Inheritance Tax Planning
Lifetime gifts, trusts and structuring of business and pension assets
We advise families, business owners and high-net-worth individuals across London on inheritance tax planning. The work covers lifetime gifts, trusts, the treatment of business assets, and the changes to the rules taking effect in 2026 and 2027. Done well, planning brings down what the estate will owe without compromising your own position in the meantime. Most clients come to us when something has changed: a sale, a property purchase, a death in the family, a Budget.
London estates are being drawn into inheritance tax in larger numbers, as the £325,000 nil-rate band remains frozen against rising property and business values. The 2026 and 2027 reforms then change the calculation again for business owners, AIM investors, pension holders and internationally mobile clients. We advise families, business owners and high-net-worth individuals on lifetime planning, gifts, trusts and the structuring of business and investment assets. We also hold an ICAEW probate licence, so the administration of the estate, when the time comes, can sit with the same team.
London estates are being drawn into inheritance tax in larger numbers, as the £325,000 nil-rate band remains frozen against rising property and business values. The 2026 and 2027 reforms then change the calculation again for business owners, AIM investors, pension holders and internationally mobile clients. We advise families, business owners and high-net-worth individuals on lifetime planning, gifts, trusts and the structuring of business and investment assets. We also hold an ICAEW probate licence, so the administration of the estate, when the time comes, can sit with the same team.
How inheritance tax is calculated
Inheritance tax is charged at 40% on the part of an estate that exceeds available nil-rate bands and reliefs, with a reduced rate of 36% applying where at least 10% of the net estate passes to charity. Two nil-rate bands apply.
The nil-rate band is £325,000 per person and is available to all estates. The residence nil-rate band is an additional £175,000 per person, available where a qualifying residential interest passes to direct descendants. It tapers by £1 for every £2 of estate value above £2 million and is removed entirely at £2.35 million for an individual. Following the Autumn Budget 2025, both bands remain frozen at these levels until 5 April 2031.
Unused nil-rate band and residence nil-rate band can be transferred to a surviving spouse or civil partner on death. A couple passing a qualifying main residence to children can therefore shelter up to £1 million from inheritance tax before any further reliefs are considered.
From 6 April 2025, exposure to UK inheritance tax on non-UK assets is determined by a long-term UK residence test rather than domicile. An individual is within scope of UK inheritance tax on worldwide assets if they have been UK tax resident for at least 10 of the previous 20 tax years. After ceasing UK residence, a "tail" of between three and ten years applies, depending on how long the individual was resident.
Inheritance tax is due six months after the end of the month of death; the inheritance tax account is due within twelve months. Interest accrues on tax paid late, and the estate cannot generally obtain a grant of probate until the tax position has been settled with HMRC.
The nil-rate band is £325,000 per person and is available to all estates. The residence nil-rate band is an additional £175,000 per person, available where a qualifying residential interest passes to direct descendants. It tapers by £1 for every £2 of estate value above £2 million and is removed entirely at £2.35 million for an individual. Following the Autumn Budget 2025, both bands remain frozen at these levels until 5 April 2031.
Unused nil-rate band and residence nil-rate band can be transferred to a surviving spouse or civil partner on death. A couple passing a qualifying main residence to children can therefore shelter up to £1 million from inheritance tax before any further reliefs are considered.
From 6 April 2025, exposure to UK inheritance tax on non-UK assets is determined by a long-term UK residence test rather than domicile. An individual is within scope of UK inheritance tax on worldwide assets if they have been UK tax resident for at least 10 of the previous 20 tax years. After ceasing UK residence, a "tail" of between three and ten years applies, depending on how long the individual was resident.
Inheritance tax is due six months after the end of the month of death; the inheritance tax account is due within twelve months. Interest accrues on tax paid late, and the estate cannot generally obtain a grant of probate until the tax position has been settled with HMRC.
Lifetime gifts and the seven-year rule
Gifts made in the seven years before death may reduce the nil-rate band available against the estate. Gifts to individuals are Potentially Exempt Transfers and fall outside the estate entirely if the donor survives seven years. Where death occurs between three and seven years after a gift, taper relief reduces the tax on the gift, but only where the cumulative value of gifts exceeds the nil-rate band.
