Financial Planning Round-Up — July/August 2026: Inheritance Tax, Lost Pensions and a New Era for ISAs

July 23, 2026 — Off-Piste Wealth Team

The latest edition of our IFA Fundamentals newsletter covers why more families are losing wealth to Inheritance Tax, the £31.1 billion held in lost pension pots, life events that should trigger a financial review, protecting your income, and a new era for ISA planning.

Our July/August 2026 round-up covers the stories shaping UK financial planning right now: record Inheritance Tax receipts of £8.5 billion and the common mistakes pushing families into unnecessary tax; building financial security across three generations; the quiet power of compound growth; why planning ahead is an act of love; the £31.1 billion sitting in lost pension pots; the life events that should trigger a financial review; protecting your income when life takes an unexpected turn; and how the April 2027 pension changes are opening a new era for ISA planning.

Why are more families paying Inheritance Tax?

Families paid a record £8.5 billion in Inheritance Tax in the 2025/26 tax year — 3.6% higher than the £8.2 billion paid the previous year, according to HM Revenue & Customs. The Office for Budget Responsibility estimates receipts will reach £14.5 billion a year by the 2030s as frozen thresholds pull more estates into the net.

Against that backdrop, even simple planning errors prove costly. The most common mistakes include failing to make full use of the 2026/27 £325,000 nil-rate band (above which assets may be taxed at 40%); misunderstanding the residence nil-rate band, which can be tapered or lost entirely on estates worth more than £2 million; poorly timed lifetime gifting — gifts made more than seven years before death are generally exempt, while the £3,000 annual gifting allowance frequently goes unused; overlooking the exemption for regular gifts made from surplus income; holding wealth in tax-inefficient structures; and, most costly of all, simply leaving planning too late. Inheritance Tax is no longer a concern only for the very wealthy — rising property values and frozen thresholds mean more families are affected each year.

How do you build financial security across three generations?

In an era of rising living costs, longer lifespans and increasing tax pressures, many UK families are thinking beyond their own financial future — structuring savings, investments and estate planning so that financial stability passes on efficiently.

For the youngest generation, the first step is often a financial head start: Junior ISAs (JISAs), pensions for children or regular gifting. Even modest contributions, made consistently, can grow significantly through decades of compounding — and instil positive financial habits early. For the middle generation in peak earning years, the focus is balance: maximising pension contributions and ISA allowances while supporting family without compromising their own retirement security. For older generations, estate planning becomes central — gifting allowances, up-to-date Wills and trust structures can all help ensure more wealth reaches family rather than being lost to Inheritance Tax at up to 40%.

What is compound growth and why does it matter?

Compound growth — often called "earning returns on your returns" — occurs when the returns on your savings begin generating their own returns. If £100 grows by 5%, you have £105; the following year, the next 5% applies to £105, not the original £100. Small at first, the effect becomes increasingly powerful over long periods.

Time is the most important ingredient, which is why consistency beats market timing. Regular monthly contributions smooth out volatility and benefit from pound-cost averaging, buying investments at different prices over time. A regular saver contributing £200 a month over several decades may put in less than £100,000 in total, yet end up with significantly more depending on returns and time invested. Using tax-efficient wrappers such as ISAs or pensions amplifies the effect further — the less lost to tax, the more that remains invested to compound.

Why is planning ahead an act of love?

Some of the conversations that matter most — about ageing, loss of capacity and end-of-life wishes — are the very ones we avoid. Yet postponing them means important decisions get forced on families during periods of stress and grief.

A common misconception is that a spouse or adult child can automatically take control of financial matters if someone loses mental capacity. In reality, without a valid Power of Attorney, families may face delays, restrictions and additional costs through the deputyship process. And willingness is not the same as preparedness: knowing someone well does not automatically mean knowing how they would want decisions made.

The most valuable discussions are often not about money at all but about values — would they prefer caution or pragmatism, is preserving wealth more important than comfort and independence? Clarity is one of the greatest gifts you can leave those you love. The goal is not perfection but preparation.

Why is £31.1 billion sitting in lost pension pots?

Research from the Pensions Policy Institute shows there are nearly 3.3 million lost pension pots in the UK, worth over £31.1 billion in assets. Frequent job changes leave workers with scattered workplace pensions — paperwork filed away and forgotten, or contact with providers lost after moving home.

