From April 2027, pensions are set to become subject to Inheritance Tax (IHT) for the first time. For many families, this could mean a larger tax bill on death, unless proactive planning is put in place.

Let’s explore what’s changing, what it could mean in practice, and the key ways you can still protect your wealth for future generations.

What’s Changing?

At the moment, pensions sit outside your estate for IHT purposes. That means when you pass away, your pension funds can usually be passed to your chosen beneficiaries free from Inheritance Tax, and often income-tax-free if death occurs before age 75.

However, from 6 April 2027, the government plans to include unused pension funds within your taxable estate, meaning they could now face the 40% IHT charge — just like your property, ISAs or other investments.

While final details are yet to be confirmed, this could make a significant difference to what your family ultimately inherits.

What Could the Difference Look Like?

Example 1: Current Rules (2025/26)
Sarah has a £1 million pension pot and passes away aged 80. She has already used her £325,000 nil-rate band elsewhere.
Under current rules, her pension is outside her estate — so no IHT is due.
Her beneficiaries receive the full £1 million (subject to income tax as they draw it).

Example 2: Post-2027 Rules
If Sarah dies after April 2027 and her pension is brought into her estate, the same £1 million could now face 40% IHT, resulting in a £400,000 tax bill.
Her beneficiaries could be left with just £600,000 — a huge difference for the same pot of money.

Why This Matters for Wealthy Clients

For some clients whose total wealth — across property, investments, and pensions — already exceeds as little as £325,000, this change could significantly increase their exposure to inheritance tax.

In short, pensions will no longer be the “tax-free wrapper” for intergenerational wealth they once were — and ignoring the issue could cost your beneficiaries dearly.

How to Reduce the IHT Impact

Thankfully, there are several smart, tax-efficient strategies that can help reduce or even eliminate the IHT bill.

1⃣ Business Relief (BR) Investments

Certain qualifying investments — such as holdings in trading businesses or AIM-listed shares — can qualify for Business Relief (BR), offering powerful inheritance tax advantages.

Under current rules:

• The first £1 million of qualifying business assets (per person) can attract 100% IHT relief after just two years.

• Any value above £1 million can still benefit, but would typically be subject to 20% IHT instead of the full 40% rate.

• AIM-listed shares will qualify for 20% rather than 40% inheritance tax

This makes Business Relief investments a flexible option for those wanting to retain access to capital while still reducing the taxable value of their estate.

However, business relief is a high-risk investment and isn’t right for everyone.

2⃣ Whole of Life Insurance – Creating Liquidity for the Tax Bill

Even with the best planning, many families will still face some level of IHT. That’s where Whole of Life insurance can come in.

This type of policy is designed to pay out on death, providing a lump sum to cover the IHT bill.
When written in trust, the proceeds fall outside your estate, so the money can be accessed quickly to pay HMRC — without selling property, investments or business assets.

It’s an effective way to create liquidity at exactly the time your family needs it most.

3⃣ Trust Planning

Trusts remain a cornerstone of good estate planning. You could consider moving surplus income or capital into trust, reducing the value of your taxable estate while maintaining control over how and when funds are distributed.

A spousal bypass trust can also help direct pension death benefits outside of your beneficiaries’ estates, keeping wealth flexible and protected for future generations.

4⃣ Gifting and the ‘7-Year Rule’

If you have more than you’ll realistically spend, lifetime gifting can be one of the simplest and most effective IHT-reduction strategies.

• Outright gifts are IHT-free after seven years

• You can use your £3,000 annual exemption each year

• Regular gifts from surplus income are immediately exempt, provided they don’t affect your standard of living

Even modest, regular gifting can make a meaningful difference over time.

5⃣ Charitable Giving

Leaving 10% or more of your estate to charity can reduce the IHT rate on the remaining estate from 40% to 36% — allowing you to support causes you care about while reducing your family’s tax bill.

6⃣ Review Your Pension Nominations

Even though pensions may soon fall within IHT, they remain a flexible estate-planning tool.

Make sure your expression of wish is up to date and reflects your current circumstances and intentions — especially if you’re considering new strategies like trusts or insurance.

Taking a Holistic Approach

Every client’s situation is unique. The right plan depends on your wealth, income needs, family structure, and long-term goals.

We take a holistic view, combining investment management, tax-efficient structuring, and protection planning to ensure your money supports both your lifestyle today and your legacy tomorrow.

Final Thoughts

The proposed changes to pensions and IHT represent a major shift in how wealth may be taxed in the UK.
But with early planning — through Business Relief, trusts, lifetime gifting, and Whole of Life cover — you can still stay one step ahead and ensure your wealth passes smoothly to those who matter most.