Several gifts are exempt regardless of the seven-year rule:
1. Transfers between spouses or civil partners are fully exempt where the recipient is a long-term UK resident, otherwise capped at the value of the nil-rate band unless the recipient elects to be treated as long-term resident
2. The annual exemption of £3,000 per tax year, with one year's unused exemption available to carry forward
3. Small gifts of up to £250 per recipient per tax year, where no other exemption has been used for that person
4. Regular gifts out of normal income that do not reduce the donor's standard of living
5. Gifts to UK-registered charities and qualifying political parties
Documenting gifts properly is part of the work. The gifts-out-of-income exemption in particular depends on showing a settled pattern of gifting and sufficient post-tax income, and it is the exemption most frequently challenged by HMRC on a death. We help clients keep the records needed to support a claim.
Several gifts are exempt regardless of the seven-year rule:
1. Transfers between spouses or civil partners are fully exempt where the recipient is a long-term UK resident, otherwise capped at the value of the nil-rate band unless the recipient elects to be treated as long-term resident
2. The annual exemption of £3,000 per tax year, with one year's unused exemption available to carry forward
3. Small gifts of up to £250 per recipient per tax year, where no other exemption has been used for that person
4. Regular gifts out of normal income that do not reduce the donor's standard of living
5. Gifts to UK-registered charities and qualifying political parties
Documenting gifts properly is part of the work. The gifts-out-of-income exemption in particular depends on showing a settled pattern of gifting and sufficient post-tax income, and it is the exemption most frequently challenged by HMRC on a death. We help clients keep the records needed to support a claim.
Trusts, growth shares and family structures
Trusts and corporate vehicles allow value to be moved out of an estate, or capped at its current level, while parents retain control over how and when the next generation benefits. Common structures we work with include:
Discretionary trusts: lifetime gifts into trust are chargeable lifetime transfers, with an entry charge at 20% on amounts above the available nil-rate band (£325,000 for an individual, subject to the seven-year cumulation rule). Relevant property trusts also carry ten-year periodic charges and exit charges, which we model into the structure from the outset.
Family investment companies: a UK company holding investment assets, with separate share classes allocated between parents and children. Income and growth can be directed through dividends and value uplifts in growth shares, with parents retaining voting control through founder shares.
Growth shares: a new class of share issued to children, structured so that existing value sits with the parents and only future growth accrues to the new shareholders. This is widely used in trading companies to bring the next generation into the equity at a low entry value, and is often paired with a discretionary trust as the holder.
Separate share classes: in family businesses where roles and economic rights need to differ from voting rights, alphabet shares or other class structures separate dividend rights, voting and capital entitlement.We also prepare written inheritance tax planning reports for clients with mixed estates. These set out the current position by asset, model the effect of the 2026 and 2027 reforms (see below), and identify the planning steps that can sensibly be taken now rather than at a later date.
Discretionary trusts: lifetime gifts into trust are chargeable lifetime transfers, with an entry charge at 20% on amounts above the available nil-rate band (£325,000 for an individual, subject to the seven-year cumulation rule). Relevant property trusts also carry ten-year periodic charges and exit charges, which we model into the structure from the outset.
Family investment companies: a UK company holding investment assets, with separate share classes allocated between parents and children. Income and growth can be directed through dividends and value uplifts in growth shares, with parents retaining voting control through founder shares.
Growth shares: a new class of share issued to children, structured so that existing value sits with the parents and only future growth accrues to the new shareholders. This is widely used in trading companies to bring the next generation into the equity at a low entry value, and is often paired with a discretionary trust as the holder.
Separate share classes: in family businesses where roles and economic rights need to differ from voting rights, alphabet shares or other class structures separate dividend rights, voting and capital entitlement.We also prepare written inheritance tax planning reports for clients with mixed estates. These set out the current position by asset, model the effect of the 2026 and 2027 reforms (see below), and identify the planning steps that can sensibly be taken now rather than at a later date.
Business assets, AIM and the 2026 reform
Business Property Relief (BPR) and Agricultural Property Relief (APR) currently allow many trading businesses, qualifying shareholdings and farming assets to pass free of inheritance tax. From 6 April 2026, the relief is restructured:
- 100% relief applies to a combined £2.5 million allowance per individual, covering APR and BPR assets together. The allowance is transferable between spouses and civil partners, so couples can shelter up to £5 million between them at 100% relief.
- Above the allowance, qualifying assets attract 50% relief, an effective inheritance tax rate of 20% on the excess.
- Shares quoted on the Alternative Investment Market and other 'not listed' shares attract 50% relief from the same date, subject to the standard two-year holding requirement.
- Most trading shares must be held for at least two years before death to qualify for BPR at all.
