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Estate planning is about helping clients decide how they want their wealth to be managed and passed on, while making sure they have appropriate arrangements in place for later life.
For some clients, reducing a potential inheritance tax (IHT) liability will be an important part of that process. However, estate planning can cover much more, from keeping a will up to date and making gifts during a client's lifetime to considering trusts, pensions, insurance and investments that qualify for Business Relief (BR).
A client's circumstances, priorities and the tax rules themselves can all change over time, so estate planning also requires regular review. This guide looks at some of the main considerations for advisers, the options that may be available to clients and the recent changes that could affect existing plans.
How does inheritance tax work?
IHT is a tax on the value of an individual's estate when they die, including property, money and investments.
Each individual has a nil-rate band (NRB) of £325,000. An additional residence nil-rate band (RNRB) of up to £175,000 may be available where a qualifying home is passed to direct descendants.
Transfers between spouses and civil partners are normally exempt from IHT, and any unused NRB and RNRB can usually be transferred to the surviving spouse or civil partner. Depending on their circumstances, this can allow a couple to pass on up to £1m before IHT becomes payable.
Above the available allowances and exemptions, IHT is normally charged at 40%.
The amount ultimately payable will depend on the client's circumstances, the assets they hold and any estate planning undertaken during their lifetime.
What can form part of an estate plan?
An estate plan can bring together a number of different arrangements, depending on what a client wants to achieve, the assets they hold and how much ownership and access they want to retain during their lifetime.
This can include putting the right legal arrangements in place, such as a will and powers of attorney, alongside financial planning options including gifting, trusts, life insurance, pensions and BR.
Wills and powers of attorney
A valid and up-to-date will helps ensure that a client's assets are passed on according to their wishes. It can also be important in making appropriate use of IHT allowances and exemptions.
Lasting powers of attorney serve a different purpose, allowing a client to appoint people they trust to make financial or health and welfare decisions on their behalf if they are no longer able to do so themselves.
Together, these can provide an important foundation for the wider estate plan.
Gifting
Giving assets away during a client's lifetime can reduce the value of their estate for IHT purposes.
Individuals have a £3,000 annual gifting exemption, with any unused amount available to carry forward for one tax year. Other exemptions may also apply depending on the type and circumstances of the gift.
Larger gifts to individuals can normally fall outside the estate for IHT purposes if the donor survives for seven years after making them. Clients may also be able to make regular gifts from surplus income without those gifts becoming liable for IHT, provided the relevant conditions are met.
Gifting means giving up ownership of the asset, so advisers will also need to consider whether the client may need that capital later in life.
Trusts
Trusts can allow clients to pass assets on while retaining greater control over how and when beneficiaries receive them.
They can be useful where family circumstances or succession plans are more complex, although their tax treatment will depend on the type of trust and they can involve additional legal and administrative requirements.
Life insurance
Life insurance does not reduce the value of an estate, but it can provide beneficiaries with funds to help meet an IHT liability.
Where an appropriate policy is written in trust, the proceeds can be paid outside the estate, potentially helping beneficiaries meet an IHT bill without having to sell other assets.
Pensions
Pensions have historically played an important role in estate planning because unused pension wealth could often be passed to beneficiaries outside the estate for IHT purposes.
That treatment is changing from April 2027, which means clients who have deliberately preserved pension wealth to pass on may need to review their plans. We look at this change in more detail later in this guide.
Business Relief
BR can reduce the IHT payable on certain qualifying business assets, including shares in qualifying unquoted companies. Where qualifying unquoted shares have been held for at least two years at the date of death and continue to meet the qualifying conditions at that time, they may attract 100% BR up to the available 100% relief allowance, with 50% relief on qualifying value above it.
Unlike gifting, the client continues to own the investment, which can make BR one option to consider for suitable clients who want to undertake IHT planning without giving capital away.
Investing in unquoted companies carries a higher level of investment and liquidity risk, and BR is not guaranteed as the underlying company must continue to meet the relevant qualifying conditions.
