Inheritance Tax Planning2025-12-04T04:57:43+00:00

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Inheritance Tax Planning

Plan Ahead & Potentially Reduce Any Inheritance Tax That May Be Due On Your Estate

Roy Jenkins, a former UK Labour Chancellor once said back in 1986: ‘Inheritance Tax is broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.’ With proper planning, you can ensure that more of your estate goes to the ones you love and less goes to the taxman.

Inheritance tax is paid on any property, possessions or money you leave behind as part of your estate after you pass away. However, you’ll only pay tax if your estate is worth more than the Inheritance Tax Threshold, which currently stands at £325,000 – paying 40% tax on any part of your estate that’s beyond that figure.

So for example, let’s say that once everything’s accounted for such as your house, any possessions, investments and the money in your bank, your estate is worth £450,000. You’ll pay no tax on the first £325,000 and then pay 40% tax on the remaining £125,000 that’s valued above the Inheritance Tax Threshold.

Inheritance tax is affecting more and more of us each and every year, especially with rising house prices that often take many of us over the Inheritance Tax threshold alone, not even accounting for any other assets. The last thing you want is to essentially leave your loved ones with a 40% tax bill (on your estate) after you pass away.

We understand that it can feel both daunting and stressful to think that a proportion of your estate that you’ve worked very hard for could potentially be heading to the taxman instead of your loved ones. That’s why we’re here to provide independent advice to help you to protect as much of your estate as possible from any inheritance tax that may be due.

We truly take the time to sit down with you, understand your situation and help to cut through any jargon to ensure you understand all parts of the inheritance tax planning process as clearly as possible. Not only that, but we also offer an ongoing service to keep your details up to date moving forward alongside any changes to the inheritance Tax Threshold.

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With over 30 years of experience when it comes to Inheritance Tax, we’re here to help with whatever you need.

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    Inheritance Tax Planning: What To Consider

    Calculating Your Estate

    The first step to determine how much (if any) Inheritance Tax may be due after you pass away is to calculate your entire estate. This includes the value of any property you own, your possessions, any investments and the money in your bank. Any liabilities such as debts and credit card bills are deducted from said value of your estate. We’ll sit down with you to help calculate the value of your estate before conducting any inheritance tax planning.

    Spouse Exemption

    There are various ways you can look to lessen the impact that inheritance tax could have on your estate and one of the simplest ways you can do so is via the spouse or civil partner exemption rule. By leaving your entire estate to your spouse or civil partner, there will be no inheritance tax to pay on first death, even if it exceeds the nil-rate band of £325,000.

    Trusts

    Whilst there are lots of aspects to consider (all of which we can help you with), transferring your assets into a trust can help to reduce your inheritance tax bill. Once your assets are in a trust, they’re no longer classed as being a part of your estate and as long as you live for seven or more years after placing the assets in the trust, you won’t pay Inheritance Tax on those assets.

    Lifetime Gifts

    Another common way to avoid paying or reduce the amount of inheritance tax that’s due is to give money or assets away to beneficiaries whilst you’re alive. Not only does this reduce the valuation of your estate but it also ensures the assets go to your loved ones tax-free. There are caveats, but we’ll discuss all of these with you to help you make the right decision.

    Residence Nil Rate Band (RNRB)

    Introduced in April 2017 and designed to tackle the rising property prices, it gives individuals who pass on their primary residence to direct descendents (such as children or grandchildren) an additional allowance of up to £175,000 when it comes to inheritance tax. However again there are some caveats which we’ll help you to understand, ensuring any decision you make is the right one for you and your situation.

    Creating Or Updating Your Will

    To ensure many of the ways to reduce the amount of inheritance tax payable are carried out along with your wishes, it’s important to create or update any existing will. It provides a legal framework for all the tax efficient methods you may be looking to take advantage of to reduce your inheritance tax bill and gives your executor clear guidance on your wishes after you pass away.

    What To Expect

    1

    Get In Touch

    Let us know your specific requirements either via our online form, email or a phone call. The more details we know, the sooner we can start to help.

    2

    We’ll Assess Your Needs

    Our team of experts will review and assess your specific requirements, allowing us to understand your situation and how we can help.

    3 

    Advice Tailored To You

    One of our expert financial advisors will be in touch to discuss your specific inheritance tax planning requirements and will work with you to create a tailored strategy.

    How We Can Help

    Knowing the ins and outs of inheritance tax and the many ways to potentially reduce the tax bill for your estate can be a bit of a minefield. We understand that. That’s why we provide you with expert, individual advice tailored to your unique situation, ensuring you can make the best decisions for you and your family.

    We’re here to help you structure your will, help you to understand the various allowances that could apply to your situation when it comes to inheritance tax and break down all the information and any complex jargon into bitesize, understandable chunks. We’ll do our very best to advise you on how to reduce the amount of inheritance tax that’s due on your estate after you pass away.

    Combining expert advice, comprehensive analysis and strategies tailored to you, our inheritance tax planning service is designed to help you protect your estate and ensure your family and any other beneficiaries receive their fair share.

    FAQ’s

    Inheritance tax is a tax potentially payable on your estate once you pass away. Your estate consists of the combined value of all the property you own, your possessions such as jewellery and cars, the money in your bank and all funds across any savings and investments you have, minus of course any debts or liabilities you may have.

