As we navigate the complexities of estate planning, it’s essential to understand the role of inheritance tax and trusts in protecting our wealth for future generations. In England and Wales, inheritance tax (IHT) is charged at 40% on the taxable estate above the nil rate band of £325,000 — a threshold that has been frozen since 2009 and is confirmed frozen until at least April 2031. With the average home in England now worth around £290,000, it’s not just the wealthy who need to worry about IHT — ordinary homeowners are increasingly caught by this tax.
By utilising trusts and other estate planning strategies, families can significantly reduce this tax burden and protect assets from other threats like care fees, divorce, and family disputes. Our experts at MP Estate Planning can guide you through the process, ensuring that your assets are safeguarded for your loved ones. As Mike Pugh says, “Trusts are not just for the rich — they’re for the smart.”
Key Takeaways
- Understanding inheritance tax is crucial for effective estate planning — the nil rate band has been frozen at £325,000 since 2009, dragging more families into the IHT net every year.
- Trusts are a legitimate, tax-efficient way to reduce the IHT burden on your assets and protect them from care fees and other threats.
- Proper estate planning can help protect your wealth for future generations — not losing the family money provides the greatest peace of mind above all else.
- The current IHT nil rate band is £325,000 per person (£650,000 for married couples or civil partners when the unused allowance is transferred).
- Assets above the threshold are taxed at a rate of 40%, or 36% if at least 10% of the net estate is left to charity.
Understanding Inheritance Tax in the UK
Understanding inheritance tax is crucial for protecting your assets and ensuring your loved ones are well taken care of. Inheritance tax (IHT) is a tax on the estate of someone who has passed away, including all their property, savings, investments, and possessions. It is one of the most significant financial threats facing UK families — and one of the most avoidable with proper planning.
What is Inheritance Tax?
Inheritance tax is levied on the total value of the deceased’s estate before it is distributed to the beneficiaries. HMRC assesses the tax based on everything owned at the date of death, plus certain gifts made in the preceding seven years. The estate includes:
- Property, including the main residence and any other properties owned
- Savings, investments, and pensions (from April 2027, inherited pensions will also become liable for IHT)
- Personal possessions, such as jewellery, art, vehicles, and other valuables
- Cash in bank accounts
- Life insurance policies not written in trust
With property prices having risen dramatically over the past two decades while the nil rate band has remained frozen since 2009, hundreds of thousands of families who would never consider themselves wealthy now face potential IHT bills. We will explore the current rates and allowances to help you grasp how inheritance tax might affect your estate.
Current Rates and Allowances
The current inheritance tax rate is 40% on the value of the estate above the £325,000 nil rate band (NRB). This threshold has been frozen since 6 April 2009 — over 16 years without any increase — and is confirmed frozen until at least April 2031. For married couples or civil partners, any unused portion of the NRB can be transferred to the surviving partner, effectively doubling the allowance to £650,000.
Additionally, there is the Residence Nil Rate Band (RNRB), worth £175,000 per person (also frozen until April 2031). The RNRB applies if you leave your main residence to direct descendants — that means children, grandchildren, or step-children. It is not available if you leave your home to nephews, nieces, siblings, friends, or charities. For a married couple, the combined RNRB can be up to £350,000, giving a maximum combined IHT-free allowance of £1,000,000. However, the RNRB tapers by £1 for every £2 that the estate exceeds £2,000,000.
Common Exemptions and Reliefs
Certain exemptions and reliefs can significantly reduce the inheritance tax liability. Some of the most important include:
- Spouse/civil partner exemption: Transfers between spouses or civil partners are completely exempt from IHT, with no upper limit
- Charity exemption: Gifts to registered charities are exempt, and leaving 10% or more of the net estate to charity reduces the IHT rate from 40% to 36%
- Business Property Relief (BPR) and Agricultural Property Relief (APR): Currently up to 100% relief on qualifying business and agricultural assets. From April 2026, this will be capped at 100% for the first £1 million of combined business and agricultural property, with 50% relief on the excess
- Annual gift exemption: £3,000 per tax year (with one year’s carry-forward), plus small gifts of £250 per recipient (these cannot be combined with the £3,000 exemption for the same person)
- Normal expenditure out of income: Regular gifts from surplus income can be exempt if properly documented
- The 7-year rule: Gifts to individuals (potentially exempt transfers) fall completely outside the estate if the donor survives seven years. Note that transfers into discretionary trusts are treated differently — they are chargeable lifetime transfers (CLTs), not PETs
By understanding these exemptions and reliefs, you can plan your estate more effectively to minimise the tax burden on your beneficiaries.
