Planning Ahead: How to prepare for Inheritance Tax changes and protect your estate
Why proactive Inheritance Tax planning matters
When you’ve worked hard to build your wealth, it’s only natural to want that wealth to benefit the people and causes you care about most. That’s where Inheritance Tax (IHT) planning becomes essential.
With major IHT rule changes on the horizon, there has never been a better time to review your estate planning strategy. Robust planning can protect your legacy, reduce future tax liabilities, and offer peace of mind for you and your family.
At the heart of effective estate planning is a clear understanding of how Inheritance Tax works, and how you can legally reduce your estate’s exposure to it.
Upcoming changes to Inheritance Tax: What you need to know
The Autumn Budget 2024 introduced significant updates to two core IHT reliefs, taking effect from 6 April 2026:
Key changes from April 2026:
- Agricultural Property Relief (APR) and Business Property Relief (BPR) will only offer 100% relief on the first £1 million of qualifying assets. Anything above that threshold will be eligible for just 50% relief.
- Alternative Investment Market (AIM) shares will see relief reduced from 100% to 50%.
- On a positive note, APR is being extended to environmentally managed land, creating a new estate planning opportunity.
From 6 April 2027, pension funds, including unspent balances, may also become subject to IHT upon the member’s death. For estates including farmland, business assets or pensions, these changes could tip the value over the nil-rate band (NRB) for the first time.
If you’re affected, early engagement with a specialist adviser can help develop tailored IHT mitigation strategies.
Using gifting to reduce your Inheritance Tax Liability
One of the most straightforward ways to reduce the value of your estate, and consequently your IHT bill is through lifetime gifting.
Key rules on lifetime gifts:
- Gifts to individuals are generally free of IHT if you survive for seven years after making them.
- Gifts into trusts can trigger an immediate IHT charge if they exceed the cumulative nil-rate band (£325,000 in 2025/26).
- Spouses and civil partners can transfer any unused NRB, increasing the effective exemption to £650,000.
Reducing your estate below the NRB through gifting, assuming no chargeable gifts are made in the seven years prior to death, could result in zero Inheritance Tax liability.
The Residence Nil-Rate Band (RNRB): Extra relief for passing on the family home
In addition to the standard NRB, you may be eligible for the Residence Nil-Rate Band (RNRB), offering up to £175,000 per person when your home is left to direct descendants.
However, beware of tapering:
- If your total estate exceeds £2 million, the RNRB is tapered and can be lost entirely.
- The standard NRB is not tapered, and remains available in full regardless of estate value.
- Assets passing to a surviving spouse on first death may push the total estate over the taper threshold by the second death, reducing available relief.
Gifting your home during your lifetime typically won’t reduce IHT if you continue to live in it. This area is heavily scrutinised by HMRC.
Small Gift Exemptions: Simple, effective IHT reduction tools
Many taxpayers overlook the small gift exemptions available each tax year. Though modest, these allowances can accumulate significantly over time.
Annual IHT exemptions include:
- £3,000 per year, with the ability to carry forward unused allowance from the previous year.
- £250 per person, per year (provided no other gifts are made to that person).
- Marriage or civil partnership gifts, up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to others.
Gifts from normal income: A valuable but underused exemption
- Must be regular, come from surplus income, and not impact your standard of living.
- Can be uncapped in value if qualifying conditions are met.
- HMRC will require detailed evidence, accurate records are essential.
Used consistently, these exemptions can play a major role in long-term IHT planning, especially for high-net-worth individuals considering trust planning.
Why an up-to-date Will is essential for IHT planning
Surprisingly, many people still die without a valid Will, which can not only result in family disputes but also cause unnecessary tax liabilities and unintended distributions under the rules of intestacy.
A well-drafted Will helps you:
- Ensure your assets go to the intended beneficiaries
- Maximise available tax reliefs
- Minimise delays and legal costs
- Provide for vulnerable dependants or complex family arrangements
You should also consider setting up Lasting Powers of Attorney to manage your financial and personal affairs in the event of incapacity. Together, a Will and Powers of Attorney form the cornerstone of responsible estate management.
Act Now: Secure your legacy and protect future generations
With sweeping Inheritance Tax changes coming into effect in 2026 and 2027, there’s no time like the present to review your estate and wealth planning.
Whether you’re:
- Planning to pass on your family business
- Looking to gift assets to children or grandchildren
- Hoping to maximise reliefs and allowances
Additionally, if you simply want peace of mind that your wishes will be respected, our experts are here to help.
Speak to Azets Wealth Management today
Our trusted financial planning advisors are on hand to explain how the IHT changes could affect your estate, and how to create a bespoke plan to protect your family’s future.
Contact a member of our Wealth Management team to book a consultation and take control of your estate planning.