Are younger people inheriting earlier because of inheritance tax changes?

Chris Watts – Will Writer, Fern Wills & LPAs

Last verified: 27 August 2025 (England & Wales)

Quick-read summary

Proposed changes to inheritance tax (IHT) are prompting families to pass on assets sooner than before. With pension pots set to fall under IHT rules from April 2027, many parents and grandparents are accelerating their gifting plans. This means that more young adults in their 20s and 30s are receiving significant wealth earlier than expected — sometimes through gifts, sometimes via early transfers of businesses or property.Financial advisers are reporting a sharp rise in enquiries from younger generations wanting guidance on how to manage, invest, or protect these early inheritances.

Practical checklist – What’s driving this trend?

• 📌 Pension pots and IHT – Currently, unused pensions can often pass tax-free. From April 2027, they may be taxed at up to 40%.
• 📌 Seven-year rule – Gifts made during your lifetime fall outside IHT if you survive for seven years. Families are using this window to transfer wealth sooner.
• 📌 Complex estates – Even modest estates can become complicated after death. Gifting earlier may reduce the burden later.
• 📌 Younger adults seeking advice – Those receiving money, property, or shares are turning to advisers for help with investment, tax planning, and long-term security.
• 📌 Rise of trusts – Trusts remain an important tool for protecting assets and reducing tax exposure.

What to consider

• Early gifting can help minimise IHT, but it’s vital to balance this with your own financial security.
• Transferring large sums or property requires careful planning to avoid unintended tax or legal consequences.
• Trusts can provide control and protection, especially where beneficiaries are young, financially inexperienced, or vulnerable.
• Professional guidance is essential — particularly as tax rules may change again under future Budgets.

How this works in real life

We recently advised a family business owner — let’s call him Mr Davis — who wanted to pass shares to his children. In the past, he would have kept control until his death. But with IHT on the horizon for pension assets, he decided to transfer ownership earlier, using a trust to protect the business and ensure continuity. His children now benefit from involvement in the company while Mr Davis retains safeguards during his lifetime.

FAQs

What is the seven-year inheritance tax rule?

If you give away money, property or assets and survive for seven years, the gift usually falls outside your estate for IHT.

Why are pension pots affected?

From April 2027, Labour’s plan is that unspent pension funds will be included in a person’s taxable estate, potentially subject to up to 40% IHT.

Does this mean I should give money away now?

Not necessarily. Gifting can be useful, but you should always ensure you keep enough for your own needs and seek advice first.

What if I want to protect money for children or grandchildren?

A trust may be suitable, allowing assets to be held securely until the right time, and often keeping them outside your estate for probate and IHT.

Are younger people really engaging with estate planning?

Yes — law firms and advisers report more clients in their 20s and 30s seeking advice on managing inheritances, building businesses, or buying property with gifted funds.

Optional Technical Notes (for those who want the detail…)

• Inheritance Tax threshold – The nil-rate band remains at £325,000, with an additional residence nil-rate band of up to £175,000 in certain cases.
• Taper relief – Applies on gifts made within seven years of death; tax reduces on a sliding scale after three years.
• Trusts – Can hold money, property, or investments under defined rules. If structured properly, assets in trust are usually excluded from the estate for probate.
• Policy background – The AJ Bell study earlier this year found that 84% of advisers had more IHT enquiries after the proposed change was announced.

Sources & further reading

• GOV.UK – Inheritance Tax: thresholds, rules and allowances
• Office of Tax Simplification – Inheritance Tax Review
• AJ Bell research, 2025