Navigating the Inheritance Tax Changes: Why Expert Advice and Tax Planning Are Essential

Inheritance tax (IHT) is evolving, with sweeping changes announced in the recent budget, and these adjustments could significantly impact families and business owners. Proper tax planning is now more important than ever to protect your wealth and ensure its smooth transition to the next generation. With the complexities of the new inheritance tax changes, seeking expert advice is essential to mitigate liabilities and make informed decisions.

Key Inheritance Tax Changes You Need to Know

In the October Budget, major changes to inheritance tax were revealed, introducing challenges for many families:

  • Pensions now taxable under IHT: Starting April 2027, defined contribution pension pots will be included in IHT calculations, which could lead to significant tax liabilities. The Office for Budget Responsibility estimates that an additional 10,500 estates will become liable for IHT annually, with 38,500 estates expected to pay an average of £34,000 more in taxes.
  • Freezing of nil-rate bands: The nil-rate band freeze has been extended until April 2030, keeping thresholds stagnant while asset values rise, pulling more estates into the IHT net.
  • Business and agricultural property relief overhaul: From April 2026, only the first £1 million of business and agricultural assets can be passed on tax-free. Any excess will face a 20% IHT rate, making this a pressing issue for business owners and farmers.

These changes mean more estates will face higher IHT bills, and current estate plans may no longer be effective.

Why Tax Planning Is Essential

With inheritance tax changes looming, families need to revisit their financial strategies to minimise tax exposure. Tax planning goes beyond saving money—it provides peace of mind, ensuring your wealth is distributed according to your wishes while reducing unnecessary financial stress for your loved ones.

One critical step is reviewing your will. Outdated wills or traditional structures, such as mirror wills, may no longer offer the tax efficiency they once did. For instance, business owners may need to rethink leaving all assets to their spouse since business relief allowances are not transferable. Redirecting assets to children or trusts could save significant amounts in IHT.

Additionally, gifting assets during your lifetime is a powerful tool to reduce IHT liabilities. However, gifting rules are complex, and improperly structured gifts can still lead to tax complications. Expert advice can help families establish a clear and effective gifting strategy.

The Role of Expert Guidance in Navigating Inheritance Tax Changes

Navigating the intricacies of these inheritance tax changes alone can be overwhelming. That’s why consulting with estate planning experts and financial advisors is crucial. These professionals can help you:

  • Optimise your estate plan to utilise available reliefs and exemptions.
  • Explore strategies such as setting up trusts, transferring business ownership, or accelerating pension withdrawals to minimise IHT.
  • Mitigate risks through tools like life insurance policies to cover future IHT liabilities.

For example, retirees facing the taxation of pension pots may benefit from withdrawing larger amounts earlier, potentially gifting funds or investing them in ways that reduce IHT exposure. An expert can guide you through tax-efficient methods to protect your wealth without compromising your lifestyle.

Act Now to Protect Your Legacy

As inheritance tax changes approach, there’s no better time to take action. Engage with an estate planning specialist to ensure your financial plans align with the new rules. Proper tax planning doesn’t just save money—it provides clarity, protects your family’s future, and ensures your assets are passed on as intended.

Don’t leave your legacy to chance. Start preparing for the inheritance tax changes today with the help of DSW Tax Advisory’s trusted professionals who can guide you through the complexities and secure your family’s financial future.