As we have seen, inheritance tax planning is a complex but crucial aspect of securing your family’s financial future. The frozen nil rate band means that what was once a tax for the very wealthy now catches ordinary homeowners. By understanding the current rates, allowances, and available exemptions — and acting on them — you can take meaningful steps to protect your assets and ensure that your loved ones are well taken care of.
The Role of Trusts in Estate Planning
In the realm of estate planning, trusts are instrumental in safeguarding assets and ensuring their distribution according to one’s wishes. England invented trust law over 800 years ago, and trusts remain one of the most powerful and flexible tools available to protect family wealth.
What is a Trust?
A trust is a legal arrangement — not a legal entity — where assets are held by trustees for the benefit of the beneficiaries. The settlor (the person who creates the trust) transfers assets to the trustees, who become the legal owners and manage those assets according to the terms of the trust deed. Trusts provide a structured approach to asset management and distribution, ensuring that the settlor’s intentions are carried out — even after death or incapacity.
Trusts are particularly useful in estate planning because they separate legal ownership from beneficial enjoyment. By placing assets in a trust, individuals can ensure that their beneficiaries receive their inheritance in a controlled and tax-efficient manner — protected from threats like IHT, care fees (currently averaging £1,200–£1,500 per week), divorce (with a UK divorce rate of around 42%), and reckless spending by beneficiaries.
Types of Trusts for Estate Planning
In UK trust law, the primary classification is whether a trust takes effect during the settlor’s lifetime (lifetime trust) or on death through a will (will trust). Within those categories, the main types are:
- Discretionary Trusts: By far the most common type used in estate planning (approximately 98–99% of all trusts). Trustees have absolute discretion over when, how, and to whom distributions are made. No beneficiary has a fixed right to income or capital — this is the key protection mechanism. They can last up to 125 years and provide strong protection against care fees, divorce, bankruptcy, and reckless spending.
- Interest in Possession Trusts: A named beneficiary (the life tenant) has the right to income or use of the trust property during their lifetime. On their death, the capital passes to the remainderman (capital beneficiary). These are commonly used in will trusts to prevent sideways disinheritance — for example, ensuring a surviving spouse can live in the family home while guaranteeing the children ultimately inherit.
- Bare Trusts: The beneficiary has an absolute right to the capital and income once they reach age 18. The trustee is merely a nominee. These trusts offer no protection against care fees, divorce, or creditors, and they are not IHT-efficient. Because of the rule in Saunders v Vautier, the beneficiary can collapse a bare trust once they reach majority.
Each type of trust has its benefits and limitations. Discretionary trusts offer the strongest protection and greatest flexibility, which is why they are the standard choice for asset protection and IHT planning. It’s important to note that a trust must be irrevocable to achieve IHT benefits — a revocable trust provides no IHT advantage because HMRC treats the assets as still belonging to the settlor.
| Type of Trust | Benefits | Drawbacks |
|---|---|---|
| Discretionary Trust | Maximum flexibility, strong asset protection, IHT planning, care fee protection | Subject to the relevant property regime (periodic and exit charges — often nil for family homes below the NRB) |
| Interest in Possession Trust | Provides for life tenant, prevents sideways disinheritance | Less flexibility — income beneficiary has fixed rights. Post-March 2006 IIP trusts generally treated as relevant property |
| Bare Trust | Simple to administer, tax-transparent | No asset protection, not IHT-efficient, beneficiary can collapse at 18 |
For more detailed information on setting up trusts and other estate planning strategies, we recommend visiting https://mpestateplanning.uk/ for professional guidance. Mike Pugh is the first and only practitioner in the UK to actively publish all trust prices on YouTube, so you’ll know exactly what to expect.
