Gifting and Wills: Why Inaction Could Now Cost Your Family
You’ve worked hard to build your business or farm – maybe you’ve also accumulated pension savings with a view to leaving something behind. Until recently, the rules on inheritance tax (IHT) were fairly generous, especially for business owners and those with agricultural assets. But that’s changing, subtly, but with significant implications on the horizon.
From April 2026, the government will cap the amount of tax-free relief available through Business Property Relief (BPR) and Agricultural Property Relief (APR). In parallel, pension assets – previously a clever tool for IHT planning – will become taxable upon death from April 2027.
This shift could dramatically alter how much of your estate actually reaches your family. Wills that once made perfect sense may now expose your family to hefty tax liabilities. But with strategic planning, especially through gifting, you can still make use of existing allowances before they vanish.
A new tax landscape: What’s changed?
Historically, if you held qualifying business or agricultural assets, you could expect 100% relief on their value at death. That meant your family could inherit without triggering an IHT bill, regardless of asset value.
From April 2026, however, that relief will be capped at £1 million per person across BPR and APR combined. Anything above that may only benefit from 50% relief, or worse, be fully taxable. For asset-rich but cash-poor estates (a common scenario for farms and family businesses), the risk of having to sell property or business interests to pay tax is very real.
Separately, from April 2027, unused pension pots will become subject to IHT. Previously considered “outside the estate,” pensions were a reliable IHT mitigation strategy. Now, unless carefully managed, they could attract both IHT and income tax, potentially up to 67% in combined charges.
Strategy 1: Use holdover relief to share the load
One of the most effective strategies still available is Gift Holdover Relief. This relief allows you to gift qualifying business or agricultural assets without triggering an immediate Capital Gains Tax (CGT) bill. Instead, the gain is “held over” – i.e., deferred – until the recipient sells the asset in the future.
Why does this matter now?
Because under the new APR/BPR caps, a single person owning 100% of a trading company or farm will soon hit the £1 million relief ceiling. But if that ownership is split, let’s say, 50% to a spouse and 25% to each of two children, each individual can claim their own £1 million allowance, potentially shielding £3 million from IHT.
Case study:
John owns a £3 million trading business. Under current rules, his estate could claim full BPR upon death. From April 2026, only £1 million would be exempt, leaving £2 million exposed to IHT at 20%, and a £400,000 tax bill.
If John gifts 50% to his wife now (using Gift Holdover Relief), they can each claim £1 million in BPR, saving £200,000 in tax. Further gifting to children, if appropriate, could eliminate the IHT entirely.
Crucially, this strategy requires action before the donor passes and before the new limits apply.
Due to anti-forestalling measures brought in by the government, gifts made from 30 October 2024 would be drawn under the new rules if the donor dies within seven years, on or after 6 April 2026. Therefore, early planning is vital.
Strategy 2: Rethink your pension legacy
The government’s change to pension rules from April 2027 is another quiet, but major, shift in estate planning.
Currently, pensions are exempt from income tax in the hands of beneficiaries if the deceased died before age 75. After 75, they may be taxed at the beneficiary’s nominal income tax rate, but (at the moment) both scenarios are outside the reach of IHT regulations.
From 2027, pensions will be pulled into the estate, potentially triggering 40% IHT first, and then income tax as the funds are drawn. For higher-rate taxpayers, this could result in an effective tax rate of up to 67%.
Consequently, it is critical to get the structure and wording of your Will correct. For example:
- In the past, many people left pension assets to children or grandchildren for tax-free access.
- Going forward, you may need to consider leaving pensions to your spouse, who can still inherit free of IHT, and restructure other assets for children.
The key here is flexibility. Many people have not reviewed their Wills or pension nominations in years. What worked then may now be a costly mistake.
Is time running out?
It’s tempting to think the deadlines of April 2026 and April 2027 leave plenty of time for planning. But that’s not how the legislation works. The government has introduced forestalling measures that limit the effectiveness of last-minute action.
For example, any lifetime transfers of business or agricultural assets made on or after 30 October 2024 will fall under the new £1 million cap if the donor dies on or after 6 April 2026.
In other words, even gifts made today could still be subject to future IHT rules if the clock runs out within seven years. That’s why waiting until 2026 to act could be a false economy.
The same applies to pensions.
Once you pass away, your pension nominations are effectively locked in. If your current Will or nomination form directs those funds to children instead of a spouse, it could trigger a 40% IHT charge followed by income tax at their marginal rate.
The damage is done before your beneficiaries even know what’s happened.
These rule changes are not only technical – they are designed to catch people unaware.
To protect your estate and your family, planning needs to happen sooner rather than later. Every month of delay risks unintended tax consequences, reduced reliefs, and significantly less flexibility.
What you should do next
If you’re concerned about these changes, the most effective step is to act now, while full relief is still available and options are open. Here’s where to start:
- Review your Will thoroughly: Does it assume that Business or Agricultural Property Relief will cover all qualifying assets without a cap? Does it route pensions to a spouse or directly to children? Does it reflect the latest legislative landscape, or assumptions made five, ten, or twenty years ago?
- Examine how assets are structured: Do you still own 100% of your business or farm in your own name? Could a strategic gift – leveraging Gift Holdover Relief – help you unlock additional BPR/APR claims across your family?
- Rebalance pension and non-pension wealth: With pensions becoming part of your taxable estate from 2027, you may need to prioritise spending from pension pots during retirement, and use other assets for legacy planning. Rewriting your financial “drawdown order” could save your heirs hundreds of thousands of pounds.
- Take professional advice: These changes sit at the intersection of inheritance tax, capital gains, pension legislation, and succession planning. No two situations are the same, so a one-size-fits-all approach could do more harm than good. A tailored review by your accountant or tax adviser is essential.
Proactive planning now could shield your family from unnecessary tax burdens and preserve the legacy you’ve worked so hard to build.
Summary: Planning is the new saving
While these changes were part of draft laws introduced by the government last month, they have not yet been formally enacted into law. However, the idea that your family might lose 40% (or more) of your life’s work to tax is distressing, but (in many cases) entirely preventable with timely action.
Whether you’re a business owner, farmer, or high-net-worth individual with pension assets, you must reassess your finances under the proposed regulations. The old playbook of “do nothing and let the reliefs take care of it” no longer applies, and to assume so could prove very costly.
At Wilkins Southworth, we specialise in navigating these complexities and planning for the future. We’ve helped many clients restructure ownership, adjust gifting strategies, and future-proof their legacies. If you’d like to discuss your position in more detail, please get in touch.
Unfortunately, amid these changes, the cost of delay isn’t just financial, it’s generational.