Sarah Hills, LV= Wealth Proposition Director, shares her thoughts on the changes to Inheritance Tax (IHT), and what they mean for later life and wealth planning.
Inheritance tax (IHT) is moving back into focus, with some new rules already in force and a series of further changes scheduled for April 2027 that will alter how estates are assessed and planned for. While headline tax rates and nil-rate bands remain unchanged, frozen allowances, combined with adjustments to pensions, business assets and agricultural property, mean a broader range of estates are likely to fall within scope of IHT.
For advisers, one of the most important tasks will be helping their clients to reassess long-standing assumptions about what counts towards the taxable estate and ensuring planning strategies remain fit for purpose under the new rules.
Frozen thresholds continue to widen the tax base
The £325,000 nil-rate band and £175,000 residence nil-rate band are expected to stay fixed until at least 2031. Whilst the tax-free inheritance allowances aren’t increasing, people’s assets are. As a result, more estates will end up paying inheritance tax.
Property appreciation, rising pension pots and accumulated investments mean estates that would historically have fallen outside IHT may now face an unexpected liability.
Pensions move firmly into the IHT frame from 2027
From 6 April 2027, most unused pension funds will be included in a person’s estate for IHT purposes. This represents a fundamental change in how pension wealth interacts with estate planning.
Although exemptions will remain, most notably where pension benefits pass to a surviving spouse or civil partner, alongside certain workplace death benefits, pensions can no longer be considered separate from wider estate considerations. Advisers will need to ensure that a decumulation strategy, beneficiary nominations and tax and intergenerational planning are reviewed through a new IHT lens.
For advisers, pensions becoming subject to IHT increases the likelihood that otherwise modest estates will breach thresholds once all assets are aggregated.
Tighter parameters on business and agricultural assets
From April 2026, recent changes narrowed the application of Business Relief (BR) and Agricultural Property Relief (APR).
Under the new rules:
- 100% relief will be capped at a combined total of £2.5 million across qualifying business and farm assets
- Any value above this threshold may be subject to inheritance tax
- Relief availability will be reduced for certain AIM‑listed and smaller company shares
The continued ability for spouses and civil partners to transfer unused relief will provide some mitigation, but the direction is clear. Business owners and farming families may need to plan earlier for succession, valuation and liquidity to manage future liabilities.
Planning implications for advisers
Although the changes are meaningful, they do not necessarily mean a complete re-plan is required in every case. Incremental, well‑timed adjustments, reviewed regularly by professional advisers, remain central to effective IHT planning.
Core considerations for advisers could include:
- Coordinating pension withdrawal strategies with estate planning
- Making effective use of lifetime and annual gifting allowances
- Assessing whether retaining capital or property remains optimal under the revised rules
- Managing liquidity risk where an IHT liability is foreseeable
- Ensuring later‑life borrowing decisions are aligned with long‑term estate objectives
Equity release moves into mainstream IHT planning discussions
One area advisers may want to consider more closely is equity release, a loan secured on the client’s home. As property values continue to rise, housing wealth represents a significant and often underutilised planning lever. This shift also aligns with the FCA’s ongoing review of later-life lending, which is reinforcing the move towards more holistic, outcomes focused financial planning.
For some clients, accessing housing equity can provide a means to:
- Gift money during their lifetime, potentially reducing the value of the estate
- Fund living costs or supplement income without drawing further on pensions which are now within the IHT calculation
- Introduce an offsetting loan against the estate, which potentially reduces the IHT payable.
While equity release is not suitable for everyone, products have evolved significantly. When used appropriately and with advice, it can form part of a broader strategy – particularly for those clients who are asset rich but income limited. As IHT exposure widens, equity release is increasingly being considered alongside gifting and protection solutions rather than as an option of last resort.
A case for earlier, broader engagement
Rather than a sudden overhaul, the upcoming changes point to a gradual shift in how inheritance tax interacts with different forms of wealth. Increased complexity places greater emphasis on joined‑up advice and earlier engagement—especially for clients with significant pension pots, valuable property or business interests.
For advisers, this creates an opportunity to reposition IHT planning as an evolving, integral part of retirement and later‑life advice. Helping clients act early, calmly and strategically will be key to preserving choice and flexibility under the new framework.