Benefits of Using Trusts to Reduce Inheritance Tax
By leveraging trusts, individuals can effectively safeguard their assets from excessive inheritance tax and other financial threats. Trusts are a versatile tool in estate planning, offering a range of concrete benefits that can help preserve wealth for future generations.
Preserving Wealth for Future Generations
One of the primary advantages of using trusts is their ability to preserve wealth across generations. When assets are transferred into an irrevocable discretionary trust, they can — after the settlor survives seven years — fall outside the estate for IHT purposes. For most families placing their home into trust (where the value is below the £325,000 NRB), there is no entry charge at all. The trust can last up to 125 years, meaning it can protect not just your children but your grandchildren and great-grandchildren.
A discretionary trust is particularly powerful because no beneficiary has a fixed right to income or capital. The trustees decide who benefits, when, and how much — which means the assets are protected from a beneficiary’s divorce, bankruptcy, poor financial decisions, or care fee assessments. As Mike Pugh puts it: in a divorce situation, the answer to “What assets do you have?” becomes “What house? I don’t own a house” — because the trust owns it.
Protecting Assets from Care Fees, Divorce, and Creditors
Trusts offer a layer of protection against multiple financial threats. Between 40,000 and 70,000 homes are sold each year in the UK to fund care costs, with residential care averaging £1,100–£1,300 per week and nursing care reaching £1,400–£1,500 per week or more. In England, anyone with assets above £23,250 is classed as a self-funder, meaning they must pay the full cost of care until their capital drops to that level.
By placing assets in a properly structured discretionary trust years in advance — well before any foreseeable need for care arises — those assets are legally owned by the trustees, not by the individual. The local authority cannot automatically include trust assets in a care fee assessment. It’s crucial to plan early: if a transfer is made with the intention of avoiding care fees when a need is foreseeable, the local authority can treat the person as still owning the asset under the “deprivation of assets” rules. There is no fixed time limit for deprivation claims (unlike the seven-year IHT rule), but the longer the gap between the transfer and the need for care, the harder it is for the local authority to establish that avoidance was a significant purpose. Mike’s approach involves documenting nine legitimate reasons for the trust, none of which mention care fees — care fee protection is an ancillary benefit, not the primary purpose.
| Trust Type | Key Benefit | Tax Implications |
|---|---|---|
| Discretionary Trust | Maximum flexibility and protection — trustees decide all distributions. Protects against care fees, divorce, and creditors | Subject to the relevant property regime: entry charge of 20% on value above available NRB (usually nil for most family homes), 10-year periodic charge of up to 6% (often nil), proportional exit charges (often nil) |
| Bare Trust | Simple arrangement — assets held as nominee for a named beneficiary | Tax-transparent: income and gains taxed on the beneficiary. NOT IHT-efficient — assets still form part of the beneficiary’s estate |
| Interest in Possession Trust | Life tenant has right to income or use of trust property. Prevents sideways disinheritance | Post-March 2006 IIP trusts generally treated as relevant property unless qualifying as an Immediate Post-Death Interest (IPDI) or disabled person’s interest |
For more information on the advantages of using trusts for UK families, you can visit MP Estate Planning’s guide to trusts for inheritance tax. This resource provides detailed insights into how trusts can be beneficial in estate planning.
How Trusts Impact Inheritance Tax Liabilities
Trusts can significantly impact inheritance tax liabilities, offering a valuable tool for inheritance tax planning. By understanding how different types of trusts are treated for IHT purposes under UK law, individuals can make informed decisions about their estate planning.
Tax Implications of Different Trusts
The tax implications of trusts vary depending on the type of trust and how it operates. Irrevocable discretionary trusts are the standard tool for IHT planning because once assets are transferred and the settlor survives seven years, those assets fall outside the estate. For most families putting their home into trust — where the value is below the available nil rate band — there is no entry charge at all.
