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Investments Retirement Estate Planning Protection Inheritance Taxation
What are the common pitfalls of Inheritance Tax Planning, and how can you avoid them?
Amy Woolliscroft12th November 2026
Since the Autumn Budget 2024 changes to Inheritance Tax (IHT) for Agricultural Property Relief (APR), Business Relief (BR) and the treatment of pensions, there has been an understandable increase in farmers, landowners and business owners coming to us at Accession for inheritance tax and succession planning advice.
Unfortunately, the uptick in people now having to worry about IHT planning for the first time has also seen us coming across an increase in rushed decisions, or plans made without the full picture being considered. When you are considering potential IHT bills running into the hundreds of thousands if not millions for some families, this is one area of financial planning where it really does pay to take professional advice from the outset.
As we have seen in recent years, it is essential to remember that tax rules and reliefs depend on individual circumstances and may change over time. As a result, tax outcomes will differ between investors and should always be considered alongside your wider financial position.
Rachael Player, Head of Client Strategy and Protection at Accession, says: “When the government moved the goalposts on APR and BR, there was a lot of discussion in the farming media and on social media discussion groups about Whole of Life protection as an ‘easy’ solution to footing any future IHT bill; but unfortunately a lot of the chat missed out on the key point that if that protection isn’t written into trust, you’re actually just creating more of an IHT liability.”
Whole of Life protection can be a useful tool for covering future IHT liability, especially if gifting isn’t possible, but it needs to be done properly. For example, a policy might be set up that would pay out £500,000 on death, which would cover that farm’s IHT bill – but if the policy isn’t put into a trust, you just add another £500,000 to the taxable estate.
Gifting is another option that can help reduce your IHT liability, however this is not always straightforward for farmers and other rural business owners. It is quite common to come across farm and other rural business owners that had traditionally expected to be able to still draw an income from the business long after the reins had been handed over to the next generation, and therefore separate investments and pension pots may not have been built up to maintain living standards into retirement.
Rachael explains: “We also come across misunderstandings about gifting, from when tapering relief is available, to assuming the 7-year rule applies to all gifts. Often people don’t document these gifts properly or misunderstand that gifts with reservation of benefit are not gifts in the eyes of HMRC. For example, if you live in the farmhouse after gifting the farm to your child, but don’t pay market-level rent to carry on living there, the gift isn’t a gift at all and IHT will be payable.”
Changes to IHT treatment of pensions come into effect on 6th April 2027, so not reviewing your existing pension arrangements and strategy is another potential pitfall. As a reminder, unused defined contribution pension funds, drawdown pots, and some lump-sum death benefits will be added to the total value of the estate on death, potentially incurring up to 40% inheritance tax. Exemptions are where the pension is left to a surviving spouse or civil partner, or to charity.
Your financial adviser should review your pension with you, and see if a change in strategy could be advisable – for example could you start taking a regular income and doing regular gifting to slowly reduce your pension pot? Regular gifts made out of your surplus income are immediately exempt from Inheritance Tax. To qualify the gifts must form a habitual pattern of gifting e.g. monthly/yearly, must come out of post-tax income e.g. pension income, and must leave you with enough funds to maintain your standard of living. Or you could look at taking a pension annuity and using that income to fund a Whole of Life protection policy to either cover any IHT liability on your estate or provide a lump sum on death to your beneficiaries.
There are a range of options when it comes to your pension strategy, but they must be looked at as part of a holistic plan to make sure you will not be disadvantaged.
Andrew Jenkinson, Partner and Rural Surveyor at Robinson and Hall identified valuation errors as another common mistake. Andrew says: “One of the easiest mistakes with a farming estate is to focus on the land and buildings and overlook the assets that keep the business running. Farm machinery, crops and livestock for example can represent substantial value, yet they do not qualify for Agricultural Property Relief in their own right, and may instead need to be considered for Business Relief.
“Livestock can be particularly easy to miss where animals are accounted for on the herd basis, because their tax treatment during the farmer’s lifetime can make them less obvious when the estate is being assembled. A proper date-of-death valuation should therefore capture all these values at market value, not book value, as well as the land and buildings, so that the IHT return starts from a complete and defensible picture of the farm business.”
Trusts are often discussed as part of IHT planning but trusts that focus exclusively on reducing the tax bill, rather than looking at how much wealth and assets the family will retain, when they can access it, and how much control you give up in the process, are likely to miss the mark in meeting your personal objectives. Giving away too much, too soon to try and dodge a tax bill at the price of your financial security is an easy mistake to make without professional guidance.
Trusts can be complicated beasts; they are a legal entity and as such they must be set up correctly, and ten-year anniversary charges and exit charges, as well as income tax and CGT implications, must be factored in.
Assuming everyone has a £1m IHT allowance – the standard nil rate is £325,000 plus £175,000 Residents Nil Rate Band (RNRB), which may be applicable when passing a qualifying home to direct descendants. Married couples or civil partners may be able to pass on up to £1m combined, but only if relevant conditions are met. However, the RNRB allowance tapers away for estates worth over £2m.
Choosing an investment strategy simply because it is describes as IHT free could leave you exposed to future IHT regulation changes. Accession’s Rachael continues: “We know from changes to APR that rules can change, so any investments must be appropriate for your circumstances and financial goals beyond just avoiding IHT.”
If you think you have an IHT problem, it’s worth taking the time today to speak to one of our experienced financial advisers as this is our area of expertise. Contact us on 01832 279170 or accession@sjpp.co.uk, to discuss your requirements and get an appointment in the diary.
Trusts are not regulated by the Financial Conduct Authority.
SJP Approved 4/11/2026