Inheritance Tax Reforms 2026 and Beyond: Why Liquidity Matters as Much as the Tax

About the Authors

Michael Agnew is Business Development Director for IHT Funding at Level, a specialist FCA-regulated lender providing liquidity solutions to help beneficiaries settle inheritance tax bills without selling estate assets. He works closely with advisers, solicitors and wealth planners across the UK.

Christopher Cowley is a Senior Financial Planner at Puleston Wealth Management. He advises clients on complex estate planning, tax planning, investment management and intergenerational wealth transfer, working extensively with families and business owners exposed to inheritance tax.

A Turning Point for Inheritance Planning

From April 2026, adjustments to Business Relief and Agricultural Property Relief will narrow the range of assets that qualify for relief.

While the intention is to ensure reliefs support genuine trading or agricultural activity, some estates that previously relied on them may face higher inheritance tax liabilities.

“I see families who have structured their estates carefully. If Business Relief or Agricultural Property Relief is reduced or lost, assets that were expected to be protected may become taxable. From a tax perspective, it does not matter if the assets are there if the cash is not. That can create a real problem.”

For many families, the question becomes practical rather than theoretical. How do you pay the tax without selling property or business assets under pressure?

Rising Inheritance Tax and Frozen Thresholds

The nil-rate band of £325,000 and the residence nil-rate band of £175,000 have been frozen since 2009 and 2018 respectively.

Over the same period, property values and investments have risen. As a result, more estates are being drawn into inheritance tax.

HMRC reported collecting over £7.5 billion in inheritance tax in the 2023 to 2024 tax year, a record figure.

“Many people assume inheritance tax only affects the very wealthy. In reality, rising property values and pension wealth mean middle-income estates can face significant tax bills.”

The Liquidity Challenge

Most estates are asset-rich but cash-poor.

Executors generally have six months from the date of death to settle inheritance tax. Property sales can take months, and business assets are rarely easy to liquidate quickly.

“Even when an estate appears substantial on paper, assembling the cash to pay HMRC is often the real difficulty. That challenge may become more common after 2026.”

The timing mismatch between tax due and asset realisation is often where pressure builds.

Why Traditional Planning Is Not Always Enough

Common inheritance tax planning strategies include:

• Life insurance
• Gifting
• Trust structures

Each can be effective in the right circumstances, but they have limitations.

Life insurance premiums may rise significantly later in life. Trusts require ongoing management and legal advice. Gifting is subject to the seven-year rule and may not be practical if assets are still needed for financial security.

“Even with good planning, there can still be a gap. Families need a practical way to pay the tax when it falls due.”

Pension Changes and Compounding Tax Exposure

If someone dies over age 75, beneficiaries typically pay income tax on pension withdrawals.

From April 2027, pensions are expected to form part of the taxable estate for inheritance tax purposes.

“Where the deceased is over 75, beneficiaries may face income tax on withdrawals. If pensions are also included within the estate for inheritance tax, there is potential for a combined tax effect.”

Without liquidity planning, families may face difficult financial decisions at short notice.

Funding as Part of Practical Estate Planning

Effective inheritance planning increasingly requires three elements working together:

1. Tax efficiency through reliefs and allowances
2. Liquidity awareness, understanding where cash will come from
3. Funding readiness if liquid assets are not available

An IHT loan enables beneficiaries to pay HMRC on time while retaining estate assets. Property or other assets can then be sold in a managed way rather than under time pressure.

The Level Group’s IHT Loan

The Level Group provides an FCA-regulated IHT Loan designed specifically to address liquidity gaps.

The loan provides funds to settle inheritance tax, secured against estate assets. Repayment typically occurs once property or assets are sold, allowing executors greater flexibility.

“The objective is to give families breathing space. The tax is paid, the estate remains intact, and decisions can be made carefully rather than under pressure.”

Who May Be Most Affected?

• Homeowners whose property values exceed nil-rate thresholds
• Families relying on Business Relief
• Farming families relying on Agricultural Property Relief
• Estates holding significant pension wealth

Many may not consider themselves wealthy, yet still face material inheritance tax liabilities combined with limited liquidity.

The Adviser’s Role

For advisers, the estate planning conversation is evolving.

It is no longer sufficient to focus solely on reducing tax exposure. Clients increasingly need clarity on how inheritance tax would be funded if payable.

“Planning must work in real life, not only on paper. Considering funding solutions alongside tax strategy can complete the picture.”

Why Timing Matters

Inheritance tax is typically due within six months of death.

Early engagement allows families to retain control and avoid rushed decisions.

“Families who plan early are better positioned to manage outcomes calmly and strategically.”

Final Thoughts

Inheritance planning is about protecting legacy. Ensuring there is a practical way to pay the tax is becoming an increasingly important part of that process.

To learn more about inheritance tax funding and The Level Group’s IHT Loan, visit
www.thelevelgroup.co.uk.