IHT Reform 2026: What Every Accountant Should Be Planning Now
- Ray Best
- Nov 27, 2025
- 3 min read
Updated: Jan 5
What Accountants Need to Know - and How to Prepare Their Clients
The government's recent announcements on inheritance tax (IHT) represent the most significant shift in estate planning rules in decades. While the headlines focus on tighter relief limits, the real story is deeper - these changes reshape how wealth will be taxed, transferred, and protected in the years ahead.
For accountants advising high-net-worth individuals and business owners, the message is clear: succession planning must adapt, and soon.
Three Key Changes Accountants Must Understand
Pensions to be Taxable for IHT (from April 2027)
Unused pension pots will no longer sit outside the estate for IHT purposes. Both defined contribution and defined benefit pensions will now be included in the calculation of estate value.
The pension scheme administrator will be responsible for IHT reporting and payment.
Families who once relied on pensions as a last resort may now see them taxed as one of the first sources.
Client Implications: Estate planning cannot overlook pensions. Lifetime withdrawals, gifting strategies, and insurance planning may now be necessary to mitigate the added exposure.
Capping Business & Agricultural Property Relief (from April 2026)
The 100% relief currently available under Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at £2.5 million.
Assets above that threshold will receive just 50% relief.
The remaining value could face a 20% IHT liability.
Client Implications: Business owners who once relied on full relief for shares or property could now see a substantial portion of their estate exposed to tax - particularly if they hold diversified or partially non-trading assets.
Residency to Replace Domicile as IHT Basis (from April 2025)
The UK will move from a domicile-based to a residency-based system for IHT:
Individuals who have lived in the UK for 10 of the last 20 years will be taxed on their worldwide assets.
Former UK residents who've been non-resident for over 10 years will only face IHT on UK assets.
Client Implications: This tax may catch UK expats and globally mobile families off guard. Trusts, offshore structures, and cross-border planning must now be reviewed with fresh urgency.
Real-World Examples: The Cost of Inaction
Scenario A: Home and Pension - £2.5 million Estate
A married couple owns a £1.5 million home and a £1 million pension.
Under Current Rules: £200,000 IHT exposure.
From April 2027: £740,000 IHT - including £296,000 from the pension trustees.
The estate may lose RNRB (Residence Nil Rate Band) if it exceeds the £2 million threshold.
Scenario B: £10 million Trading Business
A couple owns a £10 million business.
Under Current Rules: Approx. £340,000 IHT liability (with full BPR).
From April 2026: Potential IHT bill of £2.34 million.
The business may need to raise or divert funds to meet tax obligations, disrupting operations or succession plans.
How Accountants Can Guide Clients Proactively
The scale of these reforms means that simply updating a will or trust may not be enough. Clients will need a comprehensive, strategic estate plan that accounts for:
The IHT treatment of pensions.
The reduced impact of BPR and APR.
Cross-border exposure for international families.
Lifetime gifting opportunities under the new relief caps.
Insurance-backed risk planning (to cover PETs or unexpected liabilities).
At Wills, Tax & Trusts Ltd, we work in close partnership with accountants to provide advanced estate planning structures, including discretionary trust wills, Family Investment Companies, and multi-jurisdictional plans.
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