What Families Need to Know
Inheritance Tax (IHT) planning has become one of the most important areas of financial planning for UK families. With frozen tax allowances, rising property values, and significant changes to Business Relief and pension treatment, more estates are being exposed to a potential 40% tax charge than ever before.
If your estate could exceed £325,000—or £1 million for married couples and civil partners with the right allowances—it may be time to review your planning strategy.
Understanding the Current UK Inheritance Tax Thresholds
The standard Nil-Rate Band (NRB) remains at £325,000 per person, meaning the first £325,000 of an estate is generally free from Inheritance Tax. This allowance has remained unchanged since 2009.
In addition, many homeowners can benefit from the Residence Nil-Rate Band (RNRB), which provides an extra allowance of up to £175,000 when a main residence is passed to direct descendants.
For married couples and civil partners, these allowances can often be transferred, potentially allowing up to £1 million to pass free of IHT. However, estates exceeding £2 million may see the Residence Nil-Rate Band gradually reduced, making proactive planning increasingly important.
The 7-Year Rule Still Matters
One of the most effective inheritance tax planning strategies remains gifting.
Many gifts are classified as Potentially Exempt Transfers (PETs). If the donor survives for seven years after making the gift, it typically falls outside their estate for IHT purposes. If death occurs within seven years, some or all of the gift may still be assessed for Inheritance Tax, although taper relief can reduce the liability after three years.
This makes early planning crucial.
Often Overlooked IHT Exemptions
Many families are unaware of the gifting exemptions available each year:
Annual Gift Allowance
Gift up to £3,000 per tax year
Unused allowance may be carried forward for one tax year
Potentially allowing gifts of £6,000 in certain circumstances
Small Gifts Exemption
Up to £250 per recipient per tax year
Can be given to multiple individuals
Gifts from Surplus Income
Regular gifts made from surplus income can be immediately exempt from IHT if:
They come from income rather than capital
Form part of a regular pattern
Do not affect the donor’s standard of living
This is one of the most underutilised inheritance tax planning opportunities available today.
Major Changes to Business Relief
Recent changes have significantly altered the landscape for Business Relief (BR).
Certain qualifying business assets, agricultural property, and AIM-listed investments may still attract valuable IHT relief. However, from April 2026, up to £2.5 million per individual may qualify for 100% relief, with amounts above this threshold potentially qualifying for only 50% relief.
For business owners and investors who have traditionally relied on Business Relief strategies, this change makes reviewing existing arrangements essential.
AIM Portfolios and Inheritance Tax Planning
Some AIM-listed investments can qualify for Business Relief after two years, potentially enabling assets to be passed free from Inheritance Tax if qualifying conditions are met. These can often be held within ISA structures, providing:
Income tax efficiency
Capital gains tax efficiency
Potential IHT mitigation
However, AIM investments carry higher levels of investment risk and are not suitable for everyone. Professional advice is essential before considering this approach.
The Pension Planning Shift
Historically, pensions have often sat outside an individual’s estate for IHT purposes.
However, government proposals indicate that from April 2027, unused pension funds may be included within an estate for Inheritance Tax calculations. If implemented, this could represent one of the most significant estate planning changes in recent years and may require many families to reconsider existing retirement and inheritance strategies.
Effective Inheritance Tax Planning Is About Strategy
There is rarely a single solution to reducing an Inheritance Tax liability. Effective planning often involves combining several approaches, including:
Lifetime gifting strategies
Trust-based planning
Business Relief solutions
Estate reduction planning
Life insurance written in trust
Maintaining access to capital whilst planning for future generations
The most successful strategies are tailored to an individual’s objectives, family circumstances, assets and long-term goals.
Why Professional Advice Matters
Inheritance Tax planning is becoming increasingly complex. Frozen allowances, changing legislation, evolving Business Relief rules and proposed pension reforms mean that what worked five years ago may no longer be the most effective solution today.
At Buckley Financial Services, we help individuals, families, business owners and retirees develop tailored inheritance tax planning strategies designed to preserve wealth across generations.
Whether you’re concerned about a future IHT liability, want to explore gifting strategies, understand trust planning, or review Business Relief opportunities, expert advice can help you make informed decisions with confidence.
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This article is for information purposes only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change in the future. The value of investments can fall as well as rise and you may get back less than invested.