Changes in tax relief may mean families need to change their plans for the future, say RITCHIE WHYTE and AILEEN ENTWISTLE
For decades, pensions were seen as the “safe haven” to cascade wealth efficiently down through the generations. However, changes to how pensions are treated for inheritance tax (IHT) have left many clients perplexed and uncertain about how best to secure their family’s financial future.
The inclusion of inherited pensions within estates is creating new challenges for families reliant on pensions to mitigate tax burdens. The UK Government ‘s consultation on these changes closed last week. This process may bring further clarification or adjustments, making it crucial for business owners to stay informed of the latest decisions.
With adjustments to Inheritance Tax (IHT), Capital Gains Tax (CGT), and longstanding reliefs like Business Property Relief (BPR) and Agricultural Property Relief (APR), business owners face a new financial reality that demands proactive decision-making.
Key changes mean the £1 million allowance for reliefs like BPR and APR now encompass assets held in trust, which could lead to a significant increase in IHT liability for many families.
This is something we strongly advise individuals and business owners to seek early advice on as it is a significant change to navigate. Bear in mind, too, that this £1 million allowance is not transferable between spouses, so it must be banked at the time of the first death. Another key thing to remember is that the IHT threshold has been frozen at £325,000 until 2030.
These changes, although daunting, offer an opportunity for families to rethink their traditional strategies, explore new reliefs, and have robust discussions about the future. Effective succession planning is not merely a financial exercise—it is a deeply personal process that requires open communication within families.
These conversations should address key questions: who will manage the business or inherit assets? What are the future roles of children or other family members? Should wealth be passed directly to the next generation or redistributed? Such discussions are critical, not only to align family goals, but also to provide clarity for advisors so they can tailor their strategies. Starting early means you can explore options like lifetime gifting or the use of trusts, which can mitigate future liabilities.
In this uncertain environment, there are several steps that individuals and businesses can take. Gifting assets during your lifetime can reduce your taxable estate, but requires careful timing to ensure compliance with the seven-year rule.
Trusts are a powerful tool for controlling the distribution of assets and minimising your tax exposure. However, upcoming consultations on ten-year charges may mean revisions to existing trust arrangements are needed. An up-to-date will is more important than ever to ensure assets are distributed efficiently and according to your wishes.
Life insurance policies designed to cover IHT liabilities can provide families with the liquidity needed to avoid forced sales of assets, such as family businesses or agricultural holdings. Reviewing and documenting the value of your business can provide a clear picture of potential liabilities and opportunities for relief.
While the reforms to BPR and APR relief don’t take effect until 2026, with pensions and IHT changes coming in from April 2027, families do have a bit of time yet to assess their circumstances. However, waiting too long could limit options or lead to rushed decisions that fail to account for long-term implications. Succession planning often takes years to implement effectively, and starting early ensures that solutions are tailored, well-considered, and sustainable.
The broader economic climate presents additional pressures – with businesses already grappling with rising costs and changing regulations, the added burden of increased tax liabilities could deter growth or force difficult decisions, such as selling assets prematurely.
No two families or businesses are the same, and cookie-cutter solutions rarely work. Professional advisors bring essential expertise to the table, ensuring that plans are comprehensive and legally sound while maximising available reliefs. Integrated advice—covering legal, financial, and tax implications—can mean the difference between preserving a family legacy and losing it to unforeseen liabilities.
We have already had clients revisiting earlier plans in light of these changes, emphasising the need for ongoing communication and evaluation. From reviewing wills and pensions to structuring trusts and facilitating family discussions, early and informed advice can help safeguard what matters most.
The UK’s tax landscape is evolving, and businesses must evolve with it. For family businesses, this means confronting uncomfortable realities head-on and taking decisive action. By planning early, seeking expert advice, and fostering open family communication, business owners can navigate this new era with confidence, ensuring their legacies endure for generations to come.
Ritchie Whyte is a partner and head of corporate and business advisory, and Aileen Entwistle, a private client partner at Aberdein Considine
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