Article 12 practical steps to help your clients prepare for the 2027 inheritance tax changes

HMRC’s early estimates suggest that around 10,500 extra estates may become liable for inheritance tax (IHT), and approximately 38,500 estates could see their IHT liability rise in 2027/28 due to the extension of IHT to most inheritable pensions.¹

While we’re still waiting for the final legislation to pass, and for HMRC to publish detailed guidance and launch client-facing tools, there are sensible actions clients can start thinking about now.

To help with that preparation, I’ve outlined 12 practical steps clients may want to consider as we move closer to the new rules coming into force.

1. Get up to date valuations

Clients may want to start by gathering current valuations for all their assets (including their inheritable pensions) along with their outstanding liabilities to give them a clearer picture of any potential IHT exposure.  HMRC has confirmed the nil rate band is frozen at £325,000 and the residence nil rate band is fixed at £175,000 until April 2031, so they can use these figures with some confidence.

Where their spouse has passed away before them, they will need to work out whether there’s any additional transferable nil rate band available for their personal representatives to claim. The nil rate band and any transferable nil rate band is applied first to chargeable transfers made in the seven years before death, with any remainder apportioned across the free estate, relevant trust interests, and inheritable pensions.

They can offset any residence nil rate band (and any available transferable residence nil rate band) against the value of any residential property that’s been their main residence at some point, and which is being passed to their direct descendants.

2. Check if the estate is at risk of losing the residence nil rate band

If the value of the client’s estate exceeds £2 million, the residence nil rate band tapers away by £1 for every £2 of value above that threshold. Including the value of any unused pensions from 2027 could push them over this limit.

If so, clients may want to consider planning options – for example, making lifetime gifts to bring the estate back under £2 million so that the full residence nil rate band can be preserved.

3. Understand the upcoming changes to business and agricultural relief

From 6 April 2026, individuals will have a combined £2.5 million lifetime threshold for assets qualifying for 100% business relief or 100% agricultural relief (any excess will qualify for 50% relief). Any unused portion can pass to a surviving spouse. Assets currently qualifying for 50% relief remain unchanged.

Business relief on Alternative Investment Market (AIM) shares will fall to 50% from April 2026. Clients may need to balance potential relief, investment risk and the possibility that the rules could change before death.

4. Create a clear information pack for personal representatives

Clients may wish to prepare a detailed list of their assets (including their pensions), liabilities, gifts made, and the contact details of their professional advisers. This can significantly ease the administrative burden for personal representatives later on.

5. Review existing trusts

Existing trusts should be reviewed to make sure they still meet their original objectives, particularly from an IHT perspective.

6. Review (or draft) a will

Clients should check that their will still reflects their wishes, particularly regarding personal representatives and any IHT planning strategies are still relevant.

If they don’t have a will, the intestacy rules will apply – which can be slow, inflexible, and may result in administrators they wouldn’t have chosen.

As personal representatives can be held personally liable, clients may want to consider appointing a solicitor to act. 

7. Review protection cover and consider insuring the IHT liability

Clients may want to review the level of their existing life cover and whether this is already in trust. They may want to consider insuring any new or additional IHT liability, by placing a whole of life policy in trust for their beneficiaries, while they’re insurable.

They’ll also need to consider whether any IHT liability will arise on their death, or if their whole estate (including any pension(s)) will pass to their surviving spouse under the spouse exemption – meaning the IHT liability will be on the second death. In other words, do they need a single life policy or a joint life second death?

A gift inter vivos policy could be useful to cover any IHT exposure on a lump sum gift, should the donor die within seven years.

8. Reconsider the order in which they draw retirement income

From an IHT planning perspective, client’s may have previously

wanted to keep their pension invested and use income/capital from other assets to fund their retirement first. In the future, clients will have to consider whether they want to take an income from their pension first and do IHT planning with their other assets.

Clients could consider taking tax‑free cash and using it for IHT gifting. Trust options might include:

• a bare or discretionary gift trust
• a flexible reversionary trust
• a discounted gift trust
• a gift and loan trust

The choice depends on their need for future access versus the level of IHT mitigation they want to achieve.

9.  Gift pension income IHT efficiently

If clients don’t need some or all of their pension income, it could be gifted using exemptions such as:

• the £3,000 annual exemption
• small gifts exemption
• gifts on marriage
• normal expenditure out of income
• charitable gifts

They might also consider intergenerational planning, such as funding a Junior ISA or Junior SIPP.

10. Spend the pension and use other assets for planning

Some client’s may simply want to spend their pension to fund their lifestyle and do IHT planning with other assets they hold in their estate, especially if they have assets they could gift without incurring an income tax or capital gains tax liability.

11. Review death benefit nominations regularly

Clients should regularly review their death benefit nominations and update these as their family circumstances change, to make sure that they’re up to date. They may want to do this on an annual basis. Each year they could consider documenting that their wishes have not changed, where no amendments are required.  IHT will have to be taken into account, so they may want to consider how much of their unused pension they want their spouse or a charity to receive.

12. Clients approaching age 75

And, where a client is nearing 75, they may want to take their pension benefits to do some IHT planning to mitigate against both IHT and income tax applying to the unused pension fund when they die.

While not exhaustive, these steps show how bringing most unused pensions into the IHT calculation potentially increases the demand for advice and creates new planning opportunities.

As demand grows for support with intergenerational wealth planning and navigating the upcoming changes, Aegon’s ARC platform can help. ARC brings tax-efficient strategies together in one place, allowing you to build and manage personalised investment approaches across ISAs, pensions, offshore bond partnerships and Junior products. This helps optimise tax outcomes throughout a client’s life stages and supports the effective transfer of wealth to future generations.

Find out more at aegon.co.uk/adviser

Capital at risk. The value of an investment can fall as well as rise and isn’t guaranteed. Your client may get back less than they invest.

This information is based on our understanding of current taxation law and HMRC practice, which may change.