Passing on wealth in the United Kingdom, 2026: inheritance tax, the frozen bands, pensions from 2027, and the part the law can't carry

• Inheritance tax is 40% above the £325,000 nil-rate band, plus a £175,000 residence nil-rate band when a home passes to descendants; both frozen until April 2030 and transferable between spouses, so a couple can leave £1 million before tax. The residence band tapers away for estates above £2 million.

• From 6 April 2027 unused pension funds and death benefits count in the estate for inheritance tax, with the personal representatives responsible for reporting them.

• From 6 April 2026 business and agricultural property relief is 100% on the first £1 million of qualifying assets and 50% above, and from 6 April 2025 the tax follows residence rather than domicile: ten years' UK residence in the last twenty brings worldwide assets inside it.

The estate is valued at death; the nil-rate band and, where a home goes to children or grandchildren, the residence nil-rate band are taken off; the rest is taxed at 40%. Anything left to a spouse or civil partner is exempt, and their unused bands pass to the survivor, so a couple can leave up to £1 million before tax. Gifts made within seven years of death come back into the estate, with taper relief reducing the tax on gifts made between three and seven years before death. Leaving at least ten percent of the net estate to charity reduces the rate on the rest to 36%. The annual exemption is £3,000, small gifts of £250 per person are ignored, and regular gifts out of surplus income are exempt without limit if they leave the giver's standard of living intact and the pattern can be shown.

Two things, both large. Business and agricultural property relief, which used to shelter a family company or farm entirely, is capped from April 2026: the first £1 million of combined qualifying assets at 100%, everything above at 50%, so a £5 million farm now carries an £800,000 bill payable in instalments over ten years. Pensions, which used to sit outside the estate and were the standard way to pass wealth down untaxed, come inside it from April 2027, and where the member dies after seventy-five the beneficiary pays income tax on withdrawals as well, a combined rate that can reach 67%. Families who planned around either need to plan again: pension drawdown and spending, gifts from surplus income, life cover written in trust, spouse nominations that use the exemption, and the timing of business succession are all back on the table.

Since 6 April 2025 the scope of the tax depends on residence. A long-term resident (ten of the last twenty tax years) is taxed on worldwide assets; someone who leaves stays inside the tax for a tail of three to ten years depending on how long they were here; and a new arrival's foreign assets are outside it for their first ten years. Excluded-property trusts settled by non-domiciled families before the change lost most of their protection. This is the rule behind the 2025 departures to Italy, Switzerland and Dubai, and the rule any returning expatriate needs to count years against.

The executor applies to HMCTS for a grant of probate; inheritance tax on everything except land and certain business assets must be paid before the grant issues, which is the cash-flow trap in larger estates, met with a bank loan, the direct payment scheme from the deceased's accounts, or life cover in trust. There is no forced heirship in England and Wales; spouses, children, cohabitants of two years and dependants can claim reasonable provision under the Inheritance (Provision for Family and Dependants) Act 1975. Scotland's legal rights give a spouse and children fixed shares of the moveable estate that no will can remove. Lasting powers of attorney, one for property and one for health and welfare, are registered with the Office of the Public Guardian, take several weeks and cost £92 each; make them early. Marriage revokes a will unless it was made in contemplation of the marriage; divorce treats the former spouse as having died before the testator.

Most lifetime trusts are relevant-property trusts: a 20% entry charge above the nil-rate band, a periodic charge of up to 6% every ten years, exit charges in between, and registration with HMRC's Trust Registration Service. Trusts are used for control, for the second marriage (the immediate post-death interest trust, which is not relevant property), for vulnerable beneficiaries and to hold life policies outside the estate, rather than as a tax shelter on their own. Trusts and structures has the full picture.

Death is not a disposal for capital gains tax; the estate and the heirs take the assets at market value at death, so the lifetime gain is wiped, which is why an elderly holder of a heavily appreciated portfolio is advised to hold rather than gift. Gifts in life are disposals at market value; holdover relief defers the gain on business assets and on gifts into relevant-property trusts.

The Property (Digital Assets etc) Act 2025 recognises digital assets as a third category of personal property that can be owned and passed on. There is no general right to your own likeness; the UK GDPR ends at death, and protection after it rests on contract and on what you agreed while living. Who owns your AI likeness sets it out.

Gifts from surplus income, gifts into trust ahead of the seven-year clock, business relief planning before the cap, life cover written in trust to pay the tax, family investment companies, and counting residence years under the 2025 regime. Detail in High-net-worth estate planning.

The pension expression of wish that used to be the safest gift in the plan, and from 2027 is inside the estate. Families with large pensions and small other assets have until April 2027 to redesign, and the redesign is spending, gifting and insurance, not a form.

A STEP-qualified solicitor or adviser for the plan and the trusts, a chartered financial planner for pensions and life cover, an accountant for the return. Bring the asset record and the pension nominations.