The recent surge in client queries about estate planning has resulted in many clients and their advisers considering ‘lesser known’ strategies to reduce inheritance tax (IHT) liability, Rathbones has found.

It noted that concerns of possible changes to the IHT regime at the upcoming Budget, coupled with the reforms already announced, were leading to greater interest in estate planning.

An increasing number of Rathbones’ clients were already reassessing how to manage the transfer of wealth to the next generation following changes announced last year, such as the inclusion of pensions in IHT calculations from April 2027 and reforms to agricultural property relief and business relief.

Fresh speculation regarding the autumn Budget has driven a new wave of questions from those tackling estate planning, Rathbones said.

“The freeze in IHT nil-rate bands has put families on a treadmill of rising IHT liability, even before any further changes are made,” commented Rathbones Private Office head of advice, Simon Bashorun.

“While speculation around the Budget is understandable, making snap decisions can derail plans and prove costly.

“Regardless of what the future may bring, effective IHT planning starts with knowing what you can afford to give away. That requires a robust lifetime cashflow plan to assess your capacity to part with capital or income.

“From there, using current allowances and reliefs makes sense. Tailored financial advice is crucial to ensure the best strategy for individual circumstances.”

Rathbones noted that while traditional strategies such as lifetime gifting and the use of trusts remained commonplace, there was rising interest in lesser-known strategies to reduce IHT liability.

These less common strategies included deed of variation, investing in AIM shares, business property relief (BPR) investments, and gifts out of surplus income.

“We are seeing rising interest in how a deed of variation can be used to redirect an expected inheritance,” Bashorun said.

“The driver is often to ensure assets are passed on in a way that aligns with the family’s long term financial goals including potential IHT efficiencies.

“With AIM down heavily from its 2021 peak, poor performance has dampened enthusiasm - a reminder of the volatility that comes with smaller company investing, and that the tax tail should not wag the investment dog.

“In addition, the IHT savings from such investments are due to be halved from 2026, leaving the market largely dormant. However, for clients with the right risk appetite, AIM portfolios can still offer partial IHT savings and may be attractive in the current environment.

“With the changes to AIM treatment, you might expect a shift into other BPR investments, particularly under £1m. But uncertainty remains - both around how transfers from AIM into BPR products will be treated, and whether the Chancellor could revisit the imbalance created in the last Budget.

“[Gifts out of surplus income IHT exemption] avoids the seven-year rule but remains underused, largely because many people are unaware of it. Historically, proving sufficient surplus income has been difficult, particularly where individuals relied on capital in retirement.

“With pensions falling inside the estate from April 2027, attitudes are shifting. Pension withdrawals can count as income, and while this may trigger income tax, paying 40–45 per cent now can be preferable to a certain IHT charge later – especially if beneficiaries are higher-rate taxpayers themselves.

“We are also seeing substantial surplus income used to fund discretionary trusts over several years. This can avoid the entry charges that usually apply to large settlements, while moving wealth into a structure that offers both protection and control for the family.”

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