On 26 November 2025, Chancellor Rachel Reeves confirmed in the Autumn Budget that the inheritance tax (IHT) nil-rate bands will remain frozen until April 2031. Both the standard nil-rate band (NRB) (£325,000) and the residence nil-rate band (RNRB) (£175,000) are locked at current levels for an extra year beyond the previous 2030 deadline. This means IHT allowances will have stayed unchanged for 22 years by 2031 – unchanged since 2009. While on paper nothing changes, in reality this extended freeze amounts to a stealthy tax increase, as rising property and asset values will push more ordinary families above the fixed thresholds. If the main IHT threshold had kept pace with inflation, it would be roughly £525,000 today instead of £325,000. By not adjusting for inflation, the government effectively drags more estates into paying 40% tax, quietly increasing IHT bills without raising the headline rate.
The freeze on IHT allowances has real consequences for many families. Experts note that keeping the NRB at £325,000 since 2009 has been a key factor driving up IHT receipts, as more estates get caught in the net. Indeed, inheritance tax receipts are hitting record highs. In the first seven months of the 2025–26 tax year (April–October), HMRC collected £5.2 billion in IHT – about £200 million more than the same period a year before. The government is on track for a fourth consecutive record haul (around £8.2 billion for 2024/25) and forecasts IHT revenues will soar to over £14 billion by 2029/30. This surge is largely due to “fiscal drag”, where frozen allowances combined with rising asset prices mean estates that never would have paid IHT now fall above the thresholds. For example, many homeowners have seen property values climb; with the £175,000 RNRB also fixed, a home inherited by children can more easily breach the limit. (The RNRB allows an extra £175k per person when a main residence passes to direct descendants, and together with the regular NRB a married couple can potentially leave up to £1 million IHT-free – but only if they meet the conditions. Estates above £2 million lose this RNRB gradually, a trap more families will encounter as asset values grow.) In short, freezing the IHT bands for so long is a stealth tax – it quietly yields a “goldmine for the Treasury” as one commentator put it, by slicing off a bigger portion of estates each year without any new legislation.
Pensions to Be Included in Estates from 2027 – A Game Changer
Adding to the urgency, a major change is on the horizon: from 6 April 2027, most unspent pension funds will count as part of your estate for IHT. This policy ,first announced in the 2024 Autumn Budget – reverses a long-standing advantage. Historically, pensions have been shielded from inheritance tax, making them a popular vehicle for passing on wealth. Under current rules, any remaining defined contribution pension can usually be left to beneficiaries IHT-free, and if you die before age 75, your heirs even pay no income tax on it. But with the new reform, unused pension pots and death benefits will fall into the IHT net just like other assets. In other words, money you leave behind in a pension could face 40% inheritance tax, on top of any income tax your beneficiaries might owe when drawing those funds. For families who planned to treat pensions as a tax-efficient legacy, this is a seismic shift. It puts pensions “on the same footing as more conventional assets” for IHT purposes, and the impact could be significant – the government expects this change to eventually raise an extra £1.5 billion per year in tax, increasing the average IHT bill by £34,000.
Crucially, this pension change could create practical headaches for estates. Industry experts have warned the new rules will create a “horribly complex situation” for those handling an estate. Why? Under current IHT procedures, inheritance tax on an estate must be paid within 6 months of the end of the month of death, or interest starts accruing. But pension providers are allowed up to two years to identify and pay out to the correct beneficiaries of a pension. This mismatch raises concerns that executors (personal representatives) might struggle to file accurate IHT returns and pay the tax on pension funds in time. Despite such concerns from industry and even the House of Lords, the government is pressing ahead with the 2027 timeline and not extending the 6-month deadline. It has, however, introduced a facility for personal representatives to instruct pension administrators to withhold some funds for up to 15 months to cover the potential IHT bill. Still, families and advisers are understandably anxious. Some wealthier retirees have already reacted – there are reports of people withdrawing pension money now and gifting or reinvesting it, rather than risk leaving a heavily taxed pension inheritance later. This pre-emptive strategy is especially considered by those over 75, who know that if they defer pension withdrawals, their beneficiaries could eventually face a double tax hit (first a 40% estate tax, then income tax when they take the pension money out). The bottom line: from 2027, leaving large sums in your pension is no longer a safe bet for avoiding IHT, so estate plans that rely on that approach need revisiting soon.
