With pensions set to join the list of assets liable for IHT, for many families, this ends a major tax break and makes effective planning essential. One of the most powerful tools is gifting. However, when done incorrectly, it can wipe out the benefit entirely.

Getting gifting right

Some gifts are exempt straight away, like the £3,000 annual allowance or small gifts under £250. Larger gifts, known as Potentially Exempt Transfers (PETs) escape IHT if you live for seven years after making them. Regular gifts from surplus income can also be tax free, provided they don’t reduce your standard of living and you keep detailed records.

Detailed record-keeping includes evidence of:

• What was given, when, and to whom
• The value of the gift at the time
• The source of the funds (especially for gifts from income)
• Proof that the gift did not reduce your normal standard of living.

This might include bank statements, written notes of intention, valuations and a spreadsheet tracking dates and amounts. Without this paper trail, HMRC could reject the exemption.

The trap – gifts with reservation

The most common pitfall is the ‘gift with reservation of benefit’ – where you give something away but keep using it. For example, transferring your holiday home to your children, but  continuing to use it rent-free will keep it in your estate for IHT. Hundreds of families fall foul of this each year, with surprise bills running into tens of thousands.

Protect your legacy – speak to us today

With thresholds frozen and pensions entering the IHT net, please get in touch to review your plans and avoid your gifts backfiring, to make sure your wealth passes on the way you intend.

The government has confirmed it will move ahead with plans to include unspent defined contribution pensions in IHT calculations from April 2027.  This marks a major change: until now, pensions have usually fallen outside the estate for IHT, often making them an efficient way to pass on wealth.

What’s changing?

Following consultation, some elements of the original proposal have changed. Death in service benefits paid from registered pension schemes will remain exempt, as will scheme pensions paid to a dependant from defined benefit arrangements and death benefits from collective money purchase schemes.  The government has also confirmed that a deceased person’s legal personal representatives will be responsible for declaring pension benefits within the IHT return to HMRC.

Impact on estates

Around 8% of estates are expected to be affected annually, with average IHT bills rising by an estimated £34,000. The impact could be greater if individuals do not review their arrangements in light of the changes. From 2027, all estates that include pensions will need to assess whether IHT is due, creating potential delays as pension providers and executors share information.

Another concern is the risk of double taxation. Pensions inherited after age 75 are already taxed as income; from 2027, they could also face IHT. This could leave beneficiaries losing more than half the pension value to tax, even at basic rates.

Planning considerations

There are ways to reduce future IHT exposure, such as:

Gifting: Up to £3,000 annually tax-free, with the IHT impact on larger gifts reducing in stages to zero after seven years

Trusts: Though complex, these can remove assets from the estate

Charitable Giving: Leaving 10% of the estate to charity reduces IHT rate to 36%

Whole of life insurance: Written in trust to cover IHT liabilities

Looking ahead

The change highlights the need for careful estate planning. With rules shifting, pensions can no longer be assumed to fall outside IHT. Reviewing your position now – including pensions, property, and other assets – will help ensure your wealth is passed on as intended. With the rules not applying until April 2027, there is still time to plan effectively.

The Great Wealth Transfer is happening, with the UK expected to see a significant shift in assets passed down to younger generations over the next 30 years.
This is perhaps why more people are showing an interest in intergenerational financial planning.

A survey⁶ of financial advisers found that 80% of clients are now concerned about intergenerational planning, compared with 75% in 2022. Clients seem to be recognising this area as an increasing priority, with 39% seeing it as ‘highly important,’ up from 34% three years ago.

This growing focus is likely due to changes announced in last year’s Autumn Budget, which have prompted more advisers to use trusts when IHT planning. Also, record IHT receipts have probably encouraged people to take action to minimise their estate’s tax liabilities.

Who’s getting advice?

Intergenerational planning advice is more in demand, with 68% of clients discussing IHT with their adviser. However, only 47% of advised clients actually have solutions in place to reduce the IHT on
their estate. Despite this advice-action gap, there’s a near-universal agreement that intergenerational planning matters, with 98% of advisers saying it is important to their clients.

The gender gap

Research⁷ suggests that women are at the centre of the Great Wealth Transfer as they are 45% more likely to have inherited assets than men. This puts them on track to control 60% of UK private wealth by the end of 2025⁸. Despite inheriting more, women do not hold as many long-term income generating assets. This could be because 69% of women said they haven’t received financial advice before.

It’s time to start a conversation about intergenerational planning.
Preparation is essential to ensure wealth is passed smoothly and efficiently across the generations.

⁶HSBC Life (UK), 2025, ⁷Unbiased, 2025, ⁸CEBR, 2025