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    Home • Webinars & Workshops

    Inheritance Tax - how it’s changing and how it will affect you

    By Boring Money

    30 June, 2026

    We ran a webinar with Harry Beddoe, IFA at Ascot Lloyd to make sense of inheritance tax (IHT). We looked at the rules, what’s changing, and the practical steps you can take to prepare. To help you understand how the changes may impact you, try Ascot Lloyd’s simple IHT calculator.

    How does inheritance tax work in the UK?

    Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died. It’s charged at 40% on the value of your estate above certain thresholds and is paid before it reaches your beneficiaries, so understanding what you have and how you will be taxed on death is important to work out in good time.

    Everyone gets a nil rate band of £325,000. This has been frozen since 2009 and is set to stay frozen until at least April 2031. On top of that, if you own your home and leave it to a direct descendant (children, grandchildren, stepchildren), you may qualify for the residence nil rate band of up to £175,000. This tapers away if your estate is worth more than £2 million, and it doesn't apply if you're leaving property sideways to a sibling or aunt.

    Married couples and civil partners can combine their allowances. If the first person to die leaves everything to their spouse, the surviving spouse inherits both nil rate bands, equating up to £1 million of allowances in total before any IHT applies.

    From our webinar Q&A: tax allowances, spouses and exemptions

    My spouse has passed away and I haven't done anything yet - is there a time limit on the spousal exemption?

    No time limit on the spousal exemption itself. But if your will isn't set up correctly, you have two years from your spouse's death to invoke a deed of variation, a legal document that can redirect how the estate is distributed. If everything is set up correctly, there's no deadline to worry about.

    My husband wants his half of the house to go to our children when he dies. Do I still inherit his IHT allowance?

    It depends on how the property is owned. If you're tenants in common, the split doesn't have to be 50/50 - it'll be set out in your agreement. The portion he leaves to your children will use up part of his nil rate band and residence nil rate band, depending on its value. It reduces what you inherit but doesn't necessarily eliminate it.

    My partner and I are not married. What does that mean for us?

    Unfortunately, if you're not married, you don't benefit from the spousal exemption. Anything left to an unmarried partner will eat into your nil rate band (and potentially your residence nil rate band) rather than passing IHT-free. This is one of the areas where taking advice can be a valuable move.

    What changes take effect from April 2027?

    Historically, pensions sat outside the estate for IHT purposes, meaning it did not count towards your estate. As a result, many left the pension untouched to leave for future generations to inherit. From April 2027 however, pensions will form part of the estate, meaning that people will need to think more actively about whether to draw down, gift, or use other strategies, like annuities.

    Throughout my career in financial services, it's a case of we preserve the pension as much as possible because your pension was formerly one of those exempt assets, much in the same way as if you pass everything to your spouse. So people were amassing quite a lot of money in their pension. There's now a fundamental shift in what we do and how we address it. But that's not to say that we need to panic.

    Harry BeddoeIFA, Ascot Lloyd

    How can you prepare for the new inheritance tax rules?

    There’s no single answer; the right approach depends on your estate, your income, your family situation, and your appetite for complexity. But there are several well-established strategies that can help any of us reduce our IHT liabilities. Our speakers walked us through them during the session:

    • Gifting

    • Trusts

    • Business relief

    • Annuities

    • Equity release

    • Manage your withdrawals

    • Whole of life policy

    Can gifting help reduce the tax your family pays?

    Gifting has become one of the most popular strategies Harry discusses with clients, partly because of the IHT changes, and partly because people are living longer and want to help their families now rather than wait.

    There are a few different gifting allowances to know about:

    • Annual gifting allowance: you can gift up to £3,000 per year, to whoever you like. If you didn't use last year's allowance, you can carry it forward for one year only, giving you up to £6,000 in a single year.

    • Small gift allowance: you can also give £250 to as many different people as you want. You cannot combine the small gift allowance with other exemptions (such as the main £3,000 annual allowance) for the same recipient.

    • Regular gifts from surplus income: gifts made regularly from income you don't need can be exempt from IHT immediately, with no seven-year waiting period. They need to be regular, must not affect your standard of living, and must come from income, rather than capital.

    With all of this, I would always document. Make really detailed notes because whoever has to apply for the regular gifts out of surplus income exemption will need to demonstrate to HMRC the patterns: that it's a regular pattern, it's coming out of income, and it doesn't impact your current standards of living. So if you are going to be doing this, please do take copious notes because your beneficiaries and your executor will really thank you.

