Inheritance Tax (IHT) has always been a hotly debated subject, but it’s now firmly in the spotlight again as the Chancellor looks for ways to raise more money for the Treasury. With potential changes on the horizon, it’s more important than ever to understand how IHT works, and what it could mean for your family’s future.
How Inheritance Tax Works
Inheritance Tax (IHT) is charged at 40% on the value of your estate above the available tax-free allowances.
Your estate includes almost everything you own when you die, such as:
- Your home and any other property
- Savings and investments
- Pensions (from 2027)
- Valuable personal possessions such as jewellery, cars, or art
- Business interests in some cases
There are allowances that help reduce the impact:
- Nil-rate band – £325,000 per person.
- Residence nil-rate band – up to £175,000 when leaving the family home to direct descendants.
Together, this means a couple could currently pass on up to £1 million without paying IHT. But anything above these allowances could be taxed at 40%, which can quickly add up. Especially in areas like the South East where property values are high.
Why the Rules Could Change
The Government is under pressure to raise revenues, and IHT is seen as one of the tools at its disposal. One of the most significant changes announced is that pensions will form part of your taxable estate from 2027.
Until now, pensions have generally sat outside of IHT calculations, meaning they could be passed on tax-efficiently. The new rules could dramatically increase the value of estates and, in turn, the IHT liability.
Other proposals being discussed include tightening reliefs and allowances, which could mean fewer families are protected from paying IHT.
What This Means for You
Inheritance Tax is no longer an issue faced only by the very wealthy. In the South East, where property prices are much higher, many families will find that their estate – especially once pensions are included from 2027 – could be well above the IHT thresholds. That means an increasing number of households could face a significant tax bill without careful planning.
Planning Ahead Can Make a Big Difference
The good news is that there are steps you can take to reduce the impact of IHT. From gifting strategies and trusts, to life insurance policies and pension planning, proactive advice can help you protect more of your wealth for your loved ones.
How Citrus Financial Can Help
At Citrus Financial, we specialise in helping families plan for the future. If you’re concerned about the potential impact of IHT — particularly with pensions becoming part of your estate from 2027 — we can guide you through your options and create a plan tailored to your circumstances.
Call us today to book your free initial consultation and start protecting your family’s future.
Tax treatment varies according to individual circumstances and is subject to change.
Inheritance tax planning, trusts, tax planning, and estate planning are not regulated by the Financial Conduct Authority.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 19/08/2025
