Following on from our look into the future of S(EIS) and VCTs ahead of the new tax year, we also asked experts to share their insights on what investors and advisers should focus on in relation to Inheritance Tax (IHT) and Business Relief (BR), along with other alternative tax-efficient opportunities.
BR limits will be capped at £2.5m per individual or £5m per married couple, while IHT exemption is also set to change, with investments up to £2.5m continuing to be exempt while anything over £2.5m will be subject to 50% of the prevailing rate of IHT.
In this second part, we hear from a range of experts on how the recent developments have changed the way advisers and investors look at IHT, BR and pensions.
Richard Roberts, Head of Sales Development, Foresight Group, said:
“IHT planning will continue to dominate the tax-advantaged landscape. The upcoming reduction in AIM-related IHT relief will materially change the effectiveness of a previously well-used strategy, meaning advisors will be reassessing how they maximise client allowances and consider alternative IHT planning solutions.”
“Adviser demand for IHT solutions has surged, with 89% of advisers seeing an increase in IHT-related enquiries and 63% having used Business Relief in the past year. Therefore, the higher unquoted allowance is likely to be deployed selectively by advisers seeking 100% relief alongside flexibility and certainty of outcome for clients.”
Caroline Flagg, Strategic Partnerships Director at PXN Investments, said:
“With several tax changes landing on 6 April, the priority right now is helping clients make decisions before the goalposts move. It’s about sense-checking the ‘use it or lose it’ opportunities and making sure nothing is missed simply because time runs out.
“With pension changes expected in 2027 and ongoing fiscal pressure likely to keep reshaping incentives, estate planning and outcomes-led tax planning will increasingly sit alongside the traditional wrappers.”
Clare Moffat, pensions and tax expert at Royal London, said:
“Many clients are concerned about the changes to pensions and inheritance tax, which come into effect in April 2027. And financial advisers are the trusted professionals to help those with large pensions decide the best course of action.
“However, pensions are still the best tax wrapper for retirement income for most. And at tax year end, clients nearing retirement should be maximising their pension contributions to take advantage of their tax efficiency.
“Using ISA allowances is always good tax year planning, but it’s crucial for clients nearing retirement to understand that the ability to pay large pension contributions isn’t a given just because they have the available funds, but is instead linked to earnings.”
Tom Mullard, Business Line Director at TIME Investments, said:
“The clock is ticking on major IHT changes. Advisers and investors should be revisiting any AIM portfolios still held ahead of the tax year-end to assess whether the long-term outlook for AIM is enough to compensate for the lower relief level, or perhaps if there are capital losses that could be beneficially crystallised in the portfolio in this tax-year or next. For AIM shares held in ISAs, there are other considerations, depending on age.
“Gifting allowances should not be forgotten. Gifts out of surplus income can be hard to demonstrate, but if correctly structured with a clear pattern of gifting, can be a powerful tool in the estate planning toolkit.
“Finally, family businesses considering passing shares down through trusts also face a deadline. Getting these transfers done ahead of the new tax year could therefore be important. There will still be ongoing charges within the trust above this amount, but they are likely to still benefit from a 50% BR reduction.”
Peter Steele, Retail Operations Director at Seneca Partners, said:
“The capping of BR on AIM quoted holdings has already resulted in investors looking to move money from their AIM portfolios into unquoted investments. Those investors can utilise Replacement Property Relief, if needed, whereby the two-year BR qualification period ‘served’ under their AIM portfolio is effectively extended to cover their new unquoted investment (once the unquoted shares have been allotted).
“However, Replacement Property Relief ‘shall not exceed what it would have been had the replacement or any one or more of the replacements not been made’.
Nick Priest, Head of Strategic Partnerships, Downing LLP, said:
“Financial advisers should be reassessing their clients’ portfolios through a much sharper IHT lens. For many clients, pensions have been the cornerstone of IHT planning, but that position will change markedly from April 2027.
“Pension withdrawals are being used to fund lifetime gifting or to invest in BR-qualifying assets. This approach also aligns with the Government’s stated intention to discourage pensions as an intergenerational planning tool.
“Increased withdrawals bring the seven-year rule into sharper focus. Here, advisers should ensure clients understand the value of the normal expenditure out of income exemption, which can allow regular gifts to be made immediately outside the estate, provided surplus income is clearly evidenced.”
Alastair Power, Investment Research Manager at Redmayne Bentley LLP, said:
“For lower risk clients, gilts trading below face value offer tax-efficient capital gains for bondholders, with liquidity across a range of maturities enable flexible portfolio construction.
“With positive earnings growth expected across major developed and emerging market regions, equity markets could once again produce positive returns. Within fixed income, we find ongoing attraction in the gilt market at current yields, but remain cautious about duration positioning, generally avoiding the long end of the curve.
