Four ways to rethink inheritance tax planning ahead of the 2027 pension changes

1 Gifting – still one of the simplest and most effective tools

Gifting remains a powerful way to reduce the value of your estate over time. You can use your £3,000 annual exemption (and carry forward one year), alongside smaller gift allowances and gifts out of surplus income. Larger gifts may also fall outside your estate after seven years.

Balance is key as giving away assets too early or too aggressively can create future financial pressure, particularly if long term care becomes a consideration. When structured properly however, gifting can be one of the most straightforward ways to pass on wealth efficiently.

2 Life assurance – creating liquidity at the right time

Inheritance tax is often a timing problem as much as a tax problem. Assets can be illiquid, but tax bills are not. Life assurance can provide a lump sum on death to help meet an IHT liability, reducing the need for beneficiaries to sell assets at short notice. When written appropriately, policies can sit outside the estate and pay directly to beneficiaries, providing valuable certainty at what is often a difficult time.

3 Trust planning – flexibility, control and long-term strategy

Trust planning deserves consideration in its own right. Used effectively, trusts can enable you to pass on wealth while retaining an element of control over how and when it is accessed, particularly useful for younger beneficiaries or more complex family scenarios. There are further planning opportunities when it comes to IHT mitigation, with certain trusts allowing you access to the capital if you have a need for it. Notably, a Discounted Gift Trust can provide an immediate reduction in the value of your estate for IHT purposes, as the discounted portion does not need to fall under the 7 year rule.

While trusts come with their own tax rules and administration, they remain a highly effective and versatile planning tool when considered alongside your other financial objectives.

4 Business Relief (BR) – a powerful and flexible IHT solution

For those comfortable with the associated risks, Business Relief can be a highly effective IHT mitigation strategy. Qualifying investments can fall outside your estate for IHT purposes after just two years; significantly shorter than the seven-year gifting rule.

Importantly, many BR solutions are designed to retain access to capital if your circumstances change, offering a level of flexibility that gifting cannot.
These investments do carry higher risk and typically involve smaller, less liquid companies, so advice is essential—but for the right investor, BR can be a particularly compelling option within an overall estate plan.

The value of advice 2027

The 2027 proposed changes don’t mean pensions have lost their value, but they do change how they fit into the bigger picture. It may now be worth rethinking how and when you draw on pension assets alongside your broader estate strategy

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing.
Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Lycetts, its officers or employees, for any loss in connection with the content hereof and any such action or inaction.