LEGAL // Inheritance Tax After the Budget: A New Era for Family Wealth
Inheritance tax has entered a decisive turning point. In the wake of the recent Budget, long-standing assumptions about pensions, property, and legacy are being rewritten, reshaping how families plan across generations. In this Essential Series conversation, Rose Macfarlane, Partner at Irwin Mitchell, explores what the reforms really mean in practice, from the new caps on business and agricultural relief to the unexpected inclusion of pensions, and why the window for strategic action is narrower than many realise.
Few areas of British tax policy provoke quite the same unease as inheritance tax. It reaches into family life, generational planning, property ownership, pensions and, crucially, the emotional terrain of legacy. Yet despite its cultural presence, much of the system has developed quietly over decades, evolving through technical reform rather than political theatre. In conversation with The Dura Society, Rose Macfarlane, Partner at Irwin Mitchell, described the latest changes as “sweeping,” “revolutionary,” and, perhaps most strikingly, “absolutely going to happen.” Her message was unequivocal: this is not political noise, nor something to wait out. Families must prepare now.
Inheritance tax in Britain has deep roots. Earlier versions of estate duty were already taking shape in the 19th century, and while we are familiar with concepts such as the seven-year rule, their introduction is surprisingly recent. Much of what people consider “established”, from lifetime gifting to reliefs for agricultural and business property, was only formalised in the late twentieth century. The modern architecture was built in layers, and its complexity reflects that history. Until recently, families could navigate this labyrinth with a degree of predictability; the last few months have disrupted that equilibrium.
The most significant reforms began last autumn, when the government confirmed a new lifetime cap of £1 million on agricultural and business property relief before inheritance tax becomes due, with excess amounts taxed at half-rate. For many business-owning families and agricultural estates, this represents a profound shift. Until now, these areas were largely sheltered, recognised as assets essential to national productivity. From April, the State will take a larger share of intergenerational wealth transfer in precisely the sectors that have historically been most protected.
Yet the consequences extend beyond farms and businesses. Pensions, once a safe harbour from inheritance tax, will now form part of an individual’s taxable estate. For nearly a decade, pensions have been one of the most powerful tools for inheritance planning, a strategy that has shaped how families save and transfer wealth. The new rules overturn that logic. A significant number of people may now find themselves pushed beyond the £2 million limit that removes the residence nil-rate band, losing allowances worth hundreds of thousands of pounds. For many middle-class families with well-funded pensions and a modest home, this may be the most consequential change of all.
Clients, Macfarlane notes, are already encountering misconceptions. “One recently insisted this wouldn’t happen,” she says with a gentle smile. “But it is happening.” More problematic, she suggests, is the belief that last-minute action can resolve everything. The period between now and April is important, but thereafter, options narrow dramatically. Planning will need to begin earlier in life, involve deeper structural decision-making, and weave together financial, legal and emotional considerations. There is no longer a simple path.
The changes also reshape long-established succession tools. Trusts, central to estate planning for generations, may become more constrained for business assets once relief limits apply, although they will remain essential for other wealth. Family investment companies, once used mainly by the most complex estates, are expected to become more common as families search for vehicles that offer both structure and flexibility. Increasingly, families will require advice that coordinates trusts, corporate entities and personal assets together rather than treating them as separate solutions.
All of this strains a system where law meets emotion. Inheritance tax is not simply arithmetic; it lives in the tension between financial decisions and family expectations. The potential for conflict is real. “Disharmony is underestimated,” Macfarlane warns. Decisions made today reverberate across generations, especially when gifting, divorce, business ownership and financial inequality converge. Prenups, shareholder agreements, discretionary pensions, trustee powers: each carries emotional consequence as well as legal weight.
Perhaps the most profound shift is philosophical. For almost thirty years, inheritance planning in Britain has been shaped by a relatively stable foundation: pensions as a protected asset, generous reliefs for business and agricultural property, and allowances designed to support the passing of family assets between generations. That framework is dissolving. The tax system is now signalling a different expectation, that wealth should be used in life, not simply transferred in death, and that families must shoulder more responsibility for planning their own legacies.
Macfarlane’s closing advice is pragmatic rather than pessimistic. Review wills and succession plans. Examine pension nominations. Consider how business or agricultural assets will be valued and structured before April. Understand how property wealth interacts with new limits. And, above all, seek advice sooner rather than later. Planning is becoming both more necessary and more complicated.
These changes may ultimately reshape how families think about security, generosity and inheritance in Britain. The rules are shifting, the logic is shifting, and the order in which assets matter is shifting with them. Where previous generations could rely on broad reliefs and predictable exemptions, the next generation will need a more engaged, more informed and more intentional approach. The era of passive inheritance planning is ending; a more active one has begun.
Checklist: What to Do Before the New IHT Rules Take Effect
1. Review your estate as a whole
Calculate total estate value including pensions
Check whether you are close to or above the £2m threshold
Identify assets that may lose relief after April
2. Prioritise business and agricultural assets
Confirm whether your assets currently qualify for APR/BPR
Obtain up-to-date valuations
Explore options for gifting or restructuring pre-April
Consider HMRC clearance where appropriate
Seek specialist advice immediately if you’re a business owner or farmer
3. Revisit pensions
Review all pension pots and providers
Confirm your nominations and ensure they are aligned with your wider estate plan
Assess whether consolidating is sensible
Understand how the new rules may impact the residence nil‐rate band
Check whether death-in-service benefits are held in trust
4. Update legal documents
Review wills, trusts and letters of wishes
Ensure guidance to trustees reflects your intentions
Consider post-nuptial or pre-nuptial planning when gifting to children
Reassess previous planning assumptions based on the new regime
5. Look at ownership structures
Evaluate whether trusts or family investment companies suit your planning
Consider how business shares are held, and by whom
Check for any unintended exposure in divorce scenarios
6. Consider gifting strategies
Use the window before April where possible
Understand the seven-year rule and cumulative gift limits
Document decisions clearly for family and advisers
7. Stress-test family fairness
Think through inheritance between siblings
Reflect on how nominations and gifts may create imbalance
Identify areas where emotion and tax collide
8. Build your advisory circle
Speak to a private-client lawyer
Loop in your financial planner
Align pension, estate and family planning rather than treating them separately