Inheritance tax planning is an essential protection for families who want to pass on their wealth without seeing a substantial amount go to the taxman.
As we begin the early part of 2026, the world of taxation is experiencing a tremendous change that requires urgent attention.
In the United Kingdom, major changes to Business Property Relief and Agricultural Property Relief are set to come into force in April 2026. With a cap on 100% relief that could affect family farms and small businesses.
In the United States, taxpayers are closely monitoring the possible sunset expiration of the Tax Cuts and Jobs Act provisions, which could substantially reduce the federal estate tax exemption if the current legislative extensions are not completed.
Additionally, the UK government has announced that from April 2027, unused pension funds will at last be subject to inheritance tax, closing a long-standing tax loophole (Source: Womble Bond Dickinson).
In this article, we will elaborate on the following:
- The core definition of inheritance tax and its current thresholds.
- Effective strategies for reducing your future tax liability.
- The difference between gifting, trusts, and life insurance tools.
- Upcoming legislative changes you must prepare for today.
Understanding The Fundamentals Of Inheritance Tax
Inheritance tax planning starts with understanding what this tax is and who it affects. This tax is a charge on the estate (property, cash, and possessions) of someone who has died.
It was once known as a “rich person’s tax,” but with the rising value of property, more families than ever are now caught in the bracket.
Without a plan, your loved ones may be forced to sell the family home in order to pay the inheritance tax bill.
Key Strategies For Inheritance Tax Planning
Inheritance tax planning requires the use of legal mechanisms to minimize the value of your taxable estate.
You will want to make sure that your family members benefit as much as possible from your life’s efforts.
Most tax planners recommend combining lifetime gifts and other legal structures. If you begin planning early, you can benefit from time-related rules.
The Benefits Of Lifetime Gift Planning
Gift planning is one of the most straightforward strategies for minimizing the value of your taxable estate.
In most countries, annual gifts are exempt from tax immediately, while larger gifts may require you to survive for seven years to be exempt from tax.
Using Legal Trusts
Trusts enable you to transfer assets to your beneficiaries while retaining some level of control over their use.
By transferring assets to an irrevocable trust, you can essentially remove them from your personal taxable estate (PwC).
Seeking Professional Inheritance Tax Planning Advice
Obtaining the correct inheritance tax planning advice is essential because of the complexity of the legislation and the differences between countries.
A financial adviser can assist you in pointing out “traps” that may result in unforeseen inheritance tax liabilities.
For instance, if you bequeath your property to your children but continue to live in it without paying them market rent, the taxman may still treat it as part of your estate. This is commonly referred to as a “gift with reservation of benefit”.
The Role Of Financial Advisers
A financial adviser examines your overall portfolio, including your pension and investments.
They assist you in determining which assets to use first and which to leave as a legacy for optimal inheritance tax planning.
Legal Assistance For Will Preparation
An attorney will ensure that your will is valid and that you take advantage of all the available exemptions, including the residence nil-rate band.
They can also assist you in establishing trusts that fit your family objectives (Source: Clarkson Wright & Jakes).
Regional Variations: Inheritance Tax Planning UK
If you are looking for inheritance tax planning UK details, you need to be up to date on the 2024 Autumn Budget changes.
The UK has some of the highest tax rates in the world, which are fixed at 40% for amounts over the threshold.
The “nil-rate band” is set at £325,000, with an additional “residence nil-rate band” of £175,000 for individuals who pass property down to children. But with the freezing of these bands until at least 2030, more families are being forced to pay.
The 2026 Relief Reforms
From April 2026, the 100% relief for business and agricultural property will be restricted to the first £1 million of each individual. Any amount above this will qualify for only 50% relief, thus incurring a 20% tax rate.
The 2027 Pension Shift
The most significant impact for the UK is that pensions will be considered as part of the estate for tax purposes from April 2027.
This implies that the old trick of “saving the pension for last” is no longer a foolproof tax avoidance plan.
Global Perspectives And Comparative Law
A complete guide to inheritance tax planning must also recognize that individuals may own assets in more than one country.
If you are a US citizen with a flat in London, you may have to pay taxes in two different countries.
The good news is that most countries have a “double taxation treaty” to ensure that you don’t have to pay taxes twice on the same asset. This is a highly specialized area of wealth management.
United States Estate Tax Trends
In the US, the federal exemption is set very high at this time, at approximately $13.99 million in 2025.
However, there is currently controversy in 2026 about whether these levels should “sunset” and revert to the lower level of $7 million.
US Law References For Inheritance Tax Planning
Now, let us look at some US Law References regarding Inheritance Tax Planning.
Internal Revenue Code Section 2001
This is the main law used by the US federal government to tax the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. It is the basis for calculating and paying the federal estate tax (IRS).
The Tax Cuts And Jobs Act (TCJA) of 2017
This major legislation increased the exemption from the estate tax through 2025. In 2026, tax planners are keeping a keen eye on Section 11061 of the code, which addresses the “sunset” of these high thresholds unless Congress extends them
Internal Revenue Code Section 2503
This statute provides the “annual exclusion” for gifts. In 2026, this permits individuals to transfer up to $19,000 to as many people as they like per year without using any of their lifetime exemption from the estate tax.
FAQs Regarding Inheritance Tax Planning
The following section addresses common concerns about inheritance tax planning and how it impacts families today.
Tax laws change so frequently. Thus, these answers focus on the most popular questions from US and UK citizens in 2026.
Managing your legacy requires constant vigilance, and these FAQs highlight where people often get stuck.
Yes, in most instances. In the UK, every person has a nil-rate band of £325,000. In the US, the federal exemption is much larger but is dependent on what Congress decides.
These allowances can be combined with those of your spouse, effectively doubling the tax-free allowance for your family.
Not likely. The tax authorities have “look-back” periods. In the UK, there is the “seven-year rule.”
It says that if you die within seven years of making a large gift, that gift will be included in your estate for tax purposes.
In the US, the lifetime gift tax exemption follows all the major gifts you make during your lifetime. So, there is no point in making a last-minute gift.
Yes, it is one of the best inheritance tax planning techniques. By putting your life insurance policy into an inheritance tax trust, the money will go directly to your family.
Additionally, that will happen without being subject to inheritance tax as part of your estate. This will give your family the money they need to pay inheritance tax liabilities for other assets.