    Harry Beddoe IFA, Ascot Lloyd

    From our webinar Q&A: gifting money and assets

    How many £250 gifts can I make in a year?

    As many as you want. The £250 small gift allowance just can't be combined with your £3,000 annual allowance for the same recipient.

    I have lasting power of attorney for my parents, who have dementia. What are the gifting rules?

    A power of attorney is set up for the benefit of the person who granted it. If they've never previously taken steps to mitigate inheritance tax, it would imply that that isn't really one of their wishes, no matter how much the attorneys want that to happen. There can be mitigating circumstances, but if you're in this situation, seek financial advice first, because some things may simply not be permissible.

    Does it make sense to set up gifting before invoking an LPA? My mum is 81, still has capacity, but she'd want to gift to me.

    Absolutely. Harry's advice: if inheritance tax is a concern, start taking action before any power of attorney has to be invoked. You can set up the LPA in readiness, and providing it hasn't been invoked and the person hasn't lost capacity, that wouldn't be an issue. Getting LPAs in place early is something Harry regularly encourages as he's seen some difficult situations where it hasn't been done.

    Does regular gifts from surplus income include pension income? What about ISA dividends?

    Pension income counts, yes. So does interest on savings and naturally occurring dividend income. If you have income units that pay out a dividend you actually receive, you can classify that as income for the purposes of this exemption. Drawing down capital from an ISA (that's capital, not income), or taking pension tax-free cash as a lump sum do not count. Drawing the tax-free cash down on a regular basis should be permissible. Harry recommends documenting everything either way.

    If I document gifting, how detailed does it need to be?

    It doesn't need to be formal. A dated letter each time you make a gift works, making sure you state the amount and who it's going to. Or if you're more of a spreadsheet person, just document the dates, the amounts, and who they're to in an Excel spreadsheet. Place it with your will to make it as easy as possible for your executors to claim the exemption.

    How can trusts help you pass on your wealth?

    Trusts are a way of gifting assets while remaining some control over how and when they are used. The settlor places assets into the trust, and trustees manage them on their behalf. Beneficiaries then receive them, subject to the terms set out by the settlor. Assets sit outside of the estate, subject to the seven-year rule.

    Trusts are useful if you have concerns about how a beneficiary might handle a lump sum, or want flexibility about who benefits and when, e.g. if you expect to have grandchildren after you die, and want them to be included posthumously.

    They're making it quite administratively burdensome. If you make gifts to a trust, that means you're still able to exert a level of control on assets. So if there's a wayward son that you're a bit worried about, then it may be suitable to set up a trust so the trustees have control of how and when those funds get distributed.

    Harry Beddoe IFA, Ascot Lloyd

    It’s important to note that large gifts, which include gifts into trusts, use up part of your nil rate band for the next seven years. So if you put £325,000 into a trust, you’ve used your entire nil rate band for that period.

    From our webinar Q&A: trusts and property

    If money goes into a discretionary trust and I survive seven years, is it fully exempt?

    Yes. If you survive seven years from the date of the gift, it falls outside your estate entirely. If you die within those seven years, the gift is tested against your nil rate band and could increase the IHT your estate pays.

    Can I put my house in a trust?

    You can, but Harry's advice is to only do so if there's a specific reason. Care cost concerns are common. There are two important caveats: if you put your home into a discretionary trust, you lose the residence nil rate band (because you're giving it to a legal entity, not a lineal descendant). And the property needs to be held as tenants in common rather than joint tenants. With joint tenants, the other person automatically inherits the whole property on death, which means the trust structure wouldn't work.

    Can I gift my property to my children but carry on living in it?

    No, not without paying market rent. If you continue to benefit from an asset you've supposedly gifted, HMRC treats it as a failed gift and it stays in your estate. As Harry put it: 'HMRC doesn't want anyone to gift something away and still retain the benefits of it.'

    Can annuities and whole of life policies help protect your family’s estate?

    These two strategies work well individually, but even better combined. They're particularly relevant now that pensions are moving into the IHT net.

    An annuity uses part of your pension pot to buy a guaranteed income for life. Once converted into an annuity, that money is no longer sitting in your pension, so it's no longer part of your estate for IHT. With interest rates currently relatively high, annuity rates are more attractive than they've been for years.

