With the Spring Budget fast approaching, the window for making use of existing rules is narrowing. With allowances largely frozen, pension rules becoming increasingly complex, and changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) on the horizon, now is a valuable opportunity to review and reassess planning arrangements. For individuals and families with substantial assets, acting sooner rather than later can ensure reliefs are maximised and reduce future inheritance tax (IHT) exposure.
1. Keeping wills under review
Many wills were often prepared at a time when asset growth and frozen thresholds had not yet increased inheritance tax exposure.
Regular reviews, ideally every three to five years, are therefore essential. A well drafted will should do more than simply distribute assets; it should preserve flexibility and be structured to accommodate potential changes in legislation and family circumstances. For example, the inclusion of discretionary trusts may be valuable, providing trustees with the ability to manage distributions post death and respond to evolving tax, financial or personal circumstances. Equally important is ensuring that executors and trustees are granted sufficiently wide administrative powers to act effectively in complex family or business situations.
2. APR and BPR
Under the current draft legislation, from 6 April 2026, the 100% relief on qualifying assets will be capped at the first £2.5 million of combined business and agricultural property, with any value above this threshold receiving relief at 50%.
For married couples and civil partners, careful structuring of wills is essential to ensure the £2.5 million relief is not lost or wasted on the first death, particularly where the spouse exemption may take precedence over APR or BPR.
Even where assets attracting APR and BPR are ringfenced in a will, the wording of these clauses should be carefully reviewed to avoid unintended tax consequences. Thoughtful planning ensures that business and agricultural assets pass efficiently to the next generation while preserving flexibility for changing circumstances.
3. Lifetime gifting
Lifetime gifting can be an effective way of reducing the value of an individual’s estate. Rather than waiting to plan on death, individuals should consider the cumulative impact of structured giving during their lifetime.
For individuals with substantial estates, it may be appropriate to consider large lifetime transfers. For example, gifting outright to the next generation or settling assets into trust every seven years may be useful. Such gifts are typically treated as potentially exempt transfers and provided they do not exceed the value of the nil rate band (currently capped at £325k) fall outside the estate after seven years. Where trusts are used, they can provide a degree of asset protection and control, particularly in cases involving younger beneficiaries, second marriages or family business interests.
4. Maximising allowances
Individuals with substantial assets should consider making use of their allowances. Each individual has a £3,000 annual exemption per year (£6,000 per year per married couple), with the ability to carry a previous year’s unused allowance forward. Small gifts up to £250 are exempt, in addition to gifts in consideration of marriage or civil partnership (subject to certain limits).
A particularly valuable exemption, especially with the upcoming changes to pensions, is gifts made from excess income. Individuals are permitted to make gifts out of excess income without inheritance tax consequences, provided they form part of their normal expenditure, they are made from income rather than capital, and the individual can still meet their living expenses from their income in the years in which the gifts are made.
5. Pension changes
From 6 April 2027, unused pension funds will be treated as part of an individual’s estate for IHT purposes. This represents a significant shift, as pensions have historically been one of the most tax efficient vehicles for intergenerational wealth transfer.
Individuals who have deliberately preserved pension funds by drawing on other assets may need to reconsider this approach. Substantial pension balances could attract IHT at 40%, in addition to any income tax payable by beneficiaries, depending on the pension scheme and the age of the deceased.
Although the changes do not come into effect until 2027, it is important that individuals take action now by reviewing nomination forms, assessing pension values, and considering whether drawing pension benefits during their lifetime or gifting excess pension income may be appropriate to mitigate inheritance tax exposure ahead of the changes. Individuals with significant pension assets should consider taking financial advice.
By taking proactive steps now, individuals can fully utilise existing reliefs, exemptions, and planning opportunities before forthcoming changes come into effect. Regularly reviewing wills, ensuring APR and BPR are optimised, structuring lifetime gifts, maximising available exemptions, and reassessing pension arrangements together create a coherent, forward-looking strategy. Such an approach not only protects family wealth and minimises IHT exposure but also provides flexibility and peace of mind in an increasingly complex planning environment.