- Discretionary Trusts: Subject to the relevant property regime. Entry charge: 20% on value exceeding the available NRB (nil for most family homes). Periodic 10-year charge: maximum 6% of trust property above the NRB — for a family home below £325,000, this is zero. Exit charges are proportional to the last periodic charge. Because no beneficiary has a right to assets, discretionary trusts provide the strongest asset protection and are the primary tool for inheritance tax planning.
- Interest in Possession Trusts: The life tenant receives income or use of trust property. Pre-March 2006 IIP trusts had favourable IHT treatment, but post-March 2006 IIP trusts are generally treated under the relevant property regime unless they qualify as an Immediate Post-Death Interest (IPDI) or disabled person’s interest. IPDIs created through a will still benefit from favourable treatment.
- Bare Trusts: In a bare trust, the beneficiary has an absolute right to the trust assets at age 18. These are not IHT-efficient — the assets are treated as belonging to the beneficiary for IHT purposes, so they form part of the beneficiary’s estate. Bare trusts offer no protection against divorce, creditors, or care fees.
It’s critical to understand that a revocable trust provides no IHT benefit whatsoever — HMRC treats the assets as still belonging to the settlor (a “settlor-interested” trust). For trusts to be effective for IHT planning, they must be irrevocable. Mike Pugh’s family trusts use irrevocable structures with “standard and overriding powers” that give trustees certain defined powers without making the trust revocable.
For more detailed information on how trusts can protect your estate, you can visit MP Estate Planning.
Reporting Requirements for Trusts
Trusts are subject to various reporting requirements, and trustees must ensure compliance to avoid penalties. Key reporting obligations include:
- Trust Registration Service (TRS): All UK express trusts — including bare trusts — must be registered with HMRC’s Trust Registration Service within 90 days of creation. This is a requirement under the 5th Money Laundering Directive. Importantly, the TRS register is not publicly accessible (unlike Companies House).
- Trust tax returns: Trustees must file an SA900 trust tax return with HMRC if the trust is liable for income tax or capital gains tax. Trust income tax is charged at 45% for non-dividend income (with the first £1,000 at basic rate) and 39.35% for dividends. Trust CGT is 24% on residential property and 20% on other assets.
- Record keeping: Trustees must maintain accurate records of all trust transactions, distributions, and decisions.
Effective trust administration is crucial to ensuring that the trust operates smoothly and remains compliant with UK tax regulations. A minimum of two trustees is required, and the settlor can be one of the trustees — which means they stay involved in decisions about the trust assets.
By carefully considering the type of trust and its administration, individuals can achieve significant inheritance tax relief. This can help preserve wealth for future generations and ensure that the trust assets are used in accordance with the settlor’s wishes. Plan, don’t panic — with the right specialist advice, the process is straightforward.
Setting Up a Trust: Key Considerations
Creating a trust is an effective way to manage and protect your wealth for future generations. When setting up a trust, it’s crucial to consider several key factors to ensure it meets your needs and provides the desired benefits. Trust setup typically costs from £850 for straightforward cases — roughly the equivalent of one week’s care fees. When you compare that one-time cost to the potential loss of your entire home to care fees or an IHT bill of tens of thousands of pounds, it’s one of the most cost-effective forms of protection available.
Choosing the Right Type of Trust
Selecting the appropriate type of trust is vital, as different trusts serve very different purposes. The main types include:
- Discretionary Trusts: The most common and most protective type. Trustees have absolute discretion over distributions — no beneficiary has a fixed right to income or capital. This is the standard choice for asset protection, IHT planning, and care fee protection.
- Interest in Possession Trusts: A named beneficiary (life tenant) receives income or use of trust property during their lifetime. Commonly used in will trusts to prevent sideways disinheritance — for example, allowing a surviving spouse to live in the home while ensuring children ultimately inherit.
- Bare Trusts: The beneficiary has absolute entitlement to the trust assets at age 18. Simple to administer but provide no asset protection and are not IHT-efficient.
