UK Inheritance Tax Planning in 2026: What Has Changed and What Still Works

UK inheritance tax (IHT) has always been described as a voluntary tax — one that diligent planning can substantially reduce or eliminate for those who engage with it early enough. That description remains broadly accurate in 2026, but the landscape has shifted considerably following the 2024 Autumn Budget and the April 2025 non-dom reform. Several reliefs have been curtailed, the scope of the charge has been extended, and the time pressure on planning has increased.

Here is a clear-eyed overview of what has changed and what still works.

The nil-rate band remains frozen

The standard nil-rate band (NRB) — £325,000 per person — has been frozen since 2009 and remains frozen until at least April 2031 under current plans. The residence nil-rate band (RNRB) — an additional £175,000 available where the family home passes to direct descendants — is also frozen.

This means a married couple can potentially shelter up to £1 million (two NRBs plus two RNRBs) from IHT where they own a family home and leave it to children or grandchildren. However:

• The RNRB is tapered for estates over £2 million (reducing by £1 for every £2 over the threshold).
• The NRB has not risen with inflation for 15+ years — its real value has fallen substantially. A band that protected a meaningful proportion of a typical estate in 2009 now protects much less in real terms.
• As asset values have risen, more estates are being pulled into the IHT net every year.

Planning implication: The standard reliefs are less powerful in real terms than they were. Proactive planning — lifetime giving, trusts, insurance — matters more, not less, as estate values have grown beyond the frozen bands.

Non-dom reform changes IHT exposure for long-term UK residents

Before April 2025, individuals who were non-domiciled in the UK were only subject to UK IHT on UK-situs assets. Overseas assets were outside the UK IHT net entirely, regardless of how long the individual had lived in the UK.

The April 2025 reform changed this. Under the new regime:

• Long-term UK residents (those who have been resident in the UK for 10 or more of the preceding 20 tax years) are now treated as "long-term residents" and are subject to UK IHT on their worldwide assets — regardless of domicile.
• Leaving the UK no longer immediately removes worldwide IHT exposure. Long-term residents who leave the UK remain within the UK IHT net for a tail period of up to 10 years, depending on how long they were resident.

For wealthy individuals who have been UK resident for 10+ years and have significant overseas assets, this is a material change. The worldwide estate is now within UK IHT scope.

Planning implication: Those approaching the 10-year threshold should take advice urgently. Those already within it need to review whether offshore assets can be legitimately restructured before the tail period begins. Those who left the UK and assumed they were outside the IHT net should verify whether the new tail rules apply to their situation.

Pensions will enter the IHT estate from April 2027

One of the most significant changes in the October 2024 Budget was the announcement that unspent pension pots will be included in the estate for IHT purposes from April 2027.

Under the current rules (until April 2027), funds remaining in a defined contribution pension pot at death pass outside the estate entirely — to any nominated beneficiary, free of IHT. This has made pension pots one of the most tax-efficient vehicles for intergenerational wealth transfer.

From April 2027:

• The unspent pension pot will be included in the estate and subject to IHT at 40%.
• A double charge situation can arise: the estate pays IHT on the pension pot, and the beneficiary then pays income tax on the pension withdrawal. The effective tax rate on inherited pension funds in certain circumstances could approach 67%.
• Defined benefit schemes are not affected in the same way.

Planning implication: For those who have used pension accumulation as an estate planning tool — deliberately not drawing down pension to preserve an IHT-efficient fund — the strategy changes fundamentally from April 2027. There may be a case for drawing down more from pensions before 2027 and funding other IHT-efficient wrappers, or restructuring gifting plans. This needs individual analysis.

Planning opportunities that remain

Despite the tightening, significant planning opportunities remain:

Annual gifting exemptions. Each person can give away up to £3,000 per year free of IHT. Small gifts of up to £250 per recipient per year are also exempt. These are modest, but consistent use compounds over time.