Why the Freeze on Nil Rate Bands and Rule Changes Mean You Must Plan Now
Review your will and estate plan:
Make sure your current plan fully utilizes the available IHT allowances. For instance, spouses and civil partners can transfer any unused NRB and RNRB to each other. Taken together, a couple can potentially shelter £1 million (£325k + £175k each) from IHT if they leave their home to direct descendants. Check that your will is structured to take advantage of this – e.g. ensuring a qualifying residence passes to children or grandchildren to secure the RNRB. Also, be mindful of the £2 million estate threshold where the RNRB starts to taper away; if your total estate is near or above this, even with both spouses’ allowances, you could lose some or all of the residence band. Strategic moves (like gifting or placing assets in trust) might keep your estate under that taper threshold. It’s wise to review any older wills or bypass trusts, since rules have evolved. Ensuring your plans are up-to-date can maximize the tax-free legacy for your heirs.
Use gifting allowances and make lifetime gifts:
One of the simplest and most effective IHT mitigation strategies is giving away assets while you’re alive. Every individual can gift up to £3,000 each tax year (and unused allowance can carry over one year) without any IHT implications. You can also make any number of small gifts (up to £250 per person per year) and certain larger gifts on occasions like weddings, all IHT-free within specific limits. Beyond these annual allowances, consider the “7-year rule”: gifts of any size are completely exempt from IHT if you survive seven years after making them. Even if you don’t live that long, the tax on gifts is tapered down if you survive at least 3 years. This means early gifting can substantially shrink the taxable value of your estate. You might pass on wealth to children or grandchildren now - help with a house deposit, for example - rather than waiting until it becomes part of your estate. It’s also worth exploring the “normal expenditure out of income” exemption: if you have surplus income, you can give it away regularly (say, helping fund a grandchild’s education) and it’s immediately outside your estate, so long as it doesn’t reduce your own standard of living. By planning lifetime gifts methodically, you not only reduce future IHT but get to see your loved ones enjoy the help. Just be sure to keep good records of any significant gifts, as your executors will need those. And remember, time is key – the sooner you start gifting excess wealth, the more likely those gifts will be fully exempt.
Re-evaluate your pension strategy:
With pensions coming into the IHT fold, it’s crucial to reconsider how you use your pension in your overall estate plan. Review your pension beneficiary nominations to ensure they reflect your wishes – and be prepared for the reality that those beneficiaries might face a tax charge on what they inherit. In some cases, it may make sense to draw down more of your pension during your lifetime (especially after age 75) and use the funds in more tax-efficient ways, rather than leaving a large balance exposed to 40% IHT later. This could involve withdrawing and gifting funds (staying mindful of income tax on withdrawals and your own financial needs), or perhaps using withdrawals to purchase other assets that could qualify for reliefs. Every situation is different, so professional advice is vital before making major pension decisions. What’s clear is that pensions can no longer be viewed as a completely IHT-free inheritance vehicle. As one analysis put it, pensions were historically an IHT “free pass” to transfer wealth, but with the 2027 rule change it’s essential to reassess how pensions fit into your estate planning. You might still prioritize pension saving for your retirement needs and the income tax benefits, but any plan to intentionally leave a big pension pot untouched for the next generation should be revisited now. Also consider the tax timing: If you’re near 75 (when pension withdrawals by beneficiaries start to be taxed as income) or have health concerns, it could be worth taking action sooner. Don’t forget to factor in your spouse’s situation – pensions left to a spouse usually aren’t subject to IHT due to the spouse exemption, but then will count in the spouse’s estate later. Coordinating pension withdrawals and bequests within a couple can help minimize the eventual IHT. This is a complicated area, so be sure to get specialist financial advice before making changes to your pension strategy.
