Will Your Family Face a Bigger Inheritance Tax Bill?

Inheritance Tax (IHT) is becoming a growing concern for many families and especially business owners in the UK.  Recent changes mean that more of your wealth could now be taxed—and at higher levels than before.

If you haven’t reviewed your plans recently or if you haven’t even considered proactively dealing with the impending liability, it may be time to take another look.

What’s Changed?

Pensions will soon be included in your estate.

From April 2027, most unused pension funds will count towards your estate for IHT.

In the past, pensions were often used as a tax-efficient way to pass on wealth. This change means:

• Your estate could be worth more (for tax purposes)

• Your family could face a larger IHT bill

Business relief is being reduced.

From April 2026, changes to Business Property Relief (BPR) mean:

• Only the first £2.5 million of qualifying business assets will get full IHT relief.  It’s also important to note the word ‘qualifying’ since not all businesses will obtain BPR relief. 

• Anything above this £2.5m threshold may only obtain 50% relief, in effect, meaning an IHT rate of 20% on assets that would previously have been exempt.

For business owners, this could create a tax bill where previously there wasn’t one.

Thresholds remain frozen

At the same time:

• IHT thresholds haven’t increased

• Property and asset values have risen

This combination is pulling more families into the IHT net.

What Does This Mean for You?

You might be affected if you have:

• A business or shares qualifying for relief

• Property that has increased in value

• Pension savings you planned to pass on

Even if you didn’t expect an IHT bill before, you might now have one.

A Solution: Whole of Life Insurance

A single life whole of life policy (for single people) or a joint-life second death whole of life policy (for married couples or those in civil partnerships) is a type of insurance designed to help families deal with IHT.

It:

• Provides a lump sum that can be used to pay the tax bill

• Pays out on death and, for couples, when the second person passes away as it is only at this point that the IHT liability arises

Why People Use It

✔ Helps your family pay the tax

Instead of selling assets (like property or a business), your family can use the insurance payout to cover the IHT bill.

✔ Keeps more wealth in the family

Without planning, up to 40% of your estate above allowances could go to HMRC.

This type of policy helps ensure more goes to your loved ones instead.

✔ Can sit outside your estate

When set up properly (usually in trust):

• The payout isn’t counted as part of your estate

• It can be paid quickly to your beneficiaries

A Simple Example

A couple has:

• A home and savings

• Pension funds

• A family business

Because of the new rules:

• Their estate is now larger for tax purposes

• Some of their business assets may be taxed – A business valued at £5m would result in an IHT liability of £500,000 in and of itself!

A whole of life policy could provide a cash lump sum to cover the IHT—so their family doesn’t need to sell assets.

The Key Takeaway

The rules around IHT are changing, and many families will be affected.

Planning ahead can make a significant difference to how much of your wealth your loved ones actually receive and a whole of life policy can protect generational wealth without having to gift your assets away well before your death.

A whole of life policy is just one option—but for many people, it’s becoming an increasingly important part of the solution.

If this is an area of advice that you wish to discuss then please get in touch.