Estate planning -
Upcoming pensions, business relief and inheritance tax reform – What you need to know
Discover how upcoming changes to pensions and inheritance tax could impact your legacy, and why now is the time to rethink your estate planning strategy.
In July, HMRC published draft legislation confirming that from 6 April 2027 most unused pension funds will be included in an individual’s estate for inheritance tax (IHT) purposes.
At the same time, the government announced reforms to business and agricultural relief. These were originally expected to tighten allowances considerably but following a scaling back of the proposed restrictions (in late December 2025), these changes will now make relief more generous than originally proposed, creating new opportunities for estate planning from 6 April 2026.
This marks a major change to how pensions and business assets are taxed when passed on after death. While pensions will soon form part of a taxable estate on death, business and agricultural relief could reduce tax exposure for many families and business owners. If you have built up substantial pension savings or hold business assets, now is the time to review your estate planning strategy and take advantage of these changes.
Why this matters more than ever
Rising property and asset values, combined with frozen tax thresholds, mean that even modest estates can face large tax bills. From April 2027, unused pension funds will also be included for IHT purposes, potentially attracting a 40% IHT charge.
This marks a dramatic shift. Pensions have long been a tax-efficient way to pass on wealth. Under the new rules, they could become a less efficient option.
What is changing – in simple terms
Business and agricultural relief (from April 2026)
- A £2.5 million allowance (up from the original proposal of £1 million) for unquoted business and agricultural assets will qualify for 100% IHT relief
- The £2.5 million allowance is transferable between spouses or civil partners – even if the first death occurred before 6 April 2026 – effectively enabling couples to pass on up to £5 million in qualifying assets with 100% relief
- Qualifying assets above £2.5 million will receive 50% relief. This means the remaining 50% will be subject to IHT at 40%. For simplicity, the effective rate of IHT for any business relief qualifying assets above £2.5m would therefore be 20%
- AIM-listed shares will only qualify for 50% relief, which also means a potential overall 20% IHT charge
- Business assets held inside pensions will not qualify for relief – they must be held directly
- Over time, all trusts will be subject to the £2.5 million cap, not just those created after 6 April 2026. This means that any business or agricultural relief placed into trust before 30 October 2024 will also be impacted once the trust reaches its 10-year anniversary, significantly reducing the effectiveness of historic trust planning strategies.
These reforms introduce new planning opportunities for many estates, while requiring careful consideration for larger businesses and high-growth companies. Find out more about business relief changes in this article.
Pensions and IHT (from April 2027)
- Unused pension savings will be taxed alongside your estate when you die
- Death-in-service benefits and some dependant pensions will remain exempt (death-in-service benefits are payments made by your employer to your beneficiaries if you die while still employed.)
- Your executors, not your pension provider, will be responsible for paying the tax
- Beneficiaries may face an income tax charge, in addition to the IHT charge paid by the estate, when they draw down inherited pension funds.
This means that the old advice to leave pensions untouched may no longer be the best approach. We might see individuals drawing from pensions earlier or using other assets such as ISAs and investment accounts for legacy planning.
What you should do now
The upcoming reforms represent a fundamental shift in how wealth is taxed and transferred in the UK. For those with significant pension savings or business interests, the time to take stock is now.
You do not need to make rushed decisions, but you do need to start planning. Here are some steps to consider:
- Review your pension strategy: should you draw down earlier, change investment strategy, or restructure your nominations?
- Explore business relief opportunities: consider how best to maximise the allowance between couples and ensure that wills are updated or reviewed where necessary
- Revisit your estate plan: trusts, gifting strategies, and life insurance may help offset future tax liabilities
- Ensure liquidity: your estate may need cash to cover IHT bills
- Seek advice: these changes are complex and personal, so a tailored plan is essential.
Rachel Wyatt, Wealth planner
“Passing on unused pensions free of inheritance tax has long been central to retirement and estate planning. Likewise, new restrictions on business asset relief could disrupt plans for passing companies on to the next generation. Now more than ever, reviewing your estate plan is essential to protect your legacy.”
How we can help
At Arbuthnot Latham our wealth planning specialists are here to help you navigate these changes with clarity and confidence. We offer:
- Personalised estate planning
- Pension and business asset reviews
- Tax-efficient legacy strategies.
Whether you are planning for retirement, succession, or intergenerational wealth transfer, working alongside your legal and tax advisers, we can help you make considered, informed decisions to protect your legacy.
Tax planning can be complex, and individual circumstances vary. For tailored guidance, we recommend consulting a qualified tax adviser. Please note that we cannot accept responsibility for any outcomes resulting from general comments or explanations we provide.
Get in touch to find out more about becoming a client and see how our latest articles and guides can help you act with financial confidence.
Inheritance tax rules are changing. Are you ready?
With changes coming to IHT, pensions, and business reliefs, many families are asking: “How much more tax will I owe – and what can I do about it?”
Watch our webinar replay to learn what is changing and how to protect your legacy.
Further reading
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Author -
Rachel Wyatt
Wealth Planner
Rachel Wyatt is a Chartered Financial Planner with over 20 years’ experience in the financial services sector. She helps clients prioritise their wants, needs, and goals and then provides wealth planning solutions to make effective use of the assets and resources available to achieve these objectives.
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