Inheritance tax planning options explained

The nil-rate band and residence nil-rate band

Everyone has a nil-rate band (NRB) — currently £325,000 — below which no inheritance tax is charged. Any unused NRB from a deceased spouse or civil partner can be transferred, giving a combined threshold of up to £650,000. The residence nil-rate band (RNRB) provides an additional allowance of up to £175,000 per person where a main residence is left to direct descendants. Both thresholds have been frozen until April 2028. With house prices and investment values rising, more estates are falling into the IHT net each year.

Gifting

Outright gifts made more than seven years before death are generally exempt from IHT. Gifts made in the seven years before death may still be subject to IHT, with the rate tapering the further back the gift was made. Annual gift exemptions allow up to £3,000 per year free of IHT, plus exemptions for gifts on marriage and regular gifts from surplus income. A structured gifting programme — calibrated against cash flow modelling — can reduce the taxable estate meaningfully over time.

Trusts

Assets placed into certain types of trust can be removed from the taxable estate, subject to conditions. Trusts can be used to pass assets to the next generation while retaining some control over how and when they are used. Trust planning is complex and the tax treatment depends on the type of trust and the assets involved. Professional legal and financial advice is important before establishing a trust for IHT purposes.

Business Relief

Business Relief provides relief from inheritance tax on qualifying business assets. Assets qualifying for 100% Business Relief — including interests in unlisted trading companies and, in many cases, AIM-listed shares — are completely exempt from IHT, provided they have been held for at least two years. However, AIM investments carry high risk and the qualifying status of any individual investment can change.

Pensions and the Finance Act 2026

Until April 2027, unspent pension funds sit outside the estate for IHT purposes. From 6 April 2027, the Finance Act 2026 brings unspent defined contribution pension funds within the scope of inheritance tax for the first time. The implications are significant — particularly for clients who had structured their drawdown strategy around the pension’s IHT-free status. A review of pension strategy ahead of the April 2027 changes is one of the most time-sensitive planning actions available. Further detail on the April 2027 pension IHT changes is available here.

Considerations

• IHT planning should always preserve sufficient assets and income for the client’s own needs.
• Gifting is simple and effective but the seven-year rule means it requires time to become fully effective.
• Business Relief investments carry risk — qualifying status is not guaranteed and AIM shares can be volatile.
• Trust structures are effective but complex and require proper legal documentation.
• The pension position has changed materially — anyone with a pension above a modest size should review their estate plan.
• A good IHT plan typically combines several of these tools, calibrated to the client’s assets, income needs, family circumstances and timeline.

Aetas Wealth is a trading style of Insight Financial Associates Limited, authorised and regulated by the Financial Conduct Authority (FRN 458421). Companies House 05054886. The value of investments can fall as well as rise. The FCA does not regulate Wills, Trusts or Tax advice. This guide is for educational purposes and does not constitute personal advice.