If you’d like to explore how these changes could affect your estate, or what planning options might work best for your family, please do get in touch.
I’d be happy to help you review your position and create a plan that gives you — and your loved ones — peace of mind.

FAQs

Will my pension be taxed when I die after 2027?
Yes. Under the proposed changes, unused pension funds are expected to be included in your estate for IHT purposes from April 2027.

How can I reduce inheritance tax on my pension?
Consider strategies such as Business Relief investments, trust planning, lifetime gifting, and Whole of Life insurance to cover any remaining tax liability.

What is Business Relief for Inheritance Tax?
Business Relief allows certain business or qualifying AIM investments to be passed on with up to 100% IHT relief on the first £1 million of value (20% IHT thereafter).

How does Whole of Life insurance help with IHT?
A Whole of Life policy, written in trust, pays out on death to provide cash to settle the IHT bill — ensuring your family doesn’t need to sell assets to pay the tax.

You can find more information about how to reduce your inheritance tax bill here

You can also read my previous blog, Investments & Inheritance Tax Planning: Keeping More in the Family, here

 Risk warnings 

·  The value of investments, and the income from them, can go down as well as up.

·  You may not get back the full amount you invest.

·  Past performance is not a reliable indicator of future results.

·  The tax treatment of investments depends on individual circumstances and may change in the future.

·  Pensions: Your eventual retirement income will depend on contributions, investment performance, and tax rules at the time

·  ISAs: Tax advantages depend on your personal circumstances and may change.

·  Property/Alternative Investments: The value of property and specialist investments can be harder to sell (illiquid) and may rise and fall in value more sharply.

·  Business Relief / EIS / VCTs: These are higher-risk investments and may not be suitable for all investors. They are often illiquid, and tax benefits depend on HMRC rules.

·  Investments should always be considered in line with your risk profile and personal circumstances.

·  You should seek professional advice before making any investment decision.

The post 💬 Big Pension Changes Ahead: What the 2027 Inheritance Tax Rules Could Mean for You appeared first on Alice Douglass.

What Is Inheritance Tax?

Inheritance Tax is a tax paid on the value of your estate when you die — including your property, savings, investments, and certain other assets. The current IHT rate is 40% on the portion of your estate that exceeds your available allowances.

The Nil-Rate Band – Your Basic Allowance

Every individual has a Nil-Rate Band (NRB) — the amount you can pass on before Inheritance Tax applies. The standard Nil-Rate Band is £325,000. Anything above this is generally taxed at 40%, unless it qualifies for an exemption or relief. If you’re married or in a civil partnership, you can transfer any unused allowance to your spouse or partner, meaning a couple can currently pass on £650,000 before IHT is due.

The Residence Nil-Rate Band (RNRB)

Introduced in 2017, the Residence Nil-Rate Band (RNRB) helps families pass on the family home to direct descendants. As of 2024/25, the RNRB is £175,000 per person and applies in addition to the standard £325,000 Nil-Rate Band. To qualify, you must own (or have owned) a home and leave it to direct descendants, such as children or grandchildren. This means a married couple could potentially pass on up to £1 million free of Inheritance Tax.

The Taper Rule – How Large Estates Lose the Extra Allowance

If your total estate is worth more than £2 million, your Residence Nil-Rate Band starts to taper away. For every £2 over £2 million, you lose £1 of RNRB. That means once your estate exceeds £2.35 million, the RNRB is lost completely.

Example: James and Sarah have an estate worth £2.2 million. They’re £200,000 over the threshold, so they lose £100,000 of their RNRB (£1 for every £2 over). Instead of £175,000 each, they can only claim £75,000 each. Their total tax-free allowance reduces from £1 million to £850,000.

Gifts and Lifetime Exemptions

You can reduce your taxable estate by making gifts during your lifetime. The main exemptions are:

• Annual exemption – £3,000 each tax year (carry forward one year)
  • Small gifts – £250 to as many people as you like each year
  • Wedding gifts – £5,000 to a child, £2,500 to a grandchild
  • Regular gifts from surplus income – immediately exempt if they don’t affect your standard of living
  Larger gifts fall under the ‘7-year rule’ — if you survive seven years, they’re normally free from IHT.

What Happens When You Die?

When someone dies, their executors calculate the estate’s total value, apply the allowances, and work out any tax due. The tax must usually be paid before probate is granted — within six months of death. Many families use Whole of Life insurance to cover this bill, so assets don’t have to be sold to pay HMRC.

Ways to Reduce Inheritance Tax

Here are a few strategies to consider:
1⃣ Use both allowances — the Nil-Rate Band and Residence Nil-Rate Band
2⃣ Make lifetime gifts and keep records
3⃣ Consider trusts to move wealth out of your estate
4⃣ Invest in Business Relief assets — up to 100% IHT relief after two years
5⃣ Use life insurance written in trust to provide funds for any tax liability.

