With Conservatives pledging specific IHT cuts, political discourse surrounding a flat estate tax, and unused pension wealth entering the IHT net in April 2027, clients are caught in a storm of speculation. Here is how accounting practices can steer client estate planning without betting on political promises.
Inheritance tax used to be a niche planning topic. It’s now a political fight.
Speaking at the Conservative Party Conference yesterday, Kemi Badenoch made a concrete manifesto pledge to scrap inheritance tax on family homes and raise the amount couples can leave tax-free to £1 million. Shadow chancellor Andrew Griffith confirmed the party’s long-term ambition remains abolishing IHT entirely, though Badenoch reiterated that full abolition can only happen once public finances allow.
On the government side, Prime Minister Andy Burnham has previously backed a flat 10% tax on estates after death. A proposal that remains outside official government policy. Meanwhile, chancellor John Healey is set to deliver his first Budget on 28 October, leaving advisers operating in an environment heavy on rhetoric and anticipation.
For private client advisers, wealth managers, and estate planning specialists, this crossfire creates a real operational challenge. Clients are reading the headlines and asking whether they should delay lifetime gifts, restructure trust arrangements, or tear up existing wills in anticipation of sweeping reforms.
The message advisers can deliver is: Ignore speculative headlines; plan for what is already on the statute book.
While politicians debate hypothetical overhauls, the practical anchor for advisory work is fully legislated: under the Finance Act 2026, unused pension wealth and certain death benefits enter the gross estate for IHT purposes starting 6 April 2027.
Here is how mid-tier and private client practices can navigate client conversations by balancing political positions with actionable planning.
To give clients clarity without taking a partisan stance, advisers need to distil the three competing positions currently shaping the UK tax debate:
| Political group | Policy vision | Practical takeaway for clients |
|---|---|---|
| Conservative opposition | Exempt family homes from IHT and let couples pass on an extra £1m tax-free; eventual goal of full abolition. | Represents a concrete policy pledge, but depends on winning a future election and achieving fiscal headroom. Planning today cannot rely on it. |
| Alternative proposals (e.g. Andy Burnham’s past commentary) |
Flat 10% levy on estates after death to fund care services. | Floated by Burnham as health secretary during social care debates. Although he is now PM, it is not government policy and should be treated as conceptual discourse rather than an imminent legislative threat. |
| Current government position (enacted policy) |
Expanding the tax base via asset inclusion while holding thresholds fixed. | Unused pension pots drawn into IHT from April 2027. Nil-rate band (£325k), residence nil-rate band (£175k), and £2.5m combined APR/BPR allowances remain frozen until 5 April 2031. |
When clients ask whether to “wait and see” if a future administration might cut rates or raise threshold limits, the adviser’s role is to highlight the time cost of delay. Deferring estate planning in the hope of political change risks missing out on statutory reliefs and exemptions that apply right now.
According to HMRC’s official policy estimates, around 38,500 estates will pay more IHT in 2027–28 as a direct result of unused pensions entering the estate calculation, with 10,500 estates drawn into paying IHT for the very first time. Crucially, HMRC notes these are static figures that do not account for potential behavioural changes. Such as faster drawdowns or lifetime gifting, they represent a maximum exposure baseline.
To see how these legislated rules alter client liabilities in practice, consider the published analysis from RBC Wealth Management on IHT pension rules.
The RBC analysis models an undrawn £500,000 defined-contribution pension pot following the member’s death at age 86:
The New IHT Charge: From 6 April 2027, the £500,000 pension is drawn into the taxable estate. Assuming available allowances are fully absorbed by other assets, the pot incurs a 40% IHT charge (£200,000).
Income Tax Stacking: The remaining £300,000 distributed to a higher-rate beneficiary is then subject to 40% income tax (£120,000).
The Net Result: Total combined tax reaches £320,000, reducing the net inheritance to £180,000 an effective tax rate of 64% on the pension asset.
(By comparison, under today’s pre-2027 rules, the same £500,000 pension sits outside the estate entirely. On death after age 75, the higher-rate beneficiary would only pay £200,000 in income tax, leaving a net £300,000.)
For married clients with larger combined estates, the threshold mechanics create a second squeeze. RBC’s analysis models a couple (the Wilsons) with a joint home worth £950,000, investments of £600,000, and combined pension pots of £600,000.
Under current rules, their visible estate sits at £1.55 million, comfortably below the £2.0 million tapering threshold. Their expected IHT bill is £220,000.
From April 2027, adding their £600,000 pension pots brings their total taxable estate to £2.15 million. Because the estate exceeds £2.0 million, the surviving spouse loses £75,000 of their residence allowance through tapering. This pushes their total IHT liability to £490,000 an additional £270,000 tax burden created by the pension inclusion.
When structuring autumn estate reviews, practice leaders should direct advisory teams toward four immediate, practical steps ahead of the 28 October Budget:
With the April 2027 inclusion date enacted in law, review client databases for defined-contribution (DC) pots. Clarify the boundaries: while unused funds and most death benefits enter the estate, statutory exclusions remain for dependants’ scheme pensions, charity lump sum death benefits, and death-in-service benefits.
Practices must clarify that primary responsibility for reporting and paying IHT on pension benefits will rest with the deceased member’s personal representatives (PRs), not the scheme administrators. PRs will need pension values to complete the IHT account before obtaining clearance.
Auditing expression-of-wish forms remains critical. Leaving pension assets to a surviving spouse preserves the spousal exemption, deferring IHT until the second death. Advisers should also remind clients over 75 that lump sum death benefits can face income tax alongside any applicable IHT, making beneficiary designations vital.
Step away from obsolete advice that preaches “save pensions until last.” Practice teams should evaluate drawing pension income earlier, accepting the immediate income tax cost, and using the surplus cash for lifetime giving. Regular gifts made out of normal surplus income are immediately exempt from IHT, avoiding the seven-year wait required for capital gifts.
Political debate surrounding inheritance tax will only intensify as the election cycle progresses. However, accountants and tax advisers build lasting client trust not by predicting election results or Budget surprises, but by providing clarity amidst political churn. Grounding client strategies in current law while preparing for the 2027 pension rules allows practices to convert widespread client confusion into structured, high-value advisory engagements.
