Inheritance Tax in 2026

In our recent webinar Inheritance Tax and Succession Planning in 2026, we discussed how families have been planning for the increased exposure, through accelerated lifetime gifting, updating of wills (the £2.5m is transferable to a spouse or civil partner), fragmentation of shareholdings and the use of Trusts.

Trusts still remain an important part of succession planning, despite the recent restriction in the availability of APR and BPR.  Some background to Trusts and how they are useful in succession planning can be found in our article: The Tax Implications of Trusts.  In the context of the new rules:

• Trusts and transfers into trust before 30 October 2024 which held qualifying assets on that date remain outside the 'new rules' until the first 10-year anniversary following 6 April 2026. This presents an opportunity for those trusts to distribute assets valued in excess of £2.5 million to beneficiaries without an Inheritance Tax charge. Once the next 10-year anniversary is reached, the £2.5 million allowance will be in operation.
• Until 5 April 2026, it was possible for qualifying assets valued in excess of £2.5 million to be transferred into a trust without an up-front Inheritance Tax charge.  If the transferor were to die after 6 April 2026, but before seven years have passed since the date of the gift, there could still be an Inheritance Tax charge. This is because the lifetime transfer will become chargeable in the transferor's death estate, subject to the £2.5 million allowance. If the trust is wound up and the transferor dies within seven years of the transfer into trust, the original transfer of value will no longer qualify for any relief in their death estate because the transferor no longer holds the qualifying assets.
  
• After 6 April 2026, each settlement into trust uses up part of the settlors' £2.5 million allowance on a 'first come first serve' basis with pro-rating for same-day additions.  For ‘special trusts’, such as age 18-25 trusts for bereaved young people, the £2.5 million allowance will renew for each successive beneficiary to ensure the eldest does not receive the whole benefit.

Further considerations can be found in our article on how to protect your family business for the next generation.

IHT payable on qualifying business and agricultural property relief assets in an estate or in a Trust can be paid via 10 equal non-interest-bearing instalments from the normal due date for payment of the Tax. This will be the case, subject to the asset being disposed of, at which point any outstanding IHT becomes due.

From 6 April 2027, pension pots will come within the scope of IHT, and that will include pensions that hold agricultural property, or business property such as premises occupied by a family trading company.  These pension pots will become subject to tax alongside the free estate, and will not benefit from the £2.5 million cap or the ability to defer payment of tax by instalments.  It is therefore important that pensions are reviewed to determine if any action can be taken to improve liquidity in the pension or remove assets that might qualify for reliefs in an alternative structure.

Further detail on these changes can be found in this guide to pensions and Inheritance Tax.

Any individual or trustee with qualifying assets that are impacted by these changes should review their position and make a plan to deal with potential liabilities.

When it comes to planning with capital, advice and legal implementation of changes can take time and require legal advice, so it is better to address the issues sooner rather than later. Please get in touch with your usual Crowe UK contact to discuss further.

Explore more about how we can help you protect, preserve, and pass on your wealth with confidence with Your Life Builder.