FAQs: Inheritance Tax Explained

What is the current Inheritance Tax threshold?
Each person has a £325,000 Nil-Rate Band plus, if applicable, a £175,000 Residence Nil-Rate Band. Married couples can combine these for up to £1 million of relief.

At what rate is Inheritance Tax charged?
40% on the value of your estate above allowances (or 36% if you leave 10% or more to charity).

How does the taper rule work?
If your estate exceeds £2 million, you lose £1 of the Residence Nil-Rate Band for every £2 over that amount.

How can I reduce my IHT bill?
By gifting, using trusts, investing in qualifying business assets, and ensuring your estate plan uses all available allowances.

Final Thoughts

Inheritance Tax doesn’t have to be inevitable. By understanding how allowances work — and planning early — you can ensure more of your wealth passes to your loved ones and less to HMRC. If you’d like to review your estate or explore steps to protect your family’s future, please get in touch — I’d be happy to guide you through your options in plain English.

To find out more, read my other blogs on inheritance tax here.

 Risk warnings 

·  The value of investments, and the income from them, can go down as well as up.

·  You may not get back the full amount you invest.

·  Past performance is not a reliable indicator of future results.

·  The tax treatment of investments depends on individual circumstances and may change in the future.

·  Pensions: Your eventual retirement income will depend on contributions, investment performance, and tax rules at the time

·  ISAs: Tax advantages depend on your personal circumstances and may change.

·  Property/Alternative Investments: The value of property and specialist investments can be harder to sell (illiquid) and may rise and fall in value more sharply.

·  Business Relief / EIS / VCTs: These are higher-risk investments and may not be suitable for all investors. They are often illiquid, and tax benefits depend on HMRC rules.

·  Investments should always be considered in line with your risk profile and personal circumstances.

·  You should seek professional advice before making any investment decision.

The post 💬Understanding Inheritance Tax: How It Works and How to Reduce It appeared first on Alice Douglass.

 Investments & Inheritance Tax Planning: Keeping More in the Family

Why inheritance tax matters

Inheritance tax is charged at 40% on estates worth more than the current allowances. For many families — particularly those who own property or have built up sizeable investments — it’s a real issue. Without planning, a large chunk of your wealth could end up going to HMRC instead of your loved ones.

Where investments come in

A balancing act

Why take advice?

The post Investments & Inheritance Tax Planning: Keeping More in the Family appeared first on Alice Douglass.

Despite this, a recent study by Schroders Personal Wealth reveals that 80% of families don’t have a strategy for passing wealth to loved ones. If you’re one of them, you may not realise that a strategy could allow you to leave more money and reduce the chances of paying unnecessary Inheritance Tax (IHT).

So, if you’re wondering: “how can I reduce my Inheritance Tax liability?”, read on to discover how an intergenerational wealth strategy and financial planner could help. Before you do though, we need to look at how IHT works.

It’s the tax on your worldly belongings when you die

As IHT is typically charged at 40% it could significantly reduce the amount you leave to beneficiaries when you die. That said, it’s not all bad news, as the government allows you to have an amount in your estate on death that is not liable to IHT.

Known as the “nil-rate band” (NRB), in 2025/26 you could have £325,000 as an individual and £650,000 if you’re married. If you’re also entitled to the residence nil-rate band (RNRB), you could have up to £1 million in your estate before the tax is due, but this depends on your circumstances.

Always speak to a financial planner to confirm how much you could have in your estate before IHT is due. In October 2024, the chancellor froze the NRB and RNRB thresholds until 2030, so if your property and investments continue to rise in value during this period, you may face a higher IHT liability.

Reducing your wealth could reduce your IHT liability

If you have wealth above your threshold, it’s typically going to be liable to IHT. By reducing the value of your estate, you should reduce the amount of tax your estate will be charged. In fact, if you decrease your estate down to within your threshold you will normally not be liable to IHT.

One way you could do this is by using several gifts the government allows you to make every tax year. For example, in 2025/26, you could gift £3,000 to an individual or split the amount between many beneficiaries.

A financial planner can explain all the gifts you may make, and which ones may be right for you.

You could use a potentially exempt transfer (PET)

If you have a substantial amount above your threshold that is likely to be liable to IHT, you may want to consider a PET. This allows you to gift any amount to as many people as you want.

The only stipulation is that you must live for seven years after making the gift for it to fall outside your estate and not be liable to the tax. If you don’t survive seven years, the gift could be liable to a sliding scale of IHT depending on how long you’re alive for.

