Inheritance tax is changing – what it could mean for you and your family

Marc Perry, LV= Consumer Finance Expert, shares his insights

Inheritance tax (IHT) is back in the headlines – and for good reason. In the coming years, more and more families are likely to be affected. Some rules are changing, while others are staying frozen, meaning that more people could unintentionally fall into the IHT net.

The important thing to remember is this: there’s no need to panic. With some simple planning and a clear understanding of what’s changing, individuals and their families can still take steps to protect more of what they’d like to pass on.

Why is inheritance tax affecting more people?

One big reason IHT is becoming an issue for more people is that the main tax-free allowances are expected to stay frozen until at least 2031. As property values, savings and investments continue to rise, it’s easier than ever for an estate to cross the tax threshold – even for those who may not consider themselves as wealthy.

At the same time, the Government is making changes to how certain assets are taxed, which may catch some people by surprise.

Pensions and inheritance tax – a major shift ahead

This is one of the most significant updates.

From 6 April 2027, most pension savings will start being included in a person’s estate for IHT when they die. For years, pensions were exempt, so this marks a major shift in the rules.

There are some exceptions. For example:

• Payments that continue to a surviving spouse or civil partner.

• Certain workplace death benefits.

Even so, pensions will now need to be considered alongside other assets when planning how to pass wealth on.

Changes to how business assets are treated

From 6 April 2026, the rules around passing on business and farm assets will tighten.
Currently, many of these assets can be passed on without being subject to inheritance tax. Under the new rules:

• Full relief will be capped at £2.5 million across business and farm assets. Anything above this amount could face an IHT charge.

• Some smaller company shares will also receive less tax relief.

There is a helpful adjustment, though: married couples and civil partners will be able to use any unused allowance from their spouse, which could help to soften the impact for some families.

Don’t panic – but don’t ignore it either

The most important message for families is to take a calm, considered approach.
Inheritance tax planning doesn’t need to mean drastic changes. Often, small, sensible actions – reviewed regularly – make the biggest difference.

One golden rule stands out: professional advice can be invaluable. A qualified financial adviser can help people to understand the rules and avoid decisions that could cause problems later.

Five small steps that could help

Depending on people’s individual circumstances, there are several options to explore, such as:

1. Gifting money during your lifetime

Where the income isn’t needed to support personal lifestyles, some people may choose to take pension income earlier and to gift their money to loved ones while they’re alive. 

Remember the “seven-year rule” – gifts usually need to be made at least seven years before death to fall outside IHT.

2. Making use of small annual allowances

The £3,000 annual gifting allowance lets people gradually reduce the size of their estate without affecting their everyday finances. 

There’s also a small gifts allowance, which allows people to gift up to £250 per person each tax year, completely free of Inheritance Tax. Just keep in mind that the small gift allowance can’t be used if someone has already received part of your £3,000 annual allowance.

3. Keeping access to funds while reducing IHT

There are some arrangements that allow people to keep access to their money while ensuring any future growth sits outside your estate.

4. Considering Equity Release

For some, turning part of their home’s value into a loan means they can gift money while still living there. Because the loan reduces the value of the estate for beneficiaries, it can help with IHT planning.

(But it’s not suitable for everyone – so receiving professional advice is essential).

5. Using insurance to cover a possible tax bill

Some products, such as life insurance or Gift Inter Vivos policies, can help protect beneficiaries if you die within seven years of making a gift.

The Bottom Line

Inheritance tax is becoming more complex, and rising asset values mean more families will be drawn into it. But with the right guidance and a clear plan, it’s absolutely possible to protect your loved ones and pass on more than you expected once the new rules are in place.

A little planning today can lead to more peace of mind tomorrow.

Notes to Editors

• This article is positioned as general information only, not financial advice.

• Consumers should seek regulated financial advice for their individual circumstances.

• “Tax rules, including thresholds and reliefs, are subject to change and their impact will depend on individual circumstances. HMRC practice and legislation may change in the future.”