If your estate planning has not been reviewed since 2023, it is almost certainly out of date in ways that will cost your family tens of thousands of pounds. The rules governing how wealth passes between generations have shifted more dramatically in the last two years than at any point in the previous decade.

The Pension Cliff Is Real and Arriving Fast

From 6 April 2027, unused pension funds and death benefits will be included in the value of a deceased person’s estate for IHT purposes. This is the single most consequential change to UK estate planning in a generation. For most of the past 40 years, the SIPP was the most efficient intergenerational vehicle available: assets inside it sat outside the taxable estate entirely and could be passed to beneficiaries free of IHT.

That logic is now reversed. The strategy of spending ISAs and other taxable assets first while preserving the pension is now mathematically backwards. An estate that deliberately grew its SIPP as a legacy vehicle is now accumulating a 40% IHT liability on the very asset it was designed to shelter.

“The government estimates that from 2027 to 2028, of around 213,000 estates that will include pension wealth, about 10,500 will likely face an IHT charge.”

The Hidden Double Tax on Pension Wealth

For those who die over the age of 75, the new rules create an effective double taxation problem that can push the combined rate well above 60%. The pension pot is first subject to 40% IHT on the estate, and the beneficiary then pays income tax on any withdrawals they make from the inherited fund. A higher-rate beneficiary receiving an inheritance of a pension pot already reduced by 40% IHT will then pay a further 40% income tax on drawdown, producing a combined effective erosion of up to 64% of the original value.

Planning around this requires either drawing down and spending or gifting the pension during your lifetime, or restructuring which assets are held inside and outside the pension wrapper before 2027.

The RNRB Taper: A Trap Now Set by Pensions

The Residence Nil-Rate Band (RNRB) of £175,000 begins tapering at £1 for every £2 that an estate exceeds £2 million, and is lost entirely once the estate reaches £2.35 million (or £2.7 million for those inheriting a spouse’s unused RNRB). For many families, this threshold felt comfortably distant. From April 2027, the pension is added to the estate valuation before testing against this limit.

An individual with £1.8 million in property and other assets who also holds a £300,000 SIPP would, under current rules, retain the full RNRB. From April 2027, their estate totals £2.1 million and the RNRB begins to taper. If that pension grows to £500,000 before death, the RNRB is lost entirely, adding up to £70,000 in IHT that would not previously have existed. For married couples, the same effect on the second death can double that exposure to £140,000.

AIM Shares: The IHT Relief Has Halved

AIM share portfolios were a widely used IHT mitigation strategy precisely because qualifying shares attracted 100% Business Property Relief after two years of ownership. From 6 April 2026, that relief has been cut to 50% on all qualifying AIM and Aquis-listed shares. The £1 million threshold for 100% relief on private business assets does not apply to AIM shares at all.

HMRC estimates this change alone will generate an additional £110 million in IHT revenue per year. For families holding large AIM portfolios specifically to keep assets outside the taxable estate, the restructuring case is immediate. A portfolio worth £500,000 that previously attracted zero IHT now potentially carries a £100,000 liability.

The BPR and APR Cap Reshapes Succession Planning

As of 6 April 2026, Agricultural Property Relief and Business Property Relief are combined into a single £2.5 million allowance per individual at 100% relief. Assets above that cap attract an effective IHT rate of 20% (40% applied at 50% relief). For couples, the combined limit is £5 million, but only if assets are distributed appropriately across both estates.

A farming family holding £4 million of qualifying agricultural assets in one name and £1 million in the other has an unnecessary £1.5 million excess in the first estate. At a 20% effective rate, that is a £300,000 liability that asset rebalancing between spouses could eliminate. This is a straightforward restructuring exercise, but it requires the plan to be reviewed and acted upon before the first death.

Gifting Strategies That Reduce Exposure Now

The 7-year clock. Potentially Exempt Transfers (PETs) fall entirely outside the estate if the donor survives seven years. With speculation persisting that a future Budget may extend this window to ten years, large gifts made now lock in the current shorter clock. Every year of delay is a year added to the risk period.

Gifts from normal expenditure out of income. This remains the most powerful and underused IHT exemption available. Gifts of any size made regularly from surplus income, without reducing the donor’s standard of living, are immediately exempt from IHT with no seven-year clock required. HMRC requires evidence of a consistent pattern of giving, documented clearly. The exemption covers school fees, insurance premiums paid for children, and regular monthly transfers, provided they are habitual and funded from income rather than capital.

Whole-of-life insurance written in trust. Where the new APR, BPR, or pension IHT rules leave a liquidity gap, a life policy held in trust provides the cash to settle the HMRC liability without forcing beneficiaries to sell the family business, farm, or home. The policy proceeds sit outside the estate and are paid directly to the trustees.

Expression of Wish: The Form Most People Forget

Pension death benefits are paid at trustee discretion, guided by your Expression of Wish form. Outdated forms create two distinct risks. First, if trustees distribute a large pension fund to a child in the highest income tax bracket rather than a spouse, you lose the spousal exemption and trigger an income tax charge that could have been deferred or avoided entirely. Second, on the first death, channelling pension funds to children rather than the surviving spouse wastes the 100% spousal exemption and accelerates an IHT charge by potentially decades.

Reviewing and updating the Expression of Wish form on every pension is a 20-minute task. The cost of not doing it can be measured in six figures.

Act Before the Rules Remove Your Options

• Unused SIPPs will form part of the taxable estate from 6 April 2027, ending four decades of pension-as-legacy planning
• The double tax effect for deaths after 75 can push the effective rate on pension wealth beyond 60%
• The RNRB taper at £2 million is now routinely breached once pension wealth is included, costing up to £70,000 per estate
• AIM share IHT relief has halved to 50%, removing the core logic from many existing portfolios
• The £2.5 million BPR and APR cap creates an immediate rebalancing requirement for married couples with qualifying business or agricultural assets

The most important question to ask right now is not whether your estate plan exists. It is whether it was built for the tax environment of 2021 or the one that actually applies in 2026 and 2027. Those are very different documents.