You will have seen lots of updates about the budget changes, but it is important to understand what this means for you as a person.

The changes to Inheritance Tax (IHT) is something that you may have come across in the news as just affecting Farmers, but actually it affects many more people than you may realise.

Prior to this budget, leaving pensions for loved ones to inherit was a tax-efficient way to pass on wealth. Any value in the pension was generally passed on tax-free or only attracted a marginal rate of Income Tax. In most cases, pensions did not attract Inheritance Tax. However, the budget announcement changed this. People who are invested heavily in their pensions may now need to review their situation.

There were also changes to the way limits are calculated. Although property prices have risen, the budget froze the Inheritance Tax threshold at £325,000 and the Residential Nil Rate Band at £175,000 for the individual or £350,000 for a couple on second death. This is the value that gets added to the normal Inheritance Tax Balance to allow for property to be passed down to family members.

If the overall estate is valued at more than £2 million, for every £2 over the limit, your beneficiaries will lose £1 off the Residential Nil Rate Band. Therefore, beneficiaries could end up paying a lot more in Inheritance Tax.

To add further sting to the situation, from April 2026, the reductions that are afforded for agricultural and business property will also be altered.

A recent example helps to illustrate the change and the impact it could have:

If you have;

• Savings worth £150,000
• A house valued at £350,000
• A pension of £70,000 with your child as the beneficiary.
• your total estate being passed to a child would be worth £570,000.

Currently, there would be no Inheritance Tax to pay as the pension would be excluded and the remainder would be under the £500,000 limit. This is made up of £325,000 plus £175,000 residential band for a single person.

From 2027, this same scenario would incur an Inheritance Tax liability of £70,000 which would typically be taxed at 40%. This would mean that your beneficiaries would get a £42,000 tax bill. It could even result in your family having to may both Inheritance tax and income tax on your pension, if you pass after the age of 75.

It is so important to understand how this affects your personal situation. Should you pass on wealth now or wait until you leave it in a will. It is about fine tuning and balancing what you need now against how you want to pass on any wealth to your family or beneficiaries. It may be better to see your family benefit from that passed wealth now, rather than waiting to leave it and having the result of a larger tax bill.

We would advise all customers to review your Inheritance Tax Liability and to consider your options if this affects you. Holistic financial planning in this scenario is so important, as it considers your whole situation and not just individual plans or pensions.

Please get in touch to arrange an Inheritance Tax review, if you haven’t already addressed this in your annual review. We can work with you to create a personal calculation, considering all your options. We will look at what you can and cannot do, ensuring your wealth gets passed to the people you want it to as efficiently as possible.