How to reduce inheritance tax: six actions to consider before April 2027
The proposed pension changes from April 2027 could increase your inheritance tax exposure. David Goodfellow, Senior Wealth Planning Director, outlines six planning actions worth reviewing before your options become more limited.
Senior Wealth Planning Director
6 Oct 2026
|Quick summary: reducing your inheritance tax liability
David Goodfellow, Senior Wealth Planning Director, outlines six inheritance tax (IHT) planning actions worth reviewing before April 2027. With pensions set to fall within the scope of IHT and changes to Business Relief already underway, families may need to rethink long-standing assumptions about how they pass on wealth.
- Gifting money or assets – how gifts made during your lifetime could fall outside your estate over time
- Using trusts – how a trust could help you pass on wealth while retaining an element of control
- Reviewing your pension – why the rules linking pensions and IHT are changing from April 2027
- Reliefs and exemptions – how Business Relief and Agricultural Relief could reduce what's due
- Life insurance in trust – how a policy written in trust could help cover a future IHT bill
- Charitable giving – how giving money to charity can meaningfully reduce your IHT liability.
Why think about inheritance tax now
IHT is currently charged at 40% on assets passed to beneficiaries (other than a spouse or civil partner) above the nil-rate band of £325,000. A separate residence nil-rate band of £175,000 can also apply, meaning an individual's allowances could reach up to £500,000, or £1m for a couple, before IHT is due. This residence nil-rate band starts to taper away for estates worth more than £2m. Both bands are frozen until at least April 2031. As asset values have grown over time, this freeze means more estates are being drawn into paying IHT, even where wealth hasn't grown in real terms.
Two further changes add to the picture. The 100% relief available on qualifying business and agricultural assets is now capped at £2.5m per person, with only 50% relief above that. And - most significantly - from 6 April 2027, most pensions will be brought within the scope of IHT for the first time.
In my experience, major rule changes often act as a catalyst for broader planning conversations. While the proposed pension changes are attracting most of the headlines, they're really prompting many families to revisit much bigger questions about how they pass on wealth, support future generations and balance their own financial security with the desire to leave a legacy.
What are the best ways to minimise inheritance tax?
There's no single 'best' way to reduce an IHT liability. The right approach depends on the size and make-up of your estate, your family circumstances and how much control or access you'd like to keep over your assets during your lifetime.
The biggest mistake is assuming an existing plan will continue to work indefinitely. The April 2027 pension changes have prompted many families to revisit assumptions that may have been in place for years and, in some cases, decades.
For many families, the changes coming in April 2027 will be the trigger for a wider review of their inheritance tax plans. Over the coming months, I expect conversations about pensions, gifting and passing on wealth to become increasingly important.
In this article, I've highlighted six areas I believe are worth reviewing now and why acting sooner can often create more options than waiting until the rules change.
1. Gifting money or assets during your lifetime
Everyone has an annual gift exemption of £3,000, plus exemptions for wedding gifts and gifts of up to £250 per person. You may also be able to gift surplus income on a regular basis. In simple terms, this means giving away income that remains after meeting your normal expenditure and maintaining your standard of living. Provided the gifts are regular, well documented and affordable, they may fall outside your estate for inheritance tax purposes.
Larger gifts can still be effective as part of a plan. These are known as potentially exempt transfers (or PETs) and generally fall outside your estate after seven years, with tapering relief that may reduce the tax due if you die within that period. The seven-year clock only starts ticking once a gift is made, so it's worth thinking about gifting sooner rather than later, alongside cash flow modelling to check what you can comfortably afford to give away.
Where appropriate, gifting can be one of the most powerful planning tools available because it rewards early action. The challenge is balancing what you would like to pass on with the need to maintain your own financial security.
2. Set up a trust
A trust involves placing assets under the control of trustees for the benefit of your chosen beneficiaries and can be a way to pass on wealth while retaining some influence over how and when it's used, for example to pay for children's education or protect assets for younger beneficiaries.
Different types of trust are taxed differently and some carry their own periodic charges, so trusts tend to work best as part of a properly considered plan rather than in isolation.
Trusts are often discussed as a solution in their own right, but I generally see the best outcomes when they form part of a wider family wealth plan rather than being viewed purely as a tax strategy.
3. Review how your pension fits into your plan
Under current rules, pensions generally sit outside the taxable estate, which is why the advice is usually to draw on other assets first and leave pension funds untouched for as long as possible. However, from 6 April 2027, unused pension funds will be included within the value of an estate for IHT purposes. Some benefits, such as dependants' scheme pensions, are excluded, while payments to a spouse, civil partner or charity can remain exempt.
This is a fundamental shift and it may mean the order in which you draw on your assets needs a fresh look.
In my view, this is the most significant inheritance tax planning development in recent years. Many plans have been built around pensions sitting outside an estate and that assumption now deserves careful review. I've spoken to many investors who have built portfolios and pensions over decades, only to discover that changes in one area can have unintended consequences elsewhere.
4. Use reliefs designed for business and agricultural assets
If you hold shares in a qualifying trading business, agricultural land, or certain shares listed on the alternative investment market (AIM), Business Relief or Agricultural Relief could reduce the IHT due on those assets. From 6 April 2026, 100% relief is available on the first £2.5m of combined qualifying assets per person, with 50% relief above that, and AIM shares now qualify for 50% relief rather than 100%.
