How future-proof are your finances? Alan Blake, local resident and partner at accountancy firm Streets explains what the forthcoming changes to pensions and inheritance tax could mean for you and your family.
For many business owners, succession planning has always been something to think about one day. Building the business, looking after customers and managing day-to-day operations all understandably take priority. However, with significant changes to the UK’s inheritance tax (IHT) rules on the horizon, delaying those conversations could become an expensive mistake.
Over the next two years, two major reforms are set to change how wealth is passed between generations. The first affects pension wealth from April 2027, while changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) begun in April 2026. Together, they have the potential to increase inheritance tax liabilities for many families and business owners, making early planning more important than ever.
Know your estate planning strategy
Historically, pensions have been viewed as one of the most tax-efficient ways to pass wealth to future generations. In many cases, unused pension funds could be left outside an individual’s estate for inheritance tax purposes, making pensions an effective estate planning tool.
From April 2027, that position is expected to change. Unused pension funds could become part of an individual’s taxable estate, potentially exposing a significant proportion of pension wealth to inheritance tax. For families with substantial pension savings, this could result in a much larger tax bill than anticipated, as well as additional administration for executors and delays in beneficiaries accessing funds.
While these changes will not affect everyone equally, they are likely to prompt many people to reconsider long-standing retirement and estate planning strategies.
Family businesses face challenges
Alongside the pension reforms, changes to Business Property Relief and Agricultural Property Relief could also have a significant impact on family-owned businesses.
For many years, these reliefs have enabled qualifying businesses to be passed on with little or no inheritance tax liability. The planned reforms will limit those reliefs, meaning some families may need to find cash to meet an inheritance tax bill when ownership changes hands.
For businesses where much of the value is tied up in trading assets rather than cash, this presents a real challenge. Families may find themselves considering options they had never expected, including selling shares, disposing of business assets, taking on borrowing or bringing in external investors simply to fund a tax liability.
None of these outcomes are ideal if the intention has always been to keep the business within the family.
Waiting could reduce your options
One of the most important messages arising from these changes is that planning opportunities are often greatest before legislation takes effect.
For years, many advisers encouraged clients to retain wealth within pensions while intending to pass business interests to the next generation at a later date. As the rules evolve, strategies that once worked well may no longer deliver the same outcomes.
There is not necessarily a single solution for everyone. Every family, business and estate is different. However, reviewing your position now gives you the opportunity to understand any potential exposure and consider whether changes should be made while more planning options remain available.
Time for a review?
Business owners should consider seeking professional advice if they have significant pension wealth, own a valuable family business, intend to pass assets to children or grandchildren, or have not reviewed their succession plans for several years. Similarly, those whose combined property, investments and pensions exceed inheritance tax thresholds may benefit from a comprehensive review.
An adviser may explore a range of planning opportunities depending on individual circumstances. These could include reviewing whether drawing pension benefits earlier is appropriate, considering gifting strategies, assessing business succession plans, reviewing share ownership structures, ensuring the business continues to qualify for available reliefs, updating wills and considering whether life insurance could help provide funds to meet any future inheritance tax liability.
Plan ahead
Inheritance tax planning is rarely just about reducing tax. At its heart, it is about protecting family wealth, preserving successful businesses and ensuring that future generations have the greatest possible opportunity to benefit from everything that has been built over many years.
With these changes now firmly on the legislative timetable, the best course of action is not to wait until they take effect. Taking advice now allows time to understand the implications, evaluate your options and implement any appropriate planning well before the new rules apply.
For many business owners, a proactive review today could make a significant difference to the legacy they ultimately leave behind.
For more information you can contact Streets direct by emailing Selina Doggett, Tax Manager at Selina.doggett@streets.uk or call 01223 570000 and mention HI HUB.
