Downing’s Nick Priest takes a big-picture look at IHT planning opportunities and why advisers must rethink ‘pension first’ strategies

Sweeping IHT changes have redrawn the financial planning map for advisers. As Nick Priest, Head of Strategic Partnerships at Downing, explains why, with higher Business Relief allowances and pensions set to fall into estates, advisers must rethink ‘pension first’ strategies, embrace active BR planning, and act early to protect client wealth and long-term relationships.

After more than a year of action, including green and yellow tractors rolling down Whitehall on Budget Day, the Government changed course on Inheritance Tax (IHT) just before Christmas. The Agricultural and Business Relief threshold will be increased from £1m to £2.5m when it comes into effect in April. In total, this means a couple can pass on £5m before paying Inheritance Tax, in addition to the existing Nil Rate Bands. 

The move unexpectedly redrew an already dynamic planning map for the new year. While an entire segment of the market may be able to avoid Inheritance Tax, other changes introduced in the last two budgets will have a broader impact. For advisers, the work ahead can be boiled down to a mandate to capitalise on areas of expanded relief while aggressively managing the forthcoming “pension cliff.”  

From April 2027, the rules change. Unused pension funds and death benefits will be swept into the value of the estate. Suddenly, a large enough pension pot could expose the entire estate to Inheritance Tax. A beneficiary in the higher-rate tax bracket (£50,271 to £125,140) faces an effective rate of 64% – 67% if they pay the additional rate on income over £125,140.  

The great capital rotation  

The Government has been clear in the rationale behind this change, saying it removes “the incentive to use pensions as a tax-planning vehicle for wealth transfer after death” and “align[s] the tax treatment of pensions with other types of inherited assets”. In response, the “pension first” model of planning is winding down. Research confirms the trend: 47% of advisers in a recent Downing survey said clients are cutting pension contributions, while 75% are increasing withdrawals. There’s now a strong strategic logic for ‘burning’ the pension pot to fund BR-qualifying assets while the client is still alive,

Aggressive withdrawals provide the fuel for lifetime gifting, but they also trigger a familiar hurdle: the ‘seven-year rule.’ Transfers remain vulnerable to IHT should the donor pass away before the clock runs out. However, the ‘normal expenditure out of income’ exemption offers a potent alternative: as long as gifts are regular, made from surplus income, and do not impact the donor’s standard of living, they are immediately exempt from the seven-year rule.  

Crucially, even where the seven-year clock does apply, the planning map has a significant new feature. The Government’s recent consultation confirmed that the £2.5m BR allowance is not a single lifetime limit, but one that ‘refreshes’ every seven years. Much like the Nil Rate Band, this allows clients to potentially gift up to £2.5m of qualifying assets, wait for the clock to reset, and then use a fresh allowance for further transfers. This ‘recharging’ mechanism effectively rewards those who start their succession planning early and often, allowing for a rolling cycle of tax-efficient wealth transfer. 

Meanwhile, advisers will need to help clients tap into new investment opportunities. For some, this will be property – more than a third (36%) of advisers said they were moving pension assets to property investments. Business Relief will serve as a ‘pension replacement’ for others – a place to store value. 

New venues for growth and liquidity 

The UK’s investment landscape is shifting, too. Both exchanges and the Government have said this should accelerate the pace of new listings. New rules in the AIM index allow for dual class share structures and enhanced retail access to fundraising, aligning with larger changes made in 2024. AIM listings accelerated in December, with the hope that the forthcoming listing of mining company Halo Minerals will see that momentum continue into 2026. The LSE said in November this should allow “quicker and more efficient M&A activity”. This, in turn, should lead to greater liquidity in IHT-qualifying assets and more dynamic portfolio adjustments.  

Advisers have the opportunity to engage in substantive conversations with clients about the growth potential of established, domestic, founder-led equities. It is part of a larger shift, where advisers need to see their role as increasingly less ‘set and forget’ and more active management of portfolios. Pension accumulation can largely happen passively, while BR investments generally require more active management. 

A generational mandate 

Reputations are typically set in times of change. This year of change offers advisers the chance to be strategic partners in navigating a set of generational changes. Advisers who take this opportunity stand to build relationships that could last generations – while those who ignore or delay meetings may find those relationships permanently damaged. It’s time to choose sophistication over stagnation. 

The shift from passive pension accumulation to active BR management necessitates a ‘family-office’ mindset, regardless of the estate’s size. These reliefs often hinge on the mechanics of the business or the timing of the gift, therefore the conversation must expand beyond the primary client to include the heirs. A family-office approach turns the seven-year rule from a threat into a scheduled transition, ensuring that every pound ‘burned’ from the pension is either protected by a ticking clock or immediately exempt as regular surplus expenditure. This is the ‘sophistication’ route: moving from managing a pot of money to managing a family’s long-term transition through a shifting legislative landscape. 

About Nick Priest

Head of Strategic Partnerships, Downing

With over fifteen years’ experience in financial services, Nick joined Downing in 2015 as a Business Development Manager. Prior to that, he worked for Canada Life with a focus on offshore and IHT products in the London area. Nick is DipPFS qualified and he previously worked in third way investments and as an adviser at Barclays.