Estate planning professionals are urging millions of UK families to review their wills following significant inheritance tax changes announced in the 2024 and 2025 Autumn Budgets. The most substantial change—bringing private pensions into the inheritance tax net—takes effect on 6 April 2027.
Currently, around 6% of UK estates pay inheritance tax. Government projections indicate this figure will rise to 8% once pension changes take effect, potentially reaching 10% by 2031. The Office for Budget Responsibility forecasts IHT receipts of £9.1 billion for 2025/26.
“Wills written more than two years ago were drafted under fundamentally different rules,” said a senior estate planning adviser. “Families who assumed their pension pots would pass tax-free to beneficiaries need to reassess their entire approach.”
Four Major Changes Affecting UK Families
Pensions Become Taxable from April 2027
Defined contribution pension pots currently sit outside estates for inheritance tax purposes. Pension scheme trustees decide who receives the funds, and no IHT applies regardless of pot size.
This exemption ends on 6 April 2027. From that date, unspent pension savings count towards the estate for tax calculations.
The financial impact is substantial. A pension pot of £500,000 could generate an additional IHT liability of £200,000. Some estates will face both income tax on pension withdrawals and inheritance tax on the underlying pot.
Government estimates indicate 10,500 additional estates will be caught in 2027-28 alone. A further 38,500 estates already liable for IHT will see average increases of £34,000.
Thresholds Frozen Until 2031
The nil-rate band of £325,000 has remained unchanged since 2009. The residence nil-rate band of £175,000—available when leaving a main home to direct descendants—was frozen in 2020.
The November 2025 Budget extended both freezes until April 2031. Combined with rising property values and asset growth, frozen thresholds continue drawing more estates into the tax.
An individual can currently pass on £500,000 tax-free when residence relief applies. A married couple using transferable allowances can pass on £1 million. These figures have not increased in over a decade while average house prices have risen more than 70%.
Agricultural and Business Relief Capped from April 2026
Family farms and businesses previously qualified for up to 100% relief from inheritance tax under Agricultural Property Relief and Business Property Relief schemes.
From 6 April 2026, only the first £1 million of combined agricultural and business property receives full relief. Assets above this threshold qualify for 50% relief, creating an effective tax rate of 20%.
The November 2025 Budget introduced one concession: the £1 million allowance is transferable between spouses. Married couples with qualifying assets up to £2 million can preserve full relief with proper planning.
Government figures suggest around 1,400 estates will be affected in 2026-27, with approximately 75% of estates currently claiming APR remaining unaffected.
Non-Domicile Rules Replaced from April 2025
The UK transitioned from domicile-based to residence-based taxation in April 2025. Individuals who have been UK tax-resident for 10 of the previous 20 years now qualify as “long-term UK residents” with worldwide assets falling within IHT scope.
Why Existing Wills Need Attention
Wills drafted before October 2024 were prepared under different assumptions. Several areas may require revision.
Pension death benefit nominations were commonly made assuming tax-free transfer to beneficiaries. This assumption no longer holds from April 2027. Families may need to reconsider whether pensions should be drawn down during retirement rather than preserved for inheritance.
Trust arrangements designed around previous relief levels may no longer function as intended. The cap on agricultural and business property relief affects how family assets are structured and transferred.
Spousal transfers remain valuable for doubling available thresholds. However, wills that do not properly utilise transferable allowances leave families paying more than necessary.
Residence nil-rate band planning requires leaving the main home to direct descendants. Wills leaving property to other relatives or into certain trust structures may forfeit the additional £175,000 allowance.
Available Planning Options
Several strategies remain available for families seeking to minimise exposure.
Pension drawdown during retirement attracts income tax but removes funds from the IHT calculation. Spending pension savings before other assets can reduce overall estate value.
Annual gifting allowances permit £3,000 per person per year. Gifts to individuals become fully exempt if the donor survives seven years. Wedding gifts allow up to £5,000 for children.
Charitable giving reduces estate value and can cut the IHT rate from 40% to 36% on remaining assets. Gifts to spouses or civil partners remain unlimited and exempt.
Life insurance policies written in trust can provide funds to cover IHT liabilities without adding to estate value.
Professional Review Recommended
Estate planning advisers emphasise the importance of professional review given the changes’ complexity. The interaction between income tax, capital gains tax, and inheritance tax requires careful calculation for optimal outcomes.
KingsGuard Legal, a West Midlands legal practice specialising in wills and estate planning, is among firms reporting increased enquiries since the Budget announcements.
“Families shouldn’t wait until April 2027 to act,” the firm noted. “The pension changes require strategic decisions about drawdown timing that affect multiple tax years.”
Lasting Powers of Attorney
Advisers also recommend reviewing Lasting Powers of Attorney alongside wills. An LPA allows a trusted individual to manage financial and health decisions if the donor loses mental capacity.
Registration costs £82 per document. The alternative—Court of Protection applications—costs significantly more and involves lengthy delays during already difficult circumstances.
Timeline for Action
April 2026 brings agricultural and business relief restrictions. April 2027 brings pension taxation changes. Frozen thresholds continue pulling additional estates into scope annually.
Estate planning professionals recommend three immediate steps: complete asset inventory including property, savings, investments, pensions, and business interests; book will review with qualified legal adviser; and assess pension strategy before the April 2027 deadline.
The changes take effect regardless of individual preparation. Proactive planning remains the primary method of minimising their impact.
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For general information only. Individual circumstances vary and professional legal and financial guidance may be appropriate.
