At Lazenby Financial Services, we regularly help clients in Leeds and across Yorkshire plan for the future. One topic that’s generating plenty of questions is Inheritance Tax (IHT) – especially with several important changes taking effect between 2025 and 2027. While most estates still won’t pay IHT, rising asset values and frozen thresholds mean more families could face a bill in the years ahead. Here’s a clear overview of the key developments.
Frozen Thresholds – More Estates Potentially Caught
The standard nil-rate band remains fixed at £325,000 per person. Add the residence nil-rate band of £175,000 (when leaving your main home to children or grandchildren) and a couple can pass on up to £1 million tax-free. However, these allowances have been frozen and will stay at current levels until at least 2030/31. With house prices and pension pots continuing to grow, this “fiscal drag” pulls more estates above the threshold over time. Married couples or civil partners can still transfer any unused allowance, but the lack of inflation-linking makes forward planning essential.
Pensions Brought into IHT from April 2027
This is one of the biggest shifts. Currently, unused defined contribution pension pots are usually outside your estate for IHT purposes – a valuable benefit for passing wealth to the next generation. From 6 April 2027, most unused pension funds and certain pension death benefits will be included in your estate. If the total (including your home, savings, and investments) exceeds your available nil-rate band, the excess could face 40% IHT. Important notes:
- Pensions left to a surviving spouse or civil partner remain IHT-free.
- Death-in-service benefits from registered schemes are generally excluded.
- Beneficiaries may also face income tax on withdrawals (especially if you die after age 75), potentially leading to double taxation.
For many clients, this removes one of the traditional advantages of leaving pensions untouched. It may now make sense to draw more from pensions during your lifetime or explore other strategies.
Changes to Agricultural and Business Property Relief (from April 2026)
Farmers and business owners have seen adjustments here too. From April 2026, 100% relief on Agricultural Property Relief (APR) and Business Property Relief (BPR) applies only up to a combined £2.5 million per estate (with the allowance transferable between spouses). Above that level, 50% relief applies, effectively taxing the excess at 20%. This change affects fewer estates than originally feared after the government raised the threshold from an initial £1 million proposal. AIM-listed shares will generally qualify only for 50% relief.
What This Means for Your Planning
These changes don’t affect everyone, but if your estate (including pensions after 2027) is likely to exceed £325,000–£500,000 (or £650,000–£1 million for couples), it’s worth reviewing your position now. Common strategies we discuss with clients include:
- Making use of the annual gift exemption and potentially exempt transfers (PETs).
- Reviewing pension drawdown versus leaving pots untouched.
- Considering spousal transfers and trust planning where appropriate.
- Charitable giving to reduce the taxable estate (and qualify for the reduced 36% rate in some cases).
At Lazenby Financial Services, we take a holistic approach. We work alongside your solicitor or accountant to align your investments, pensions, and estate plans with your family’s goals – whether that’s providing for your children, supporting grandchildren, or simply enjoying a comfortable retirement without unnecessary worry.
Don’t leave it until the changes bite. A proactive review today can save significant tax tomorrow and give you peace of mind.
If you’d like to discuss how these IHT updates might affect your situation, contact us for a no-obligation initial meeting. Call 0113 322 0700 or email advice@lazenbysfs.co.uk.
