Inheritance Tax Planning Guide 2026–27

My Store Admin 01 September 2026

Inheritance Tax Planning: A Guide for Families and Business Owners

Inheritance Tax (IHT) planning is becoming increasingly important for families, property owners and business owners. Rising asset values and significant changes to the treatment of business assets and pensions mean that arrangements which were once considered tax-efficient may need to be reviewed.

Effective IHT planning is not simply about reducing tax. It should protect your financial security, ensure that assets pass to the intended beneficiaries and provide sufficient funds to meet any tax liability arising after death.

What is Inheritance Tax?

IHT is generally charged at 40% on the part of an estate exceeding the available exemptions, reliefs and tax-free allowances.

An estate can include:

  • Houses, land and rental properties;
  • Cash and investments;
  • Shares in private and family companies;
  • Business and agricultural assets;
  • Personal possessions;
  • Certain trust interests;
  • Overseas property and investments; and
  • From 6 April 2027, most unused pension funds and pension death benefits.

The basic nil-rate band is currently £325,000. A residence nil-rate band of up to £175,000 may also be available when a qualifying home is left to direct descendants.

The residence nil-rate band is progressively withdrawn where the estate exceeds £2 million. It may therefore provide little or no benefit to larger estates.

Unused nil-rate bands can normally be transferred between spouses or civil partners. Subject to the relevant conditions, a married couple or civil partners may be able to pass on up to £1 million without an IHT liability.

Further information can be found in HMRC’s Inheritance Tax guidance.

Why should Inheritance Tax planning be reviewed now?

Several recent and forthcoming changes may affect existing estate-planning strategies.

The most important developments include:

  • Changes to Business Property Relief and Agricultural Property Relief from 6 April 2026;
  • Most unused pension funds entering the estate from 6 April 2027;
  • The continued freezing of the main IHT thresholds;
  • Residence-based rules for determining exposure to IHT on overseas assets; and
  • Increased HMRC scrutiny of valuations, gifts and relief claims.

People who previously expected their business or pension to pass outside the taxable estate should review that assumption.

Pensions and Inheritance Tax from April 2027

From 6 April 2027, most unused pension funds and pension death benefits will be included in an individual’s estate for IHT purposes.

This is particularly important for people who have deliberately preserved their pension while spending other savings and investments. A pension previously expected to pass outside the estate may create or increase an IHT liability.

Withdrawing an entire pension will not necessarily provide the answer. Pension withdrawals can create an immediate Income Tax charge and may simply move value from the pension into the individual’s taxable estate.

A review should consider:

  • The size and type of pension;
  • The member’s age and health;
  • Income requirements during retirement;
  • Other assets and liabilities;
  • The intended beneficiaries;
  • Income Tax on pension withdrawals;
  • The beneficiary nomination; and
  • The potential IHT liability from April 2027.

The government’s current position is explained in its technical note on Inheritance Tax and pensions.

Business and Agricultural Property Relief

Business Property Relief (BPR), now generally referred to as Business Relief, and Agricultural Property Relief (APR) can reduce the value of qualifying assets for IHT purposes.

From 6 April 2026, 100% relief is generally restricted to the first £2.5 million of combined qualifying business and agricultural property. Qualifying value above this allowance normally receives 50% relief, resulting in a maximum effective IHT rate of 20%.

The £2.5 million allowance is transferable between spouses and civil partners. This can potentially provide a combined 100% relief allowance of up to £5 million, subject to the detailed conditions.

The existence of a family company does not automatically guarantee Business Relief. Relief may be restricted or denied where:

  • The company consists wholly or mainly of holding investments;
  • Particular assets are not used for business purposes;
  • The company holds excessive cash or investments;
  • Assets are not required for future business use;
  • The necessary ownership period has not been satisfied; or
  • There is a binding contract for the sale of the business.

Business owners should review the company’s activities, balance sheet, cash reserves, investment assets and succession arrangements before relying on the relief.

See HMRC’s Business Relief qualification guidance and its explanation of the Agricultural and Business Property Relief changes.

GSC provides a dedicated Inheritance Tax Planning service for families and business owners.

Lifetime gifts and the seven-year rule

An outright lifetime gift to another individual will commonly be treated as a Potentially Exempt Transfer (PET). If the donor survives for seven years after making the gift, its value will generally fall outside the donor’s estate.

Lifetime gifting requires careful consideration because:

  • The gift may trigger Capital Gains Tax;
  • A property transfer may create Stamp Duty Land Tax consequences where debt is assumed;
  • The donor must genuinely give up ownership and benefit;
  • Earlier gifts can use the available nil-rate band;
  • Taper relief does not reduce the value of the original gift;
  • Gifts can affect the residence nil-rate band calculation; and
  • Anti-avoidance provisions may apply.

