Inheritance Tax Planning in 2026: Key Strategies for Wealthy Families

A lot changed this year. And for high-net-worth families, the window to act is narrowing faster than most advisors will admit.

Inheritance tax planning in 2026 looks different to anything that came before it — frozen thresholds, capped reliefs, and a pension bombshell dropping in April 2027. If your estate exceeds £1 million, this isn’t background noise. It’s urgent.

The Frozen Threshold Problem

The nil-rate band sits at £325,000. The residence nil-rate band holds at £175,000. Together, a married couple can still pass £1 million to direct descendants without IHT — but that number hasn’t moved in years, and it won’t until at least April 2031.

Here’s what that actually means in practice: HMRC data shows roughly 2,100 additional estates will fall into IHT by 2030-31, simply because property values keep climbing while the thresholds don’t. No new policy needed. Just inflation doing its quiet work.

“More than 90% of UK estates are forecast to have no IHT liability today. But the situation will shift as asset values continue rising against frozen thresholds. HMRC, Inheritance Tax thresholds data, 2026.

For most people, that’s reassuring. For families with estates well above £1 million, it’s a slow-moving problem that compounds every year you don’t address it.

The allowances themselves aren’t complicated. Each individual gets a £325,000 NRB and a £175,000 RNRB (the latter only applies when a qualifying home passes to direct descendants). Transferred allowances between spouses double both figures — but only with proper legal structuring. Wills need to be coordinated. No allowance should go to waste.

The RNRB also tapers for estates above £2 million — £1 reduced for every £2 above that line. Large estates can lose the residence band entirely.

Business and Agricultural Relief: The New Calculus

This area is where 2026 hits hardest.

Business Property Relief and Agricultural Property Relief — long the primary shields for business owners and farming families — have been fundamentally restricted. A £1 million combined cap now applies to assets qualifying for 100% relief. Everything above that receives only 50% relief, resulting in an effective IHT rate of 20% on the excess.

AIM shares? BPR is now 50% for all. The 100% relief that made AIM portfolios a popular estate planning vehicle is gone.

The cap does transfer between spouses—so a couple retains up to £2 million at full relief. And IHT due on APR or BPR assets can now be paid in 10 annual interest-free instalments from April 2026, which at least eases cash flow pressure.

Hexagone Group advises clients to map their full exposure under the new rules before deciding on any restructuring. Acting early creates planning options that waiting does not.

HMRC estimates roughly 500 farming estates and 1,000 AIM portfolios exceed the cap each year. Not vast numbers. But if your estate is in that group, the exposure is real.

The structures that once provided complete shelter may now only partially reduce a bill — not eliminate it. Every affected family needs to map their actual exposure under the new rules before deciding anything else.

Trusts: Still One of the Most Useful Tools Available

Done properly, a discretionary trust removes assets from the taxable estate entirely.

A married couple can place £650,000 into a discretionary trust today, with each spouse using their individual nil-rate band and no immediate IHT charge. Assets inside then face only a periodic charge every 10 years, capped at an effective rate of around 6%. Compare that with the 40% rate on death.

The maths is clear.

Life insurance written in trust sits completely outside the IHT estate. Structured correctly, it can fund an anticipated IHT liability — protecting illiquid assets like farmland, private company shares, or a property portfolio from forced sale at the worst possible moment. Trustees also retain flexibility to adapt distributions as family circumstances shift, which makes trusts particularly well-suited for multi-generational planning.

Gifting: Simple in Principle, Powerful in Practice

The most direct way to shrink a taxable estate is to give assets away. The question is how to do it in an orderly, tax-efficient way.

Start with the basics: each individual can gift £3,000 a year free of IHT, with the prior year’s unused allowance carrying forward once. Gifts of up to £250 per person per year are exempt, with no cap on recipients. Regular gifts from surplus income are fully exempt with no upper limit — though documentation matters here.

Larger transfers – called ‘Potentially Exempt Transfers’ – become fully IHT-free after seven years. Between years three and seven, tapering relief progressively reduces the charge. That seven-year clock starts the moment the gift is made, which is precisely why starting early matters.

Wedding gifts carry their own exemptions: up to £5,000 from a parent, £2,500 from grandparents. Charitable donations are fully exempt, and donating at least 10% of the net estate drops the IHT rate from 40% to 36%.

Combine PETs, annual exemptions, and trust deposits over multiple years and the compounding reduction in estate value becomes substantial. This isn’t a one-off decision — it’s a programme. Annual reviews keep it aligned with changing asset values and family circumstances.

Pensions: The April 2027 Deadline

Nothing in 2026’s reforms comes close to this change in terms of scale.

Right now, unspent defined contribution pension pots pass entirely outside the IHT estate. From April 2027, they will no longer be exempt. They’ll fall within scope and face the standard 40% IHT rate. For additional-rate taxpayers, the combined hit of IHT and income tax on inherited pension assets could reach approximately 67%.

Sixty-seven percent. That’s not a rounding error — that’s a significant loss of the pot.

This completely changes the conventional drawdown strategy. For HNWI families, drawing pension assets first — ahead of ISAs, investment portfolios, or property — may preserve significantly more value for heirs. Pension assets might also be redirected toward charitable giving or restructured before the rules shift.

The planning window is open now. It closes in April 2027. Families with substantial pension pots who haven’t reviewed their strategy are running out of time to act without constraint.

Where to Start

No single tool covers every angle. Effective inheritance tax planning in 2026 means combining several approaches — thresholds, trusts, gifting, and pension sequencing — that are calibrated to the specific composition of each estate.

Four areas deserve attention first:

Are both NRBs and RNRBs structured to be fully claimed on the second death? Which business or agricultural assets now exceed the £1 million cap, and what restructuring is realistic? Is there a multi-year gifting programme in place? And how should pension drawdown be sequenced before April 2027?

The earlier the review starts, the more options remain open. That’s not a cliché — it’s just how estate planning works. Time creates choices. Waiting removes them.