Inheritance Tax (IHT) used to be paid by a small minority of estates. Frozen thresholds, soaring property values, and substantial reforms to Business Property Relief (BPR), Agricultural Property Relief (APR), and the treatment of pensions have changed that. By 2030, many more middle-class UK families will be inside the IHT net than at any point in living memory.
The frozen allowances
The key allowances were frozen by the 2024 Autumn Budget until at least April 2030:
- Nil-rate band (NRB): £325,000 per person — unchanged since 2009.
- Residence nil-rate band (RNRB): £175,000 per person, available when a main residence is left to direct descendants.
- Combined for a married couple: up to £1,000,000 tax-free.
Inflation alone has roughly halved the real value of the NRB since 2009. Estates that would have been comfortably under the threshold a decade ago are now squarely inside it.
The RNRB tapering trap
The RNRB tapers away at £1 for every £2 your estate exceeds £2 million. A property-rich estate worth £2.35m loses the RNRB entirely. For couples with London or Home Counties property plus pensions and investments, this taper is now one of the biggest single IHT exposures we plan for.
The April 2027 pensions change
Historically, defined-contribution pension pots passed to beneficiaries broadly outside the IHT estate — making pensions the most tax-efficient inheritance vehicle in the UK. From 6 April 2027, most unused pension funds and death benefits will be brought within the estate for IHT purposes.
This is the single biggest IHT change in a generation. Families who structured their retirement plans around using ISAs and other assets first while preserving pension wealth for the next generation now need a complete rethink. Drawdown strategies, beneficiary nominations, and life cover all need to be reassessed.
BPR and APR — the £1m cap from April 2026
Business Property Relief and Agricultural Property Relief have historically provided 100% relief on qualifying business and agricultural assets. From 6 April 2026, the 100% relief is capped at a combined £1 million per person, with relief above that cap reduced to 50% (giving an effective IHT rate of 20% on the excess).
For founders of trading companies, family farm owners, and AIM portfolio investors, this is a material change. Lifetime gifting strategies that lock in current BPR treatment, the use of trusts before April 2026, and re-evaluating life cover are now urgent conversations.
The lifetime gifting opportunity
Gifts made more than seven years before death are generally outside the estate ("potentially exempt transfers"). The following annual allowances are useful and underused:
- £3,000 annual exemption — can be carried forward one year.
- £250 small gifts to any number of individuals each year.
- Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to others.
- Gifts out of normal expenditure from surplus income — unlimited and often overlooked, but requires documentation.
Spousal exemption and the transferable NRB
Gifts between UK-domiciled spouses are fully exempt, and any unused NRB and RNRB transfers to the surviving spouse. The £1m combined family allowance only works if the first death's allowances are not used up against non-spousal beneficiaries. This is a common oversight in older wills.
Trusts — still relevant
Discretionary trusts attract a 20% entry charge above the NRB and a 6% ten-year periodic charge, but they remain a powerful tool for asset protection, control over the timing of distributions to beneficiaries, and BPR sheltering. The reformed BPR rules from April 2026 require careful re-modelling of any existing trust structures.
Action items for 2026 and 2027
- Have your estate valued — many people underestimate by 30% or more once pensions, life policies, and overseas assets are included.
- Review pension nominations before April 2027 and discuss drawdown vs. crystallisation strategy.
- If you own a business or AIM portfolio, model the impact of the £1m BPR cap and consider gifting or trust structures before April 2026.
- Document any "normal expenditure out of income" gifts — HMRC requires evidence.
- Update your will to reflect frozen allowances, the RNRB taper, and the pensions change.
IHT is no longer a problem only for the wealthy. Our tax planning team works with families across London and the Home Counties on lifetime gifting strategies, trust structures, and pension restructuring. Get in touch for a confidential estate review.