    A whole of life policy works differently: you pay premiums for the rest of your life, and a lump sum is paid out on death. Written into trust, the payout goes straight to beneficiaries outside your estate, free of IHT.

    The two can be applied in tandem. Use part of your pension to buy an annuity that generates enough income to cover the whole of life premiums. Harry walked through a worked example with a £200,000 pension pot of a basic rate taxpayer in good health:

    • Whole of life premium: £719/month

    • Annuity needed to cover that premium: uses £113,757 of the pension pot

    • Result: £200,000 of life cover paid into trust on death, free of IHT

    • Do nothing instead? If your children are higher rate taxpayers, HMRC takes 40% of the pension in IHT (£80,000), then they pay 40% income tax on what's left, another £48,000 gone.

    The beneficiaries only get to keep 36p for every pound that's in your pension.

    Harry BeddoeIFA, Ascot Lloyd

    From our webinar Q&A: pensions, annuities and life insurance

    Are annuities and drawdown either/or?

    No, they can be mix and match. An annuity is just a different type of pension vehicle. Many people find annuities particularly useful in later life when they want certainty around income, while keeping some money in drawdown for flexibility.

    Do most clients use a combination of strategies, or just one?

    Yes, often. Harry explained: “We look to have a plurality of different options or different strategies; for the same reason we don't want to put all your eggs into one basket with investments. Legislation changes. For the longest time, we thought pensions weren't going to form part of the estate.”

    The right blend will be different for everyone.

    Where should you start?

    Harry's three practical starting points for anyone beginning to think about their IHT position:

    1. Sort your will

    If your will is out of date, or you don't have one, you're not in control of how your estate is handled. Particularly important for anyone who's remarried or divorced and hasn't updated their documents since.

    2. Before gifting anything, make sure you understand your own outgoings

    Once money is gifted, you generally can't get it back. A cash flow model, either done yourself or with an adviser, helps ensure any gifting is genuinely affordable.

    3. Involve your children or your beneficiaries in conversations

    As Harry says: “Normally, I do find that children are quite chivalrous, say, "No, don't worry." And then after the fact they're like, "Ah, crumbs, why didn't they do X, Y, and Z?" So do start having those conversations early because it may be that actually both people, everyone aligns.”

    Ascot Lloyd is a UK-based financial advice firm managing over £15bn on behalf of clients. Working with individuals, families and businesses, Ascot Lloyd advisers deliver clear, personalised advice to help clients navigate complex financial decisions with confidence.

    To help you to understand where you stand with your finances, Ascot Lloyd offers practical tools such as its Inheritance Tax Calculator.

    With new inheritance tax rules coming into force, your tax position may be changing - and the impact could be significant. This simple free tool provides an estimate of your potential inheritance tax liability based on your circumstances - before and after the new legislation kicks in. By entering a few key details, you can quickly see how your estate may be affected over time and identify where action may be needed.

    This calculator is for guidance only and does not constitute regulated financial, tax or estate planning advice.

    Important information

    This communication is intended for UK residents for information purposes only and does not constitute financial advice or a personal recommendation. Any opinions expressed may differ to Ascot Lloyd's.

    Investment involves risk to your capital.

    The FCA does not regulate tax or trust /estate planning. Tax rules are subject to change and are based upon your personal circumstances.

    Ascot Lloyd Limited is authorised and regulated by the Financial Conduct Authority. FCA number 578614. Registered in England and Wales, No: 07584487. Registered Office: 45 Church Street, Birmingham, B3 2RT.

    Important stuffHolly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice. For every story on this website about a good investment, or something which went up by 10% or made someone £200, we could also share a story about a bad investment, something which fell in value or lost someone £200. We aim to provide general information and pointers – and btw we are totally agnostic about which providers you might pick – but if you have complex affairs, want personalised advice or need specific recommendations, please look at advice pages and see if regulated digital or traditional financial advice would be the best solution for your needs. Boring Money Ltd is a limited company registered in England and Wales under registration number 09459832 and we have our registered office at 37 Lombard Street, London, EC3V 9BQ.
    InformationHistorically, money invested for more than five years grows more than cash savings. Remember that investments can also fall, so you might not get all of your money back. Tax treatment depends on individual circumstances and may change.
    Boring Money Ltd is a limited company registered in England and Wales under registration number 09459832 and we have our registered office at 37 Lombard Street, London, EC3V 9BQ.