Inheritance tax and pensions: the cost of doing nothing

Lucy Dolan, Senior Business Development Manager at Triple Point

The announcement in the October 2024 Budget, that unspent pensions would fall into the scope for Inheritance Tax (IHT) from April 2027, cast a long shadow over estate planning and made life even more difficult for financial advisers.

Bringing unspent pensions into taxable estates is expected to contribute towards boosting IHT receipts from an estimated £9 billion in the current tax year to more than £14 billion by 2030.[1] In other words, a significant number of clients either need to arrange alternative estate planning strategies, or risk leaving significant IHT bills for their families to pay.

Last year I had a coffee with a financial adviser who said he felt a real sense of guilt after hearing about the pension proposals. His father had founded their advice firm, and for a long time they had been advising clients to leave their pension untouched for as long as possible, so it could be passed IHT-free to the people they cared most about. But from April 2027, that tried and tested drawdown strategy is no longer suitable.

But as I told that financial adviser, there is still time to make proactive steps towards successful estate planning. We can’t change the rules around IHT, but we can make sure clients do something about their estate while they still can.

Talking to clients about Business Relief

The Autumn Budget 2024 made another unexpected announcement related to IHT and estate planning, with the introduction of a new £1 million allowance for both unquoted Business Relief and Agricultural Property Relief. Under the proposals, the first £1 million that qualifies for 100% Business Relief will attract no IHT at all. Any qualifying assets over £1 million will be eligible for 50% relief (equivalent to an IHT rate of 20%). At the same time, any shares in qualifying companies listed on the Alternative Investment Market (AIM) will be eligible for Business Relief at a reduced rate of 50%, an effective IHT rate of 20%.

However, after a year of considerable debate, the Government made two key announcements. First came the announcement in the Autumn Budget 2025 that the £1 million allowance would be transferable between spouses and civil partners. This brings both Business Relief and Agricultural Property Relief in line with the other IHT allowances, the nil-rate band and the residence nil-rate band.[2]

And in late December 2025, the Government announced that it had listened to concerns expressed by businesses and the agricultural community, and had decided to raise the £1 million allowance to £2.5 million.[3]

What does this mean for your clients?

To put things simply, the new changes underline how Business Relief should be a key element of estate planning for wealthier clients.

• First, individuals can pass on up to £2.5 million of qualifying assets free from IHT.
• Second, for spouses and civil partners, the combined allowance on the death of the second spouse rises to a potential £5 million
• And third, it can also be used to ‘rehouse’ pension assets that will be exposed to IHT from April 2027.

This is a real game-changer in estate planning terms. However, it’s important for advisers to remind clients that to qualify for Business Relief, shares must have been held for at least two out of the last five years, and must also be held at death. This qualification period also includes amounts withdrawn from pensions. Advisers should also discuss any potential tax implications of pension withdrawals with clients.

The difference between unlisted and AIM-listed Business Relief

It’s worth noting that the new £2.5 million allowance for 100% Business Relief only applies to unquoted, or privately owned, businesses. AIM-listed shares are only eligible for 50% Business Relief, regardless of the value of the shares. Advisers therefore might want to talk to clients who own AIM-listed Business Relief-qualifying shares as part of an estate planning strategy about transferring to an estate planning service that only invests in unquoted companies.

Any transfer from AIM to unquoted Business Relief needs to be assessed case by case, taking account of a client’s age, health and attitude to risk. But for those who will have lost that extra 20% IHT relief, there may be value in considering ways to bring the full 40% relief back into scope.

Estate planning is a key part of financial advice
The April 2027 deadline isn’t far away, and estate planning is likely to be a relatively new concept for many clients. The key thing is to encourage more clients to have those estate planning conversations, as the longer they delay, the less flexibility they have. The good news is that for financial advisers, there are things you can be doing to help more of your clients to secure their legacy and protect their family’s wealth.

Important information

The Triple Point Estate Planning Service places capital at risk. Tax treatment depends on the individual circumstances of the investor and is subject to change. Tax relief depends on the companies we invest in maintaining their qualifying status. This financial promotion has been issued by Triple Point Administration LLP which is authorised and regulated by the Financial Conduct Authority no. 618187.

[1] https://obr.uk/efo/economic-and-fiscal-outlook-november-2025/

[2] https://commonslibrary.parliament.uk/research-briefings/cbp-10181/

[3] https://www.gov.uk/government/news/inheritance-tax-reliefs-threshold-to-rise-to-25m-for-farmers-and-businesses