IHT Receipts Rise turns The Spotlight On Onshore Bonds And Trusts
By Mark Lambert, Head of Onshore Bond Distribution, Chesnara Life (UK) Ltd
This article was written by Chesnara Life and first published in Professional Paraplanner on 21 May 2026.
The inexorable rise of Inheritance Tax (IHT) receipts continues, with the latest HM Revenue & Customs (HMRC) data showing another record high1 and the near certainty of more record highs to come.
Rising IHT receipts inevitably mean advisers need to understand the full range of estate planning solutions, with onshore investment bonds and Trusts now playing an even more important role especially as pensions, will be included in estates from April 2027.
Frozen IHT thresholds, with the nil rate band held at its April 2009 level and the resident nil rate band held at its April 2020 level until April 2031, have been a key driver for the increase in IHT receipts, along with a rise in property wealth and other assets.
The inclusion of unused pensions in estates from April 2027 will further fuel the increase in IHT receipts. UK Government estimates indicate this measure will raise an additional of approximately £5.46 billion by 2030/312. In its first year of operation, UK Government estimates suggest around 10,5002 estates will have an IHT liability that they would not previously have had and a further 38,5002 estates will pay more IHT.
Advisers and clients planning to use pensions as part of an IHT mitigation strategy will need to think again and consider strategies such as taking tax-free lump sums and pension income as early as possible and reviewing gifting and trust-based investing to minimise liabilities.
The inclusion of unused pensions in estates highlights the growing role of onshore investment bonds and Trusts as part of a broader IHT mitigation strategy.
The onshore bond option
Alongside IHT planning, onshore investment bonds can have a role in providing investment growth and income solutions. At the same time, care needs to be taken to appreciate the tax advantages for the investor where the amount they have to invest sits within the £60,0003 and £20,0003 limits available for pensions and stocks and shares ISAs, or for a General Investment Account where they can still use their annual Capital Gains Tax (CGT) exemption of £3,0003 or the £5003 dividend allowance. A further point to consider is that switching funds within an onshore bond does not trigger CGT, which can make ongoing portfolio management more tax efficient.
Onshore investment bonds can be particularly tax efficient solutions for accumulation and decumulation when it comes to IHT planning for wealth transfers and can deliver valuable tax planning opportunities with no personal liability to Capital Gains Tax (CGT) or basic rate income tax on the bond gains.
They can offer tax deferment and tax management of reinvested dividends and interest in the portfolio and they provide simple tax administration as there is no need for a tax return until a chargeable event leading to a taxable gain happens.
Investors can benefit from the 5% withdrawal provision enabling them to withdraw funds tax-deferred at the time of withdrawal and top-slicing relief can be effective in taking funds or accessing growth tax-free or at a reduced rate.
They can be assigned for no consideration to taxpayers on a lower rate or to non-taxpayers, which could represent a highly tax efficient strategy in intergenerational planning. Effectively the person the bond is assigned to inherits the years of ownership and accrued 5% withdrawal allowances.
The trust option
Instead of surrendering a bond, the opportunity to assign it to a beneficiary through a trust can make a major contribution to IHT and estate planning.
Gift Trusts, for instance, enable the policyholder to give away a lump sum and reduce the estate for IHT purposes providing they live seven years4 from the date of the gift. In addition, any growth in the lump sum does not add to the estate and potential IHT liability. Trustees need to be appointed to administer and distribute the funds, and it is essential that the client does not benefit from the trust in any way.
Loan Trusts can help limit any increase in the client’s potential IHT liability. The client creates a trust and lends money to the trustees, who then invest it in an onshore bond. The loan remains repayable to the client, so the outstanding loan value stays within the estate. However, any investment growth on the bond sits outside the estate immediately.
Discounted Gift Trusts enable clients to reduce IHT liabilities while providing fixed regular payments to the client setting it up. The client invests in a bond within a trust and sets regular withdrawals. The value of these withdrawals is ‘discounted’ to reflect a current value reflecting how long the payments are assumed to last. This discounted portion of the gift immediately falls outside the estate, while the rest of the investment also falls outside the estate if they survive for seven years.4
The tax-efficient features of onshore investment bonds can make them a valuable component of estate planning, particularly when used within suitable trust arrangements. Understanding how these options work together is increasingly important for advisers supporting clients with IHT mitigation.
While onshore investment bonds, Trusts and discounted gift Trusts can offer useful planning opportunities, the suitability of any solution will depend on a client’s individual objectives, tax position and personal circumstances. Advisers should consider the full range of available options and whether specialist tax or legal advice may be appropriate before making any recommendation.
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Sources
- HM Revenue & Customs: HMRC tax receipts and National Insurance contributions UK (monthly bulletin):https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-monthly-bulletin
- HM Revenue & Customs/HM Treasury (2025) – Inheritance Tax on unused pension funds and death benefits (policy paper, published following Autumn Budget 2024): https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits
- UK Government guidance (allowances): https://www.gov.uk/tax-on-your-private-pension/annual-allowance; https://www.gov.uk/individual-savings-accounts; https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances; https://www.gov.uk/tax-on-dividends
- UK Government guidance (IHT gifts): https://www.gov.uk/inheritance-tax/gifts
About Chesnara Life (UK) Ltd
Chesnara Life (UK) Ltd, formerly HSBC Life (UK) Limited, is a UK subsidiary of Chesnara plc. Chesnara Life offers its open architecture Onshore Investment Bond as a stand-alone offering or through a range of third-party investment platform partners. The Chesnara Life Business Development Team supports all versions of our Bond. The Chesnara Life Onshore Investment Bond provides individual investors with access to over 4,800 funds (Investment Trusts, Open Ended Investment Companies, Unit Trusts and Exchange Traded Funds) from more than 200 Fund Managers. chesnaralife.co.uk
Chesnara Life (UK) Ltd is authorised by the Prudential Regulation Authority (“PRA) and regulated by the Financial Conduct Authority (“FCA) and the Prudential Regulation Authority (“PRA”). Our Financial Services Register number is 133435 and our registered office is at: 2nd floor, 33-34 Winckley Square, Preston, Lancashire, PR1 3JJ, United Kingdom. Registered in England number 88695.