For most families, a discretionary trust is the right choice. Mike Pugh’s products include the Family Home Protection Trust (Plus) — which protects the home from care fees while retaining IHT reliefs including the RNRB — the Gifted Property Trust for removing value from the estate and starting the seven-year clock, and the Settlor Excluded Asset Protection Trust for buy-to-let and investment properties.
Selecting Trustees
Choosing suitable trustees is another critical decision. Trustees are legally responsible for managing the trust assets and making distributions according to the trust deed. You need a minimum of two trustees, and the settlor can be one of them — keeping you involved in decisions. You can choose between:
- Individual Trustees: Often family members or close friends who understand your wishes and your family dynamics.
- Professional Trustees: Solicitors or specialist trust practitioners who bring professional expertise and impartiality.
It’s also possible to appoint a combination of both individual and professional trustees to balance personal insight with professional guidance. A well-drafted trust deed will include a clear process for removing and replacing trustees if circumstances change, and a letter of wishes can provide guidance to trustees about how the settlor would like them to exercise their discretion.
| Trustee Type | Advantages | Disadvantages |
|---|---|---|
| Individual Trustees | Personal knowledge of the settlor’s wishes, no ongoing fees, close understanding of family circumstances | May lack professional expertise, potential for conflicts of interest, may find administrative duties burdensome |
| Professional Trustees | Expertise in trust management, impartial decision-making, experience with compliance and reporting | Ongoing costs, may not fully understand the settlor’s personal wishes and family dynamics |
By carefully considering these factors and seeking specialist advice, you can establish a trust that effectively safeguards your assets and supports your estate planning goals. As Mike says, “The law — like medicine — is broad. You wouldn’t want your GP doing surgery” — so always use a specialist in trust law rather than a general-practice solicitor.
Inheritance Tax Thresholds and Allowances
When it comes to estate planning, knowing the inheritance tax thresholds and allowances can make a substantial difference. Understanding these can help you minimise the tax burden on your estate, ensuring more of your wealth is passed on to your loved ones rather than lost to HMRC.
Understanding the Nil Rate Band
The nil rate band (NRB) is the most important allowance in IHT planning. It is the amount up to which an estate is exempt from inheritance tax. The NRB is currently £325,000 per person — and it has been frozen at this level since 6 April 2009. It is confirmed frozen until at least April 2031, meaning it has not increased for over 16 years despite significant inflation and property price growth. This “fiscal drag” is the primary reason that ordinary homeowners are now caught by IHT.
Key Points about the Nil Rate Band:
- The nil rate band is currently £325,000 per person.
- It applies to the total value of your estate, including property, savings, investments, and possessions.
- Any unused nil rate band can be transferred to a surviving spouse or civil partner, giving a potential combined NRB of £650,000 for a couple.
- The NRB has been frozen since 2009 — confirmed frozen until at least April 2031.
Additional Residential Property Relief
The Residence Nil Rate Band (RNRB) is an additional allowance of £175,000 per person, introduced specifically to help families pass on the family home. However, it comes with important conditions. The RNRB only applies if you leave a qualifying residential property interest to direct descendants — your children, grandchildren, or step-children. It is not available if you leave your home to nephews, nieces, siblings, friends, or charities.
For a married couple or civil partners, the transferable RNRB can reach £350,000, giving a combined maximum IHT-free threshold of £1,000,000 (£650,000 NRB + £350,000 RNRB). However, the RNRB tapers by £1 for every £2 that the estate value exceeds £2,000,000, so larger estates may lose part or all of this relief.
Example: A married couple with a home worth £400,000 and other assets of £200,000 (total estate £600,000) who leave everything to their children could potentially use their combined NRB of £650,000 and RNRB of £350,000, resulting in zero IHT. Without planning, a single person with the same estate would face IHT on anything above £500,000 (£325,000 NRB + £175,000 RNRB).
Key Considerations:
- Ensure your estate is valued correctly and that you understand which allowances apply to your circumstances — not everyone qualifies for the RNRB.