“While the yield pickup of corporate bonds over similar maturity gilts continues to trade at all-time tight levels, strong fundamentals in the financial sector can be seen to justify current valuations. The general outlook for the asset class is that high-quality income in bond markets will provide attractive returns and act as a ballast in diversified portfolios.”
Steve Owen, Head of Proposition (EMEA) at Morningstar Wealth, said:
“Investing as much as possible into ISA and pensions remains a top priority, but under the covers, there is a lot more to consider. Harvesting gains or losses from unwrapped investments is becoming increasingly important. Many financial professionals are emphasising the importance of investment strategies based on multi-asset funds.
“For those with control over how they get paid, it’s the chance to strike the right balance between taking profits as dividends and optimising income. And let’s not forget the salary sacrifice changes planned for April 2029, representing a real planning opportunity to maximise the value of pension contributions over the next three years.”
Mei Lim, Group CFO and Managing Partner at Anthemis, said:
“Making full use of ISA and Pension allowances early remains one of the most effective ways to enhance long term outcomes and should be a core part of any planning strategy. Beyond the mainstream avenues, selectively allocating capital to high growth private assets can also have a meaningful long-term impact for the right clients.
“Looking ahead, the tax environment is becoming more challenging. Rising dividend taxes and frozen thresholds will continue to pull more investors into higher tax bands. Investors and advisers should approach tax-efficient investing with greater purpose. That said, there is no one-size-fits-all approach. Investment strategies should be personalised, and generic approaches risk missing meaningful opportunities.”
Justin King CFP™ Chartered FCSI (Financial Planning), member of the CISI Financial Planning Forum Committee, said:
“The priority for investors and advisers should be to ensure allowances are used intentionally, not reactively. The real value of ISAs and pensions comes from aligning these wrappers with the client’s wider life and retirement plans.
“ISAs should not be overlooked, especially for clients approaching retirement, where flexibility and tax-free access can be just as important as tax relief on the way in. Using both spouses’ ISA allowances and thinking carefully about asset location can materially improve outcomes over time.
“Advisers need to focus on robust, repeatable planning rather than tactical speculation. The aim isn’t to predict the next Budget, but to build resilient strategies that can adapt as the rules inevitably change.”
Russell Bignall, Group Managing Director at Fairstone, said:
“Pension contributions remain one of the most effective ways to extract profits from a business tax-efficiently. Even when unused defined contribution pensions come under the inheritance tax regime from April 2027, maximising pension contributions, along with ISA and Capital Gains allowances, is still a key tactic.
“Where once VCTs were the next place higher earners would consider for maximising tax relief, the reduction in income tax reliefs will reduce their attractiveness as a tax-efficient investment.
“Offshore bonds remain a useful form of tax-efficient investment if you expect to be a lower earner in the future or plan to retire in a country with lower tax rates.”
Matthew Crawshaw, Regional Director of Walker Crips Financial Planning Limited, said:
“This is an important time for investors and advisers to review tax-efficient planning opportunities and ensure allowances are not wasted. A key priority is maximising contributions to ISAs and pensions, but investors should be mindful of the forthcoming changes.
“Finally, investors should plan ahead for proposed changes to pension death benefits from 6 April 2027. Reviewing nominations in advance will be therefore essential.”
Michaela Lamb, Tax Partner at Gravita, said:
“Higher earners should pay close attention to their pension contributions, particularly those with income above £240,000 who may be subject to higher-rate pension charges and tapered annual allowance rules. Every year, we see clients overlook their clawback position, resulting in unexpected tax liabilities where contributions have exceeded their available allowance.
“Anyone in this income bracket should review their pension contributions now to ensure they have not already breached their annual allowance. While excess contributions generally cannot be undone, there may still be opportunities to manage the resulting tax position and mitigate the financial impact through appropriate planning.”
Emanuel Georgouras, CEO and Co-Founder of PistonDAO, said:
“With investors and advisers being increasingly focused on improving after-tax outcomes rather than simply reallocating capital, there has been renewed interest in alternative assets that can offer diversification beyond traditional equities and bonds, including collectible cars, which we allow investors to take fractional ownership in.
“Outcomes are driven more by structure than by asset class alone. While classic cars are often discussed in the context of ‘wasting asset’ exemptions, the reality is more nuanced. As scrutiny of alternative investments increases, transparency and clarity of documentation are essential.
“In an environment of evolving allowances and fiscal uncertainty, disciplined structuring, risk management and a long-term mindset will remain central to tax-efficient investing.”
This piece featured in the latest issue of Tax-Efficient Investment (TEI) Magazine, which you can read here!