Consolidating pensions into one plan can improve visibility, simplify administration and make it easier to review charges, performance and investment alignment. But consolidation is not always the right answer: some older schemes include valuable guarantees or protected tax-free cash entitlements that would be lost on transfer. Careful review — and professional advice — is essential before moving anything. If you suspect you have forgotten pots of your own, our guide to tracing and consolidating your pensions explains how to track them down.

Which life events should trigger a financial review?

Life rarely stands still, and a proactive review beats reacting only when problems arise. Four categories of life event should prompt a fresh look at your finances: career changes (a new job, promotion, redundancy or going self-employed — all of which affect pension contributions, tax planning and protection needs); family milestones (marriage, civil partnership, children, grandchildren — and equally divorce, separation or new caring responsibilities); property decisions and major purchases (buying, moving, downsizing or clearing a mortgage); and approaching retirement, one of the most important review points of all, when understanding how pensions, investments and other assets will support your desired lifestyle becomes critical.

Do you need income protection insurance?

Imagine waking up tomorrow unable to work because of illness or injury. Most households protect their home, car and possessions — yet few protect the income that underpins everything else.

Income protection insurance pays a regular monthly income if you cannot work due to illness or injury, typically up to 60% of pre-tax earnings depending on the policy. Payments begin after a chosen waiting period (the "deferred period"), ranging from a few weeks to several months, and continue until you return to work, the policy term ends or you reach retirement age. Statutory benefits and employer sick pay are often limited in both value and duration — income protection fills that gap, preserving savings and reducing financial stress during recovery.

Is a new era coming for ISA planning?

From April 2027, pensions will no longer automatically fall outside an individual's estate for Inheritance Tax purposes — meaning some pension funds may become subject to IHT at 40%, potentially reducing what passes to beneficiaries.

This change may flip a long-standing strategy on its head. Historically, many savers spent ISA assets first, preserving pension wealth for future generations. Under the new rules, some individuals may instead consider drawing pension funds earlier and retaining ISA savings longer, depending on their objectives. For those approaching retirement, there may also be merit in considering how tax-free pension lump sums could be moved into ISAs over time.

More broadly, the change is a reminder about diversification: relying too heavily on any single tax wrapper leaves savers exposed to future legislative shifts. Spreading wealth across account types improves long-term flexibility and resilience. We cover the full detail in our article on the 2027 pension Inheritance Tax changes.

Frequently asked questions

How much Inheritance Tax did UK families pay in 2025/26?

Families paid a record £8.5 billion in Inheritance Tax in the 2025/26 tax year, 3.6% higher than the £8.2 billion paid the previous year, according to HM Revenue & Customs. The Office for Budget Responsibility expects receipts to reach £14.5 billion a year by the 2030s.

What is the nil-rate band for 2026/27?

The nil-rate band for 2026/27 is £325,000, allowing an individual to pass on assets free of Inheritance Tax up to that threshold. Anything above it may be taxed at 40%, though the residence nil-rate band can increase the tax-free allowance when a main home passes to direct descendants.

How many lost pension pots are there in the UK?

There are nearly 3.3 million lost pension pots in the UK, worth over £31.1 billion in assets, according to the Pensions Policy Institute's Lost Pensions 2024 research.

How much does income protection insurance pay out?

Income protection insurance typically pays a proportion of your pre-tax earnings, often up to 60% depending on the policy and provider. Payments begin after a selected waiting period and continue until you return to work, the policy ends or you reach retirement age.

How will the April 2027 pension changes affect ISA planning?

From April 2027, pensions will no longer automatically fall outside your estate for Inheritance Tax, so some pension funds may face IHT at 40%. This may make it more attractive for some savers to draw on pensions earlier and preserve ISA savings for longer — the reverse of the traditional approach — depending on individual objectives and circumstances.

Source data: HM Revenue & Customs Inheritance Tax receipts; Office for Budget Responsibility projections; Pensions Policy Institute, Briefing Note 138: Lost Pensions 2024, published 24 October 2024.

This article is for your general information and use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of taxation, and reliefs from taxation, are subject to change, and their value depends on individual circumstances. The value of your investments can go down as well as up, and you may get back less than you invested. Past performance is not a reliable indicator of future results. Unless otherwise stated, all figures relate to the 2026/27 tax year. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The Financial Conduct Authority does not regulate tax advice, Inheritance Tax planning, trusts, estate planning, Will writing or cashflow modelling.