Inheritance Tax (IHT) is changing in ways that could hit you, your family, and your hard-earned wealth. You might think it only applies to the very wealthy, but frozen allowances and new rules mean more ordinary families like yours are getting dragged into the IHT trap.
And from 2027, even your pension - something you may have counted on to pass down tax-free - could face a 40% inheritance tax bill.
Before vs After April 2027: A Simple Comparison
1. Nil-Rate Band Frozen Until 2030
The nil-rate band (the amount you can pass on tax-free) has been stuck at £325,000 since 2009.
The residence nil-rate band (an extra £175,000 if you leave your home to children or grandchildren) is also frozen.
Combined, a couple can pass on £1 million without tax, but property prices have soared - so more and more estates are slipping into the tax zone. This is called fiscal drag.
HMRC collected a record £7.5 billion in IHT in 2023-24, up 15% year-on-year. Freezing thresholds is a big reason why.
2. Reliefs for Business and Farms Cut Back (from 2026)
Until now, family businesses and farms often escaped IHT through 100% relief. Starting April 2026, full relief will only apply to the first £1 million. Anything above that gets just 50% relief, meaning a 20% tax charge.
A farm worth £2 million could previously be passed on tax-free. From 2026, heirs may face a £200,000 tax bill.
3. Gifts Under Review
Currently, gifts made more than 7 years before death are tax-free. The government is considering tightening this - possibly capping total lifetime gifts or changing the 7-year rule.
4. Pensions Enter the IHT Net (from 2027)
This is the game-changer. From 6 April 2027, unused pensions will be treated as part of your taxable estate. Beneficiaries may face a 40% inheritance tax bill, and if you're over 75 when you die, they'll also pay income tax on withdrawals. That's a potential effective rate of up to 67%.
What's the Problem?
The government has frozen the nil-rate band (£325,000) and residence nil-rate band (£175,000) until 2030. That means property prices rising while thresholds stay still, pushing more of your estate into the taxable zone - known as fiscal drag.
On top of that, from April 2026, reliefs for family businesses and farms will be capped, and from April 2027, pensions - once considered safe from IHT - will be dragged into the calculation. For you, this means a larger potential tax bill on wealth you thought you could pass down freely.
Who Will Feel This the Most?
Middle-class families with property and pensions, once unaffected, will increasingly face IHT.
Business owners and farmers will be hit by capped reliefs.
Those relying on pensions as a tax-free inheritance strategy will see their plans disrupted.
What Can You Do About It?
At Optimyze, we work with you to put the right plans in place - whether that's using your gifting allowances, setting up trusts that keep you in control, or reviewing your pension strategy so it works for your family.
If you own a business or farm, we can help you transfer assets before the 2026 changes bite, and if you want to ease the tax bill further, we'll show you how insurance or charitable giving can make a real difference.
Our goal is simple: to make sure more of your wealth ends up with your loved ones, not lost to unnecessary tax.
What This Means for You
The IHT changes are not just about "the wealthy." More and more ordinary families will find themselves affected. But by acting early - whether through gifting, trusts, pension drawdown, or insurance - you can protect your family's financial future.
The combination of frozen allowances, capped reliefs, and pensions entering the IHT net represents one of the most significant shifts in UK estate taxation in decades. Families and businesses should urgently review estate planning strategies ahead of April 2026 (business relief changes) and April 2027 (pension inclusion).
Early action - particularly around gifting, trust structures, and pension drawdowns - can mitigate your exposure to IHT and protect intergenerational wealth.
Get prepared for these inheritance tax changes before it's too late. Get in contact with our team now and plan ahead for your and your family's future.