For a more detailed look at how BR works, read our Introduction to Business Relief guide here.
How might estate planning work in practice?
Consider a client approaching retirement whose estate has grown beyond their available IHT allowances. They want to pass as much of their wealth as possible to their children, but also want to make sure they retain enough capital and income to support themselves throughout retirement.
Their adviser can start by looking at the estate as a whole, including property, savings, investments, pensions and any business interests, before considering the potential IHT liability and the client's priorities for passing wealth on.
This could include reviewing whether their will remains appropriate, whether they are comfortable making gifts during their lifetime and how their pension and other investments are being used. Life insurance could also be considered as a way of helping beneficiaries meet a future IHT liability, while trusts may be appropriate where the client wants greater control over how assets are eventually passed on.
If the client wants to undertake IHT planning but is reluctant to give capital away, an investment expected to qualify for BR could also form part of the discussion.
The eventual plan may involve several of these approaches rather than relying on a single solution, while making sure the client's own financial needs remain central to the decisions being made.
How are the rules changing?
While the main options available for estate planning remain broadly the same, recent reforms affect how some of them may be used. In particular, advisers may need to revisit plans involving BR, Agricultural Property Relief (APR) and pensions.
Changes to Business Relief and Agricultural Property Relief
BR and APR can reduce the amount of IHT payable on certain qualifying assets.
From 6 April 2026, a £2.5m allowance applies across qualifying business and agricultural property that would otherwise receive 100% BR or APR. This can include shares in qualifying unquoted companies, including those held through a BR investment service. Qualifying assets within the available allowance can receive 100% relief, while qualifying amounts above it receive 50% relief.
Any unused portion of the £2.5m allowance can also be transferred to a surviving spouse or civil partner, potentially giving the survivor an allowance of up to £5m.
Clients who already hold qualifying business or agricultural assets may therefore need to consider how much of their available allowance those assets use before making any further BR investment.
Changes to pensions
From 6 April 2027, most unused pension funds and pension death benefits will be brought within an individual's estate for IHT purposes.
This is an important change for clients who have previously planned to preserve pension wealth for beneficiaries while using other assets to fund their retirement. In some cases, advisers may need to reconsider how pensions are used alongside ISAs, other investments and sources of income, as well as the order in which different assets are drawn down or passed on.
What could the changes mean for existing estate plans?
Clients who already have an estate plan in place may need to review how this plan may be impacted by the recent changes in IHT policy.
A client who owns qualifying business or agricultural assets, for example, may previously have planned on the basis that those assets would receive 100% relief from IHT. The introduction of the £2.5m allowance means the value and composition of those assets may now need to be considered more carefully.
Similarly, a client may have chosen to draw on ISAs or other investments while preserving their pension to pass on to beneficiaries. With most unused pension funds and pension death benefits due to form part of the estate for IHT purposes from April 2027, that approach may no longer have the same IHT outcome.
Changes in a client's own circumstances matter too. Growth in the value of a property or investment portfolio, the sale of a business, changes within the family or moving into a different stage of retirement can all affect whether an existing plan remains appropriate.
Reviewing an estate plan regularly can help ensure that it continues to reflect both the client's wishes for passing on their wealth and the money they may need during their own lifetime.
Important Notice
For professional advisers only.
This document is for information purposes only and does not constitute investment, tax, financial or legal advice. It does not constitute an offer to buy or sell an investment or solicit any such invitation.
The explanation of the tax rules set out in this article has been written in accordance with our understanding of the law and interpretation of it at the time of publication. The information is believed to be accurate at the date of publication, but no representation or warranty, stated or implied, is made or given by any person as to its accuracy or completeness and no responsibility or liability is accepted for any such information or opinion. Tax treatment depends on individual circumstances, and tax rules may change.
Issued by Beringea LLP of Charter House, 55 Drury Lane, London, England WC2B 5SQ. Registered in England and Wales under number OC342919. Authorised and regulated by the Financial Conduct Authority under number 496358.