Giving a house to children while continuing to occupy it rent-free will normally be a gift with reservation of benefit. The property may consequently remain within the donor’s estate.

The donor’s financial security must also be protected. A person should not give away assets that they may later need to fund ordinary living costs, care or other unexpected expenditure.

Regular gifts from surplus income

The normal expenditure out of income exemption can be a valuable IHT planning opportunity. Unlike the £3,000 annual gift exemption, there is no fixed financial limit.

To qualify, the gifts must:

  1. Form part of the donor’s normal expenditure;
  2. Be made from income rather than capital; and
  3. Leave the donor with enough income to maintain their normal standard of living.

Evidence is critical. The donor should maintain a record of income, expenditure, gifts and the intention to establish a regular pattern.

Without adequate records, executors may find it difficult to demonstrate that the exemption applies when completing the IHT return.

Trusts and Family Investment Companies

Trusts and Family Investment Companies (FICs) can assist with succession, control and asset protection. However, neither structure is automatically exempt from tax.

A lifetime transfer into a discretionary trust can create an immediate IHT charge where the transfer exceeds the available nil-rate band. Relevant property trusts can also face ten-year anniversary and exit charges.

An FIC may allow parents to retain control while transferring future investment growth to children or grandchildren. The structure must nevertheless be reviewed for Corporation Tax, Income Tax, Capital Gains Tax and anti-avoidance consequences.

The appropriate structure will depend on the family’s assets, income requirements, beneficiaries and objectives. Tax should form part of that decision rather than being the sole reason for establishing the arrangement.

Life assurance and funding the liability

Life assurance written in trust does not remove the underlying IHT liability. It may, however, provide funds to meet the tax without forcing executors or beneficiaries to sell property, investments or business assets.

The policy ownership, trust documentation, premiums and expected liability should be reviewed carefully. Financial advice may also be required concerning the suitability and cost of the policy.

How GSC Tax Consultancy can help

GSC Tax Consultancy provides bespoke tax planning for individuals, families and business owners.

We can:

  • Calculate your current and projected IHT exposure;
  • Review your properties, pensions, investments and business interests;
  • Examine whether Business Relief or Agricultural Property Relief applies;
  • Identify investment activity or excepted assets that could restrict relief;
  • Review lifetime gifts and gifts from surplus income;
  • Compare trusts, FICs and direct lifetime gifts;
  • Model alternative succession-planning options;
  • Consider the interaction with Capital Gains Tax and other taxes;
  • Work with your solicitor, accountant and financial adviser; and
  • Assist if HMRC challenges an estate valuation or relief claim.

Our wider Tax Planning Specialists service can also address company, property, Capital Gains Tax and business-sale planning.

Frequently asked questions

How much can I leave without paying Inheritance Tax?

The basic nil-rate band is £325,000. A residence nil-rate band of up to £175,000 may also be available where a qualifying home is left to direct descendants. Unused allowances may normally transfer between spouses or civil partners, potentially allowing a qualifying couple to pass on up to £1 million without IHT. The residence nil-rate band is restricted for estates worth more than £2 million.

Can I avoid Inheritance Tax by giving my house to my children?

Not necessarily. If you continue to occupy the property without paying a full market rent, the gift with reservation of benefit rules may keep the house within your estate. The transfer can also have Capital Gains Tax, Stamp Duty Land Tax and practical ownership consequences.

Are pensions currently subject to Inheritance Tax?

Many discretionary pension funds are currently outside the estate. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the estate for IHT purposes. Individual pension arrangements should be reviewed before taking action.

Does a family company automatically qualify for Business Relief?

No. The company must satisfy the qualifying conditions. Relief may be restricted where the company is mainly an investment business or holds assets and excessive cash that are not required for business purposes.

When should I begin Inheritance Tax planning?

Planning should begin while there is sufficient time to consider lifetime gifts, succession arrangements, pension planning and the seven-year period. It should also be reviewed following major changes in wealth, family circumstances, tax law or business ownership.

Speak to GSC Tax Consultancy

If you would like to understand your potential IHT exposure or review an existing estate-planning strategy, contact GSC Tax Consultancy for an initial discussion.

Author: Gary Craig, Tax Investigation and Dispute Specialist
Last reviewed: 22 August 2026

This article provides general information and does not constitute advice for any particular individual. Inheritance Tax planning should be based on your complete financial, business and family circumstances.

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