Normal expenditure out of income exemption. Gifts that are part of a normal pattern of expenditure from income — not capital — are potentially exempt from IHT. For higher earners who can demonstrate a pattern, this can shelter substantial gifts.

Business Property Relief (BPR) and Agricultural Property Relief (APR). For business owners and landowners, these reliefs — which can reduce the IHT value of qualifying assets by 50–100% — remain in place, though from 6 April 2026 the combined 100% relief is capped at £2.5 million of qualifying assets per estate. The £1 million figure originally announced in the October 2024 Budget was raised to £2.5 million in December 2025, and the allowance is transferable between spouses/civil partners; qualifying assets above the cap attract 50% relief (a 20% effective IHT rate), and AIM and other unlisted shares receive 50% relief only without using the allowance. Careful structuring is required.

Trusts. Discretionary trusts — particularly where funded early — remain one of the most effective IHT planning tools. The initial transfer to trust uses available NRB and RNRB, and subsequent growth is outside the estate.

Whole of life insurance. A whole of life policy written in trust pays out on death and the proceeds are available to pay the IHT bill — avoiding the need to sell assets. For estates where liquidity is a concern (property-heavy, business-heavy), this remains a practical solution.

Leaving the UK permanently. For long-term planning, establishing genuine residence outside the UK removes worldwide assets from the UK IHT net — but the new long-term resident rules impose a tail period that varies with the length of prior UK residence. The tail ranges from 3 years (for those resident 10–13 years) up to 10 years (for those resident 20 or more years). Departure does not produce an immediate clean break; the length of the tail must be calculated individually and specialist advice is essential before assuming overseas assets are outside UK IHT scope.

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Frequently asked questions

Is my UK property always included in my IHT estate? Yes. UK residential property is always a UK-situs asset and falls within the UK IHT estate regardless of the owner's domicile or residence status. The 2025 non-dom reform changed the treatment of overseas assets for long-term residents — it did not create any new exemption for UK property.

I left the UK five years ago. Am I outside the UK IHT net? Possibly, but not necessarily under the new rules. Under the old domicile-based system, you might have left behind UK domicile through establishing a domicile of choice abroad, potentially reducing your IHT exposure over time. Under the new long-term resident rules, if you were UK-resident for 10 or more of the 20 years before your departure, a tail period applies. The tail can run up to 10 years post-departure depending on your prior residence length. Take specific advice on your position.

Can I give my house to my children now to avoid IHT? Gifting the family home to children while continuing to live in it creates a Gift With Reservation of Benefit (GROB) — the gift is treated as if it had not been made, and the property remains in your estate. You would need to pay a market rent to the new owners to avoid this trap, which most people are not prepared to do. Equity release schemes or downsizing are more commonly used strategies for unlocking property value.

Are pension contributions still worth making for IHT purposes after April 2027? Pensions will remain useful for retirement savings regardless of the IHT change — the tax relief on contributions and tax-free growth within the fund are valuable in their own right. The IHT benefit disappears, but the pension's purpose as a retirement income vehicle does not change. However, if you have been heavily over-accumulating in a pension specifically as an estate planning tool rather than for retirement income, the strategy needs reviewing.

Do charitable gifts reduce the IHT rate? Yes. Leaving 10% or more of the net estate to qualifying charities reduces the headline IHT rate from 40% to 36% on the chargeable estate. This can be a tax-efficient way to include charitable giving in an estate plan — HMRC effectively co-funds part of the charitable gift.

How Global Investments can help

IHT planning requires a co-ordinated approach across tax, investment structure and estate planning. We work with specialist tax counsel and can advise on the interaction between UK IHT, your country of residence's succession rules, and the most appropriate structures for your situation.

Contact us to arrange a review of your IHT position.

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This article reflects UK tax law as understood in June 2026, including changes enacted or announced as of that date. Tax rules change frequently and individual circumstances vary. This does not constitute personal tax advice. Please consult a qualified tax adviser before making any IHT planning decisions.