IHT Planning Strategies Before the 2027 Deadline

The clock is ticking. From 6 April 2027, unused pension funds will be included in taxable estates for Inheritance Tax purposes — a change that will affect hundreds of thousands of families across the UK.

But there is still time to act. With the right strategies in place before the deadline, you can significantly reduce the IHT liability your family will face. Here is a practical guide to the options worth considering.

Understand your current IHT position

Before you can plan effectively, you need to know where you stand. Your taxable estate includes property (including any second homes), savings and investments, business assets (subject to Business Property Relief), life insurance not written in trust, and from April 2027, unused pension funds.

Against this, you can offset the nil-rate band (£325,000 per person), the residence nil-rate band (up to £175,000 where a main home passes to direct descendants), and any unused allowances transferred from a deceased spouse or civil partner.

Our IHT Calculator can give you a quick estimate of your current position and the potential impact of the 2027 pension changes.

Strategy 1: Review your pension drawdown plan

One of the most immediate actions to consider is whether your current drawdown strategy still makes sense. Many people have deliberately preserved their pension pot, drawing income from ISAs, savings, or other investments instead — specifically because pensions were IHT-free. From 2027, that logic changes.

It may now be more tax-efficient to draw more income from your pension during your lifetime, use pension funds to make gifts, or reduce the pension pot that will ultimately be subject to IHT. This needs careful modelling — drawing down too quickly can create income tax liabilities. Independent advice is essential here.

Strategy 2: Make use of gifting allowances

Gifting is one of the most straightforward ways to reduce your taxable estate. Key allowances include:

• Annual exemption: You can give away up to £3,000 per year free of IHT, with any unused allowance carried forward one year
• Small gifts exemption: Up to £250 to any number of individuals per year
• Wedding gifts: Up to £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else
• Gifts from surplus income: Regular gifts made from income (not capital) can be exempt if they do not affect your standard of living

Beyond these, Potentially Exempt Transfers (PETs) allow you to give larger amounts that fall outside your estate after seven years — provided you survive that period.

Strategy 3: Consider life insurance written in trust

If your estate is likely to face an IHT bill regardless of other planning, a whole-of-life policy written in trust can be an effective way to cover the liability without reducing the inheritance itself. The key word is "in trust" — a policy not written in trust forms part of your estate and is itself subject to IHT.

Strategy 4: Review Business and Agricultural Property Relief

If you own a business or agricultural land, you may be entitled to significant IHT reliefs — up to 100% relief on qualifying business or agricultural assets. These reliefs are subject to conditions and have been subject to recent changes, so it is worth reviewing your position.

Strategy 5: Update your expression of wishes

Your pension does not automatically form part of your estate — it is distributed at the discretion of the pension trustees, guided by your expression of wishes. With the IHT rules changing, it is worth reviewing who you have nominated and whether that still reflects your wishes and your wider estate plan.

Strategy 6: Use a trust structure

Trusts can be a powerful tool for IHT planning, allowing you to pass assets to beneficiaries while retaining some control over how and when they benefit. Options include discretionary trusts, loan trusts, and discounted gift trusts. Trust planning is complex and needs to be tailored to your individual circumstances.

Act now — the window is narrowing

The most important thing to understand is that many of these strategies take time to work. The seven-year clock on PETs starts from the date of the gift. Life insurance policies need to be in place before a health event makes them unavailable or unaffordable.

The April 2027 deadline is approaching. That is enough time to put a meaningful plan in place — but only if you start now.

SBC Financial is authorised and regulated by the Financial Conduct Authority (FCA ref: 997666). The value of investments can fall as well as rise. Tax treatment depends on individual circumstances and may be subject to change. This article is for information purposes only and does not constitute personal financial advice.