Creating an intergenerational wealth strategy could help

So, if you are wondering “how can I pay less Inheritance Tax?”, you’ll probably be pleased to learn that an intergenerational wealth strategy could help. This is a strategy you develop that helps you plan the best way to pass your wealth to beneficiaries, taking into consideration:

• IHT
• The gifts you could make
• Your future financial security
• Any tax implications.

Starting your strategy as soon as possible is critical for the following three reasons.

It could provide more time

If you start your strategy as early as possible, it could provide more time to reduce the value of your estate to within the NRB threshold. For example, if you start your strategy aged 65 and use a PET, you’re more likely to survive for seven years than if you’re 85 when you do it.

You could also use the annual gifts the government allows you to make for more years, helping you reduce your estate further.

Provide money when your family needs it more

Gifting when you and your family members are younger could mean the money has more value when they receive it.

Leaving money when you die could mean you pass it to loved ones when they’re already financially secure. If, instead, you give money when they’re younger, and potentially trying to support a young family while paying a mortgage, your money could be much more helpful to them.

Give you more control

Gifting while alive means you can have a say about how your wealth is used. For example, if you want it to help your grandchildren buy a first home, but are worried they’ll instead buy a sports car, you can take action.

By talking to them, or setting up a legal trust, you could ensure they understand how you would like it to be used, and create a legal framework to ensure that’s what they do. Gifting while you’re alive could also stop arguments within the family when you die, as they will be clear about who receives what and why.

Remember to back your wishes up with a bona fide will. And, as trusts can have complex tax rules, always speak with a financial planner to ensure they are right for you.

Get in touch

If you are asking yourself: “do I have an IHT liability?” and would like to discuss how you might reduce it, please contact me. My email is a.douglass@grosvenorconsultancy.co.uk or call my office on 01793 766 123. Alternatively, call my mobile on 07525 177 046.

While I offer high standards of service and will work with you to ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.

Please note:

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The post 3 powerful reasons intergenerational planning is vital for your family’s wealth appeared first on Alice Douglass.

Here I am, talking about death again! This time, Estate Planning and inheritance tax (IHT).

But what is Inheritance Tax?  In simple terms, IHT is a 40% tax on assets on death over the nil rate band currently £325,000. It is slightly more complicated than this as some assets (e.g. Pensions) may not qualify for IHT. In addition, there is another nil rate band called the residence nil rate band. In the very simplest terms, the RNRB gives individuals another allowance of £175,000 (from 2020/21) against their main residence as long as it is passed to a direct descendent.

Worrying Stats

A (not so) recent survey by Octopus (April 2016) found that of the people they surveyed, only 14% were aware of the current IHT threshold of £325,000 and that anything left on death in excess of this amount would be taxed at 40%.

They also found that 78% of homeowners hadn’t considered Estate Planning or don’t think that they will be affected. This is a concern as the average price of property in London is £508,000 (ONS, 2023) and in the UK is £285,000 (ONS, 2023).

Even with the new additional Nil rate band when a residence is passed on death to a direct descendant, IHT paid to 31^st March 2019 was £5.38bn (HMRC, 2019).

Like the £325,000 threshold, any unused additional nil-rate band will be able to be transferred to a surviving spouse or civil partner. Therefore as per the following example, some couples could qualify for £1,000,000 IHT free*.

Example

Bob and Sheila own a house worth £750,000. They also have invested assets worth £350,000 (excluding their pensions as they don’t currently incur IHT – they will from 2027).

When Bob dies in November 2025, his allowances of the nil rate band threshold (£325,000) and the additional nil rate band (£175,000 for the property) are passed to Sheila. When Shelia dies the following January, she has:

Her own nil rate band £325,000

Bob’s nil rate band £325,000

£650,000

As she is passing the house onto their daughter, she also has:

Her own additional nil rate band £175,000

Bob’s additional nil rate band £175,000

£350,000

As their estate is worth £1,100,000, £100,000 will be liable to IHT at 40%. The estate will therefore need to pay £40,000 tax.

A voluntary Tax?

There are ways in which this tax could have been mitigated. In addition, there are plans that could have paid the liability for Bob and Sheila had they carried out estate planning. This £40,000 could potentially have been passed on to their family in full.

Even so, Bob and Sheila were lucky as they could “club” their nil rate bands together. They could also pass their property to their daughter a direct descendant. People who are single and/or those without direct descendants will also need to consider; how much tax they would be happy for their estate to pay, how this will be paid and whether they are concerned either way.

What is Inheritance Tax?

Inheritance tax is a tax on assets on death. It is sometimes called a voluntary tax because there are ways to (very legally) avoid paying it.

If you would like to find out more or if you are concerned about inheritance tax, get in touch or read my other blogs on the subject (to follow).

*There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

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