Planning how to pass on your wealth isn’t always top of mind. Many of us focus on daily expenses, saving for retirement, or simply enjoying life. However, the 2024 Autumn Budget announced by Chancellor Rachel Reeves introduced new inheritance tax (IHT) rules coming into effect in 2027. This makes early planning essential for pensions, ISAs, and other assets.
Understanding Current and Future IHT Rules
Inheritance tax is charged at 40% on estates above £325,000 (the nil-rate band), with an additional £175,000 residence nil-rate band if you leave your main home to direct descendants. Assets left to a spouse or civil partner are usually exempt.
With thresholds frozen and property/asset values rising, HMRC collected a record £8.2 billion in IHT in 2024/25, with estimates suggesting it will exceed £9 billion in the current tax year.
From April 2027, certain pensions and unused death benefits will be included in your estate for IHT purposes, making it crucial to plan ahead for retirement wealth and estate management.
Pensions: Passing on Retirement Wealth
Pensions remain one of the most tax-efficient ways to save for retirement and pass wealth to heirs:
Before age 75: Pension pots can usually be inherited tax-free.
After age 75: Beneficiaries pay income tax on withdrawals at their marginal rate, but the pension itself avoids IHT.
A Self-Invested Personal Pension (SIPP) gives flexibility over investments, including funds, shares, bonds, and other assets. To ensure smooth transfers, keep your pension expression of wishes form up to date.
Case Study: Maggie, aged 77, has £300,000 in her SIPP and £600,000 in her estate. Under current rules, she pays £110,000 in IHT. After April 2027, including her SIPP in the estate would increase her IHT bill to £230,000, highlighting the importance of planning early.
ISAs: Tax-Efficient Savings for Your Estate
Individual Savings Accounts (ISAs) let you save up to £20,000 per year with tax-free growth. Normally included in your estate for IHT, ISAs can still benefit your spouse or civil partner via an additional permitted subscription (APS), allowing them to inherit tax-free.
Example: John leaves £150,000 in his ISA to his wife Mary. She can claim the APS, preserving tax advantages while avoiding inheritance tax.
Junior ISAs: Investing for the Next Generation
Junior ISAs (JISAs) allow long-term savings for children under 18. Contributions are tax-free, and the annual allowance is £9,000 in 2025/26. Over 18 years, consistent contributions with modest growth could provide children with over £250,000, a strong start to adulthood.
Remember: JISA contributions are treated as gifts for IHT purposes; they are exempt only if you survive seven years after the gift.
Property: Planning for Your Home
For many, the family home is the largest asset. The residence nil-rate band (RNRB) can shield an additional £175,000 per person from IHT if passed to children or grandchildren. The allowance tapers for estates over £2 million, so property-rich estates with modest savings may face higher IHT bills.
Other Planning Options
- Gifting during your lifetime: Up to £3,000/year free of IHT, plus small regular gifts and wedding gifts.
- Trusts: Useful for controlling wealth distribution and complex estates, sometimes with tax advantages.
- Charitable gifts: Exempt from IHT, either during life or through your will.
Planning Ahead Matters
Successful wealth transfer requires regular review and careful planning:
- Keep pension nominations up to date
- Maintain a will and review regularly
- Spread assets across pensions, ISAs, and JISAs
- Organize financial records for executors
- Stay informed on changing IHT rules
- Seek professional advice for complex estates
With IHT rules changing in 2027, early planning is essential. Don’t leave your wealth exposed to unnecessary taxes. Our team can help you review pensions, ISAs, JISAs, and other assets, optimise tax efficiency, and create a clear estate plan tailored to your needs.
📞 Contact us today to secure your financial legacy and make inheritance planning simple and stress-free.