Key facts
- UK inheritance tax is set to change significantly in April 2027, with unused pension funds becoming taxable.
- The nil-rate band for inheritance tax remains frozen until at least 2030/31.
- An Autumn Budget is scheduled for October 28, with speculation around potential changes to capital gains tax and a social care levy.
- Financial advisors warn against rushing to make large gifts before the October 28 Budget due to potential anti-avoidance measures and the seven-year gifting rule.
- Research suggests affluent UK families who begin estate planning at age 50 could pass on an average of £397,000 more than those who wait until age 70.
Major changes to the UK's inheritance tax (IHT) regime are on the horizon, with unused pension funds set to be included from April 6, 2027. This impending shift, coupled with frozen nil-rate bands until at least 2030/31 and rising asset values, is expected to draw more estates into the tax net.
The upcoming Autumn Budget on October 28 is a focal point for estate planners, though the government has denied rumors of a new social care levy. Speculation also surrounds potential changes to capital gains tax. Financial advisors are urging caution against last-minute gifting strategies before the Budget, citing risks such as the seven-year rule for gifts and potential anti-avoidance measures that could negate the benefits of hurried transactions.
Research by Octopus Investments, based on modelling by the Centre for Economics and Business Research, indicates that affluent UK families who begin estate planning at age 50 could pass on an average of £397,000 more to their beneficiaries compared to those who wait until age 70. This delay, rather than poor planning or market downturns, is identified as the primary driver of an estimated £12.3 billion in preventable inheritance tax under the post-April 2027 rules.
Industry body STEP has raised concerns with the Treasury regarding the practical implementation of taxing unused pension funds, highlighting that families may face IHT demands before probate is granted, preventing access to the necessary assets. The organization is seeking safeguards to prevent bereaved families from being unable to meet tax obligations.