- Consider the impact of lifetime gifts on your inheritance tax position. Gifts to individuals are potentially exempt transfers (PETs) that fall outside the estate if you survive seven years. However, transfers into discretionary trusts are chargeable lifetime transfers (CLTs), subject to an immediate 20% charge on any value above the available NRB.
- Review your estate plan regularly to adapt to changes in tax law and personal circumstances — particularly given the upcoming changes to BPR/APR from April 2026 and pension IHT rules from April 2027.
By understanding and utilising these allowances, you can significantly reduce the inheritance tax burden on your estate. It’s essential to stay informed and plan carefully — keeping families wealthy strengthens the country as a whole.
Common Myths About Inheritance Tax and Trusts
Inheritance tax and trusts are complex areas, surrounded by myths that can mislead individuals in planning their estates. Many people are unsure about how IHT applies to their assets and the role trusts can play in tax-efficient planning.
Debunking Misconceptions
One common myth is that inheritance tax is only a concern for the very wealthy. However, with the average home in England now worth around £290,000 and the nil rate band frozen at £325,000 since 2009, many families who would never consider themselves wealthy now face potential IHT bills. A couple who own a home and have modest savings and pensions can easily exceed the available thresholds. IHT is no longer a tax on the rich — it’s a tax on the unprepared.
Another misconception is that trusts are too complicated or costly to set up. In reality, a straightforward family trust can be established from around £850 — roughly the equivalent of one week’s care home fees. When you compare that one-time cost to the potential costs of care fees (which average £1,200–£1,500 per week and continue until assets are depleted to £14,250), or an IHT bill of 40% on everything above the threshold, a trust is one of the most cost-effective forms of financial protection available.
A third myth is that trusts are a form of “tax avoidance.” They are not. Trusts are a legitimate, well-established legal arrangement — England invented trust law over 800 years ago. HMRC has clear rules for how trusts are taxed, and trusts are tax-efficient planning tools, not tax avoidance schemes. Every trust must be registered with HMRC’s Trust Registration Service, and trustees must file tax returns where required.
The Importance of Professional Advice
Navigating the complexities of inheritance tax and trusts requires specialist guidance. As Mike Pugh says, “The law — like medicine — is broad. You wouldn’t want your GP doing surgery.” A general-practice solicitor may not have the depth of expertise needed in trust law, IHT planning, and property transfers. Always seek advice from a specialist.
Here are some key benefits of seeking professional advice:
- Personalised estate planning tailored to your specific family circumstances, property, and financial situation
- Expert guidance on the interaction between IHT thresholds, trust taxation, and the relevant property regime
- Proper structuring of trusts to avoid the Gift with Reservation of Benefit (GROB) rules and Pre-Owned Assets Tax (POAT)
- Assistance with property transfers — whether by TR1 (no mortgage) or declaration of trust (with mortgage)
To illustrate the impact of effective estate planning, let’s consider a practical example:
| Estate Planning Strategy | Inheritance Tax Liability | Net Assets Passed to Beneficiaries |
|---|---|---|
| No Planning (single person, £600,000 estate, home to children) | £40,000 (40% on £100,000 above £500,000 NRB+RNRB) | £560,000 |
| With Trusts, Gifts, and Full Use of Allowances (married couple, same estate) | £0 (combined thresholds of up to £1,000,000) | £600,000 |
By understanding the myths and realities surrounding inheritance tax and trusts, you can make more informed decisions about your estate. Professional advice is invaluable in this complex area, helping you to safeguard your assets for future generations.
Planning for Inheritance Tax: Practical Steps
A well-structured estate plan is essential for minimising inheritance tax liabilities. At its core, effective estate planning involves creating a comprehensive strategy that takes into account your property, savings, family dynamics, and long-term goals. The key is to start early — as Mike Pugh says, “Plan, don’t panic.”
Creating a Solid Estate Plan
To create a solid estate plan, you should start by assessing your current financial situation, including all assets, liabilities, and potential IHT exposure. This involves:
- Identifying all your assets — property (including the family home, any buy-to-let properties), savings, investments, pensions, and life insurance policies.
