At a glance
- Frozen thresholds combined with increasing asset values have expanded IHT’s reach.
- Upcoming changes include agricultural and business reliefs capped at £1 million and pensions losing IHT exemption.
- Strategic planning around asset ownership, lifetime gifting and will structures could help clients eliminate significant tax liabilities.
Inheritance tax planning once occupied a niche corner of client services for small practitioners across the UK. Today, it’s rapidly becoming a growing and essential aspect of financial advisory.
According to the latest figures from HMRC, IHT receipts reached £8.2 billion in 2024-25, more than doubling since 2009. This increase mainly stems from a frozen tax-free allowance at £325,000, while asset values have soared.
Andrew Titmus, partner at Parfitt Cresswell says the demographic affected by IHT has fundamentally changed.
“An increasing number of estates are falling into the IHT taxable thresholds and impacting on a demographic that historically had little concern for a tax that was considered to impact the ‘wealthy’,” he says.
With average house prices nearly 60% higher than in 2009, even modest family homes can push estates over the threshold, creating unexpected tax liabilities for heirs. Titmus notes there’s demand for more complex estate planning.
“With unmarried couples, children from multiple relationships and more hybrid family situations, the tax rules have failed to adapt and offer a simple solution. There are therefore many more people than before who would benefit from IHT planning but are unaware of their need for it,” he says.
Understanding the upcoming changes to agricultural reliefs and pensions – and developing practical strategies – has become essential for practitioners serving this widening client base.
New agricultural relief caps
Much has been written about the changing tax landscape for farmers with the introduction of new caps on previously unlimited reliefs from April 2026.
Sarah Nettleship, senior associate in the wills, estate & tax planning team at Thomson Snell & Passmore, says that although this represents a fundamental shift in how family businesses and farms can be passed between generations, there are still opportunities for farmers and landowners.
“Although Agricultural Relief and Business Relief will be capped from 6 April 2026 at £1 million for full relief at 100% and 50% on the remaining value of qualifying assets, this is still a valuable relief,” she says. “Farmers should consider whether they are maximising this relief.
“For example, if a farmer is married or in a civil partnership, they should ensure both spouses own qualifying assets in order to capture the relief on both deaths as the £1 million allowance is not transferable.”
Titmus says the upcoming changes are already influencing business decisions.
“The result is forcing business owners and farmers to consider either winding up their businesses early or making gifts with the intention of surviving them by 7 years,” he says.
Pensions enter the IHT net
An equally important shift will affect a broader range of clients from April 2027 when pension pots lose their IHT-exempt status.
Titmus warns this represents a significant shift in how retirement savings will be treated at death.
“These changes…effectively introduce an additional tax on top of the existing position and will lead to substantially higher tax on pensions than previously experienced,” he says. “It seems likely (and the Government is yet to provide all the details) that pensions will count towards the Residence Nil Rate Band (£2 million taper threshold), further reducing the benefit of this limited allowance. Many people have built up substantial pension pots with the intention for these to pass tax-free to their beneficiaries.”
Many more Britons may be liable to pay IHT as the value of their pension pushes up the value of their estate. Titmus notes that despite the changes not coming into effect until April 2027, many are already hesitant to extend their pension.
How you can help clients today
With agricultural relief caps and pension changes set to alter the IHT landscape significantly, practitioners have an opportunity to deliver substantial value to clients who may not realise they need it. Six strategic approaches that experts recommend considering:
- Business restructuring: helping farm and business-owning clients split qualifying assets between spouses to capture dual £1 million relief allowances, potentially saving hundreds of thousands in tax.
- Earlier lifetime gifting: clients may consider making substantial gifts now to avoid the seven-year countdown, particularly for assets that might exceed relief caps.
- Regular income gifts: advising on the use of immediately exempt gifts from surplus income that bypass the seven-year rule entirely, with strong record-keeping to assist executors
- Life insurance planning: setting up policies written in trust to provide tax-free liquidity for IHT payment without adding to the taxable estate.
- Will reviews: complex family structures require sophisticated will planning, especially for blended families. Adjustments like using trusts between spouses before passing assets to children can eliminate substantial tax liabilities.
- Pension contribution recalibration: clients may benefit from redirecting some retirement savings to more IHT-efficient vehicles like ISAs, which offer greater flexibility for lifetime gifting.
The IFA tax series focuses on a number of tax topics and feature speakers who are experts within the industry. The webinars run across three weeks and last two hours each. More information here.