- From 6 April 2026, the same £2.5 million 100% relief allowance also applies to relevant property trusts, refreshed every ten years. Transitional rules apply for settlements created before, on, or after 30 October 2024, and the trust position is one of the more technical areas of the new regime.
For owner-managed business clients, this changes the structure of succession planning. We advise on the timing and ownership of new share issues, transfers into trust before the new allowance applies, the use of growth shares to allocate future value to children without immediately using parental allowances, and the use of life cover written into trust to fund any residual IHT liability on death.
- 100% relief applies to a combined £2.5 million allowance per individual, covering APR and BPR assets together. The allowance is transferable between spouses and civil partners, so couples can shelter up to £5 million between them at 100% relief.
- Above the allowance, qualifying assets attract 50% relief, an effective inheritance tax rate of 20% on the excess.
- Shares quoted on the Alternative Investment Market and other 'not listed' shares attract 50% relief from the same date, subject to the standard two-year holding requirement.
- Most trading shares must be held for at least two years before death to qualify for BPR at all.
- From 6 April 2026, the same £2.5 million 100% relief allowance also applies to relevant property trusts, refreshed every ten years. Transitional rules apply for settlements created before, on, or after 30 October 2024, and the trust position is one of the more technical areas of the new regime.
For owner-managed business clients, this changes the structure of succession planning. We advise on the timing and ownership of new share issues, transfers into trust before the new allowance applies, the use of growth shares to allocate future value to children without immediately using parental allowances, and the use of life cover written into trust to fund any residual IHT liability on death.
The reform calendar and what it means for pensions
Three sets of changes are shaping inheritance tax planning at present, all confirmed in primary legislation or Treasury announcement:
6 April 2026: BPR and APR restructured. £2.5 million combined 100% relief allowance, transferable between spouses; 50% relief above. AIM and other "not listed" shares move to 50%. Anti-forestalling rules apply to lifetime gifts and trust settlements made on or after 30 October 2024 where the donor or settlor dies on or after 6 April 2026.
6 April 2027: Most unused pension funds and pension death benefits are brought into the value of the estate for inheritance tax (Finance Act 2026, Royal Assent 18 March 2026). Death-in-service benefits from registered pension schemes are excluded. The existing spouse, civil partner and charity exemptions are preserved. Personal representatives will be responsible for reporting and paying any inheritance tax due on pension property.
5 April 2031: The nil-rate band and residence nil-rate band remain frozen at £325,000 and £175,000 respectively, following the Autumn Budget 2025 extension.
For clients with substantial pension wealth, the 2027 change is the most significant inheritance tax reform in a generation. Pension funds that previously sat outside the estate will fall within it, and the period between now and the commencement date matters for any client reconsidering the timing of drawdown, the use of pension wealth in lifetime gifting, or the order in which different asset classes are drawn down in retirement.
6 April 2026: BPR and APR restructured. £2.5 million combined 100% relief allowance, transferable between spouses; 50% relief above. AIM and other "not listed" shares move to 50%. Anti-forestalling rules apply to lifetime gifts and trust settlements made on or after 30 October 2024 where the donor or settlor dies on or after 6 April 2026.
6 April 2027: Most unused pension funds and pension death benefits are brought into the value of the estate for inheritance tax (Finance Act 2026, Royal Assent 18 March 2026). Death-in-service benefits from registered pension schemes are excluded. The existing spouse, civil partner and charity exemptions are preserved. Personal representatives will be responsible for reporting and paying any inheritance tax due on pension property.
5 April 2031: The nil-rate band and residence nil-rate band remain frozen at £325,000 and £175,000 respectively, following the Autumn Budget 2025 extension.
For clients with substantial pension wealth, the 2027 change is the most significant inheritance tax reform in a generation. Pension funds that previously sat outside the estate will fall within it, and the period between now and the commencement date matters for any client reconsidering the timing of drawdown, the use of pension wealth in lifetime gifting, or the order in which different asset classes are drawn down in retirement.
How to start a conversation
Get in contact with Vision Consulting to stay one step ahead. Tax rules change, families change, and asset values change. To talk through your position, Chloe Symmonds or Ghulam Alahi would be happy to have a call.
For estate administration and probate, please see our probate page.
Speak with us in confidence.
Phone: 020 8554 2135
Email: info@visionconsulting.co.uk
For estate administration and probate, please see our probate page.
Speak with us in confidence.
Phone: 020 8554 2135
Email: info@visionconsulting.co.uk
