Protection has to appoint a deputy, which is slow, expensive and may not produce the outcome you would have wanted. LPAs are an essential part of any estate plan.

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    Members of the Society of Will Writers|28 years of specialist estate planning practice|Serving families across Dorset, Hampshire and the South of England