- Understanding the IHT implications — calculate your estimated estate value and compare it against the available thresholds (NRB of £325,000, RNRB of £175,000 if applicable).
- Considering the use of trusts to protect your assets and reduce IHT — a Family Home Protection Trust, Gifted Property Trust, or Life Insurance Trust (typically free to set up) may be appropriate depending on your circumstances.
- Making gifts to beneficiaries during your lifetime to reduce the size of your estate — remember the annual gift exemption of £3,000, small gifts of £250 per recipient, and the seven-year rule for larger gifts to individuals (potentially exempt transfers).
- Putting life insurance policies into trust so that the payout goes directly to beneficiaries without forming part of your estate or attracting 40% IHT.
Utilising trusts can be particularly effective in managing inheritance tax. Transferring property into a properly structured discretionary trust means that the trustees become the legal owners. Trust assets bypass probate entirely — trustees can act immediately on the settlor’s death, avoiding the delays of the probate process (which can take 3–12 months, with sole-name assets frozen throughout). For property with no mortgage, this is done through a TR1 transfer. For mortgaged property, a declaration of trust transfers the beneficial interest while the legal title remains with the mortgagor until the mortgage is paid off — meaning all property value growth above the mortgage balance happens inside the trust.
Regularly Reviewing Your Financial Situation
Regular reviews of your estate plan are crucial to ensure it remains aligned with your changing circumstances and the evolving legal landscape. This includes:
- Updating your will and trust deed as needed — particularly after major life events such as marriage, divorce, birth of children or grandchildren, or the death of a trustee.
- Reassessing your asset distribution to ensure it still aligns with your wishes and takes advantage of all available IHT allowances.
- Adjusting your plan in response to changes in tax law — for example, the upcoming changes to BPR/APR from April 2026 and pension IHT rules from April 2027.
- Reviewing your Lasting Powers of Attorney (LPAs) for both property and financial affairs, and health and welfare — these are essential documents that work alongside trusts to protect you during your lifetime.
Staying proactive in managing your estate plan can help mitigate the impact of inheritance tax on your loved ones. By regularly reviewing and updating your plan, you can ensure that your assets are protected and distributed according to your wishes.
Effective inheritance tax planning is an ongoing process that requires attention to detail and a willingness to adapt to changing circumstances. By creating a comprehensive estate plan and regularly reviewing your financial situation, you can ensure that your assets are safeguarded for future generations. MP Estate Planning’s Estate Pro AI — a proprietary 13-point threat analysis — can help identify the specific risks facing your family and the most appropriate solutions.
The Future of Inheritance Tax Regulations
As we navigate the complexities of inheritance tax and trusts, it’s essential to consider the changes already announced and those likely on the horizon. Inheritance tax regulations are subject to change, and staying informed about these developments is critical to ensuring that your estate plan remains effective.
Legislative Trends and Expected Reforms
Several significant changes have already been confirmed. From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at 100% for the first £1 million of combined qualifying business and agricultural property, with only 50% relief on the excess. This is a major change for farming families and business owners. From April 2027, inherited pensions will become liable for IHT for the first time — a change that could significantly increase the taxable estate for many families. The nil rate band remains frozen at £325,000 until at least April 2031, continuing to drag more and more ordinary homeowners into the IHT net as property values rise.
Preparing for the Future
To prepare for these changes and any future reforms, we recommend taking action now rather than waiting. Regularly review your estate plan and stay up-to-date with the latest developments in inheritance tax law. Effective inheritance tax planning is crucial in minimising your IHT liability — and the sooner you act, the more options are available. For example, the seven-year clock on gifts and trust transfers only starts when the transfer is made, so every year of delay is a year lost.
By staying informed, seeking specialist advice, and adapting your estate plan accordingly, you can safeguard your assets and ensure that your loved ones are protected. As Mike Pugh says, “Not losing the family money provides the greatest peace of mind above all else.”