Consider trusts and life insurance to protect your legacy:
Beyond direct gifts, trusts can be powerful tools to manage IHT, especially for larger estates. Placing assets into a trust can remove them from your estate (subject to certain tax charges and rules), while still giving you control over how and when your beneficiaries receive them. There are different types of trusts – discretionary trusts, life-interest trusts, bare trusts, etc. – which can be used to suit your objectives (for example, protecting young or vulnerable beneficiaries, or skipping a generation). Trust planning is complex and comes with its own tax considerations (some transfers to trust incur 20% IHT upfront if over the NRB, and there are periodic charges), so it requires professional guidance. However, given the extended freeze and new pension rules, many families are revisiting trusts as a way to manage IHT exposure. Another approach is to insure against the IHT bill. You can take out a whole-of-life insurance policy designed to pay a lump sum on death that covers the expected inheritance tax. If such a policy is written in trust, the payout goes directly to your beneficiaries (or to whoever is designated, often the estate or executors) outside your estate, providing liquidity to pay the tax without further IHT on the insurance money. This can be a comfort for those with illiquid estates (say, a family business or property that heirs would prefer not to sell) – the insurance proceeds can settle the tax so the assets don’t have to be broken up. Premiums for these policies can be high, so they make the most sense when there’s a known large IHT exposure that can’t easily be mitigated through other means. We often help clients calculate whether paying insurance premiums is more cost-effective than the eventual tax – it can be, especially if you’re in good health when starting the policy. Business owners and farmers should also pay attention to recent changes: from April 2026, Business Property Relief and Agricultural Property Relief will only exempt the first £1 million of qualifying business/farm assets at 100% (value above that gets only 50% relief). If you fall in this category, careful succession planning (possibly using Family Investment Companies, trusts, or restructuring ownership) will be needed to avoid a surprise tax bill when these new relief limits kick in. The Budget 2025 did at least make the new £1 million business/farm allowance transferable between spouses, so married couples can potentially cover £2 million of business assets at 100% relief combined– make sure your plans take advantage of that by spousal transfers or will provisions if relevant. The key takeaway is that there are tools available – trusts, life insurance, business reliefs, charitable legacies, and more – to reduce or fund your estate’s tax liability, but they all require foresight and sound advice to implement effectively.
Business Relief & Agricultural Relief invest in assets that are high risk and can be difficult to sell. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.
Inheritance tax planning can quickly become complicated, especially with the new rules.
Every family’s situation is unique – the right mix of strategies for you will depend on your assets, income needs, family structure, and even your health. It’s highly advisable to consult with a qualified financial planner or estate planning expert to craft a plan tailored to your circumstances. An expert can ensure you’re making the most of all reliefs and exemptions, and help you anticipate future changes. For example, they can model different scenarios (e.g. “What if I live 5 years vs 15 years?” or “What if house prices grow X%?”) to see the potential IHT outcomes and figure out how to optimize your strategy. You may also find it useful to calculate your potential IHT exposure as a starting point – an online IHT calculator (there are several free ones available) can give a rough estimate of how much tax might be due on your estate under current rules. This can be an eye-opening exercise. (Tip: Don’t forget to include things like your life insurance payouts (unless in trust) and any other assets that might fall into your estate – many people underestimate their estate by forgetting those.) Armed with an estimate, you can work with your adviser to whittle that number down through the techniques mentioned above. Given the fast-changing landscape – from frozen thresholds to new pension taxes – regular reviews of your plan are important; what worked a few years ago might need adjusting now. Remember, the sooner you start addressing IHT, the more options you generally have. By being proactive, you can often save your family tens or even hundreds of thousands of pounds in future tax and ensure your wealth goes where you want it to.
Urgency is the watchword. The Chancellor’s latest measures underscore that IHT isn’t going away – if anything, its reach is expanding. But with informed planning, you can take control of the situation. At our firm, we specialize in precisely this kind of estate planning. We’re Chartered Financial Planners (part of Quilter Financial Planning), with decades of experience helping families navigate IHT. Our expertise can guide you through the maze of regulations and options, from calculating your potential liability to implementing strategies that protect your legacy. The sooner you start, the more peace of mind you’ll have. In light of the frozen thresholds and upcoming rule changes, now is the perfect time for an IHT review. Get in touch with us to discuss how we can help structure your estate in the most efficient way – so that more of your hard-earned wealth stays with your loved ones, and less ends up in the Treasury’s coffers. Effective inheritance tax planning can truly make the difference between a 40% tax and 0%, and we’re here to ensure you fall on the right side of that equation.
Ultimately, dealing with inheritance tax is about protecting your family’s future. The rules may be tightening, but you are not powerless – far from it. By leveraging allowances, planning ahead, and seeking expert help, you can beat the stealth tax creep and secure the financial well-being of your loved ones. The Autumn Budget 2025 has sounded a clear warning bell, but with timely action, you can turn these challenges into an opportunity to put your estate plans in the best shape ever. Your future self – and your future heirs – will thank you.
Why IHT & Pension Planning Before 2027 Is Crucial
The upcoming IHT changes represent a major shift for retirees and investors.
Do not wait until April 2027. By then, it may be too late to make strategic moves.
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Tax treatment varies according to individual circumstances and is subject to change.