The estate planning ‘triple whammy’ clients don’t know about

For financial advisers, estate planning is about helping clients retain some influence over two things they can never fully control: death and taxes. That job is becoming harder as the government introduces a series of measures aimed at raising more tax from accumulated wealth, with changes taking effect in stages.

Since 6 April 2026, reforms to Business Relief have reshaped the inheritance tax (IHT) treatment of both unquoted shares and AIM shares. Qualifying unquoted shares attract 100% relief up to the new £2.5 million allowance, with 50% relief applying above that level, while AIM shares qualify for 50% relief regardless of amount. From 6 April 2027, unspent pensions will be brought into scope for IHT. Alongside these changes to estate planning, advisers are also having to navigate a wider tax landscape that may become less generous in other areas too.

This points to a heavier overall tax burden on several of the ways that clients can build and hold wealth. It also leaves more clients walking an estate planning tightrope, with the size of their IHT bill depending on the date recorded on their death certificate.

How one client’s estate could change overnight

The new IHT regime also creates planning consequences that many clients may be unaware of until it is too late. In some cases, clients and their beneficiaries could be left significantly worse off by the ‘triple whammy’ of pensions being included in estates, the potential loss of reliefs such as the residence nil-rate band, and lower IHT relief on some Business Relief-qualifying investments. To illustrate the point, here’s a hypothetical situation that could happen to some clients in the not-too-distant future.

Let’s call our client Robert. He’s widowed, 74 years old, has an estate worth £1.3 million and an unspent pension pot of around £1.5 million. Following the death of his wife, Robert’s estate can claim £1 million of IHT allowances through combined nil-rate bands (NRBs) and residence nil-rate bands (RNRBs). Assume Robert dies in September 2026, before reaching his 75th birthday. After claiming the available IHT allowances, his £1.3 million estate would result in an IHT bill of just £120,000, and his beneficiaries would stand to receive £1.18 million from the estate, as well as the total value of the unspent pension, which can generally be withdrawn tax-free.

The hidden impact of pension inclusion

But let’s fast forward to the post-April 2027 landscape. At that point, Robert’s estate at death includes the £1.5 million pension pot, increasing his taxable estate to £2.8 million. That has two consequences. First, it increases the size of the taxable estate. Second, it makes the estate too large to claim the residence nil-rate band, which starts to taper on estates valued at £2 million and is reduced to zero on estates worth more than £2.35 million. Together, those changes increase the overall IHT bill from £120,000 to £860,000.

When pension tax meets inheritance tax

Given that in this scenario Robert dies after his 75th birthday his beneficiaries must then pay tax at their marginal rate to withdraw money from his pension. If the beneficiaries are 45% taxpayers, they pay an effective double tax rate on the unspent pension of 67%. That’s a double whammy that many clients are wholly unprepared for.

Business Relief changes

Let’s take our hypothetical scenario one step further, by introducing Business Relief as an element of estate planning. Suppose Robert had £250,000 of his savings invested in a portfolio of companies eligible for Business Relief listed on the Alternative Investment Market (AIM). Prior to 6 April 2026, his estate would have been able to claim 100% IHT relief on the amount invested, which in our earlier scenario would have reduced the IHT bill to just £20,000.

But given that the government has capped IHT relief at 50% for AIM-listed companies, the estate would be able to claim only half of the IHT relief previously available, turning an IHT double whammy into a triple whammy. Of course, Robert could consider whether switching to a portfolio of unquoted Business Relief-qualifying investments would be beneficial, as it would entitle his estate to 100% IHT relief on up to £2.5 million invested.

Summary

What should advisers discuss with clients?

We are about to enter a new phase in estate planning, where many wealthy clients may find their position is more exposed than they expected. With some of these changes now in law, and more set to come in April 2027, doing nothing becomes harder to justify. The challenge for advisers is to weigh up the cost of staying with the current approach against taking action now that could leave clients temporarily worse off.

Advisers can support clients by starting those conversations early and giving them clear information about the range of possible outcomes. In some cases, the discussion will be less about the IHT bill itself and more about the reduced inheritance that beneficiaries may ultimately receive, and the consequences that could follow. Helping clients see the issue from their beneficiaries’ perspective could help make those decisions that little bit easier.

Important information

Tax treatment depends on the individual circumstances of each client and is subject to change. Tax relief depends on the companies we invest in maintaining their qualifying status. Triple Point does not provide investment or tax advice, and information in this article should not be construed as such.