Investments that rely on these reliefs are typically higher risk and won't be right for everyone, so it's worth weighing the potential tax benefit against your wider attitude to risk before going down this route.
While these reliefs remain valuable, I would always encourage clients to start with their objectives rather than the tax benefit. A tax-efficient investment that doesn't fit your wider financial goals is rarely a good solution.
5. Consider a life insurance policy written in trust
A life insurance policy won't reduce an IHT liability itself, but when written in an appropriate trust, the payout can sit outside your estate and reach your beneficiaries quickly, potentially helping to cover a future tax bill without other assets needing to be sold at short notice. As with any insurance product, cost and eligibility will depend on factors such as your age and health.
Life assurance isn't the right solution for everyone, but it can be particularly useful where families want certainty that funds will be available to help meet an inheritance tax liability. As always, the key question is whether the cost and structure fit your wider objectives.
6. Give to charity
Gifts to UK-registered charities, whether made during your lifetime or through your Will, are exempt from inheritance tax. Leaving at least 10% of your net estate to charity can also reduce the rate of tax paid on the rest of your estate from 40% to 36%, which is worth considering if charitable giving is already part of your plans.
For some families, charitable giving can achieve two objectives at once: supporting causes that matter to them while reducing the amount of inheritance tax payable on their estate.
How the 2027 changes could affect which strategies make sense
For many, the 2027 pension changes are likely to prompt a wider review rather than a single fix. If pensions are set to lose some of their current IHT advantage, the balance between gifting, trusts, drawing on investments and reliefs such as Business Relief may need to change too.
Combining strategies for larger or more complex estates
Larger estates, particularly those that include a business, agricultural land, property or significant investment portfolios, often benefit from combining more than one strategy rather than relying on a single approach. Gifting, trusts, Family Investment Companies (FICs), pension planning, qualifying reliefs and life insurance can all work alongside each other, but getting the combination and sequencing right takes careful planning, and the rules in this area continue to change.
FICs can form part of a longer-term wealth transfer strategy for some families, although their suitability will depend on individual circumstances and objectives.
The families I work with rarely rely on one solution alone. More often, success comes from combining several strategies and reviewing them regularly as rules and circumstances evolve. In many cases, the biggest opportunity isn't finding a new inheritance tax strategy. It's making sure everything is working together in the way you intended. This is where professional wealth planning advice tends to add the most value.
With further changes approaching, now is a good opportunity to make sure your plans remain aligned with your goals. In inheritance tax planning, acting earlier often creates more options than waiting until the rules change.
Helping clients navigate the pension changes and inheritance tax changes
The proposed changes to pensions and inheritance tax mean many clients may need to revisit long-held assumptions about how they pass on wealth. If you would like to discuss a client scenario or explore the planning considerations in more detail, our Wealth Planners would be pleased to help.
Reducing inheritance tax - your questions answered
There’s no single most effective strategy – what works best depends on how much time you have before the plan needs to be effective, how much control you want to keep over your assets in the meantime and the make-up of your estate. Some strategies, such as lifetime gifting, reward being started early because they take years to have full effect, while others, such as reliefs on qualifying business assets or life insurance written in trust, can play a role at shorter notice. For most people, a combination reviewed regularly alongside changing circumstances and rules tends to work better than relying on a single approach.
Larger estates tend to have more at stake from the residence nil-rate band taper, which starts to reduce this allowance for estates over £2m, so strategies that bring down the taxable estate – such as lifetime gifting, trusts, or business and agricultural reliefs – can be worth prioritising. Estates that include a business, agricultural land or a substantial investment portfolio also tend to have more reliefs and combinations available to them, though the right mix depends on liquidity needs and how much control you’d like to retain. It’s this added complexity that often makes professional advice worth its cost for larger estates.
It's understandable to want certainty before acting, but some of the most effective strategies reduce your estate gradually, generally over seven years, so waiting for every detail to be confirmed could mean losing valuable time. Reviewing your overall approach now and adjusting as the rules are finalised, tends to work better than holding off entirely. A Wealth Planner can help separate what's worth acting on now from what's better left until closer to April 2027.
Neither is inherently better – they tend to suit different priorities. An outright gift is often simpler and, once it falls outside your estate after seven years, no longer forms part of your affairs at all, but it means giving up control of the asset completely. A trust can let you pass on wealth while keeping some influence over how and when beneficiaries benefit, which can suit situations such as protecting assets for younger family members, though trusts bring their own tax treatment and often carry periodic charges. Many people use a combination of the two rather than choosing between them.
What can be changed or undone will vary by strategy. Outright gifts generally can't be undone once made and may take seven years to fall outside your estate. Trusts can sometimes be adjusted depending on how they're set up, and a pension nomination form can usually be updated at any time. Because both personal circumstances and the rules can change, it's worth choosing strategies that leave you some flexibility and reviewing your plan periodically rather than treating it as fixed.
Again, this can vary considerably depending on the strategy you choose. Some take effect straight away, such as using your annual gift exemption or giving to charity. Others build up over time, for example, a lifetime gift generally only falls fully outside your estate after seven years and Business Relief or Agricultural Relief typically need at least two years of ownership first.
This is why it's generally worth starting to think about IHT strategies early and reviewing your plans regularly rather than leaving it until later in life.