    After you pass away, if your estate’s overall value is above the Inheritance Tax Threshold at the time (This currently sits at £325,000), then you may need to pay Inheritance Tax on the value of your estate above the threshold. The standard rate of Inheritance Tax is currently paid at 40%

    There are ways to either delay the payment of Inheritance Tax through steps you can take when conducting your estate planning process. For example, if you leave everything above the Inheritance Tax threshold to a surviving spouse or civil partner you may be able to defer paying the Inheritance tax until your surviving partner passes away for example. Plus, if you actually give away your home to your children or grandchildren, your tax free threshold could even increase to £500,000.

    Not only that, but whilst the Nil Rate Band (NRB) is generally fixed at £325,000 until 2026, yours may increase if your wife or husband sadly passes away, as any unused NRB can be transferred to the survivor in such cases, potentially doubling the available tax free amount available to you up to £650,000.

    As you can see, there’s plenty to consider when it comes to Inheritance Tax and we cover various other points in a little more detail in our FAQ section, however if you have any specific questions, our expert team is always available and ready on the other end of a phone or email.

    There are various ways to either completely avoid paying Inheritance tax or reducing the total amount payable such as reducing the value of your estate below the threshold, gifting your money or property/possessions or by setting up a trust or life insurance policy. 

    These are all completely legitimate and legal ways to ensure more of your money stays in your family’s pocket, rather than the Taxman’s so to speak. Our team of financial advisors are here to help you navigate through each and every step when preparing your estate for the impact of Inheritance Tax. 

    Let’s take a closer look at various ways you can lessen the impact of Inheritance Tax on your estate and maybe even remove the impact entirely.

    1. Leaving Your Estate To A Spouse Or Civil PartnerThis is probably the easiest way to potentially avoid paying Inheritance Tax on your estate when you pass away. This rule covers anyone who was still married or in a civil partnership, even if they had separated. However if you had divorced by the time of your passing, this rule does not apply.

      Essentially, you can leave your entire estate to your spouse or civil partner and even if the value exceeds the Nil-Rate band value (currently £325,000), there will be no Inheritance Tax to pay. Your surviving partner can even then make use of your unused Nil-Rate Band, which could essentially ‘double’ their Tax-free threshold when Inheritance Tax is due to be paid upon their passing.

      To do so, the legal representatives of your spouse or partner must formally request the transferral of your unused Nil-Rate Band within 2 years of their passing. It’s of course vitally important that instructions such as the leaving of your entire estate to your spouse or civil partner are clearly stated in your will, to ensure a smooth, uncontested process after your passing.

    2. Setting Up A TrustOnce any of your assets have been transferred into a trust, those funds are then administered by a trustee (or a group of trustees) on behalf of the eventual beneficiary.

      Therefore, those funds are no longer part of your estate and as such aren’t considered when working out the value of your estate after you pass away. However, that’s only the case if you live for seven or more years after setting up the trust, this is known as the ‘Seven Year Rule’, which you can find more about in an FAQ further below.

      It’s important to weigh up all your options before placing any funds in a trust and we can help advise you if it’s the right decision and if so, also help with the setting up of the trust itself.

    3. Gifting To CharityIf you decide to leave a ‘gift’ to a qualifying charity in your will, whether that be money, property, possessions or any other asset, it will be exempt from Inheritance Tax. This is one way to reduce the total value of your estate so it falls under (or closer to) the Inheritance Tax Threshold.

      You can also reduce the 40% rate of Inheritance tax through the giving away of charitable gifts. For example, if the total value of the gifts you give to charity equal 10% or more of your estate’s net value, whatever remains above the tax threshold will be taxed at a reduced rate of 36% rather than 40%.

      In certain particular cases, your estate’s beneficiary may be able to top up the gifts to the 10% threshold to reduce the tax rate payable too. However this may depend on the particulars of your will or require the consent of other beneficiaries.

    4. Giving Away Lifetime GiftsGiving away money or assets to beneficiaries whilst you’re still alive is another common way to reduce or avoid paying Inheritance Tax. Not only will this process help to reduce your estate’s value, but it’ll also potentially ensure that the gift will reach your loved ones tax-free (depending on if you live beyond 7 years)
      Lifetime Gifts will fall into one of the following three categories:

      • Exempt Transfers – These are gifts that can be made at any time and are usually below a certain monetary value and as such, aren’t liable for Inheritance Tax.
      • Potentially Exempt Transfers – A gift that doesn’t meet the exemption criteria or transfers that are exempt, however the gift won’t be considered for Inheritance Tax if given 7 years or more before your death.
      • Chargeable Lifetime Transfers – These gifts are neither ‘exempt’ or ‘potentially exempt’ and if the Nil-Rate Band is exceeded, will be liable for Inheritance Tax.
    5. Home Equity ReleaseHome equity refers to how much of your home you actually own outright. After all, the majority of us use a mortgage to purchase a home. To work out your home equity, subtract the remainder of what you need to pay on your mortgage from the value of your home.

      Equity Release is a way to access the value of your property without having to sell it and these funds are given to you as tax-free cash.
      By taking advantage of Equity Release, you’ll reduce the value of your estate (as long as you spend the money that is) because your house will be sold once you pass away, so as to pay off the amount you borrowed, plus any interest accrued. There’s also the option to take out a joint plan and in those cases, it won’t be sold off until your spouse or partner passes away.

      Whilst this can reduce the amount of Inheritance tax payable, it also reduces the amount you can pass onto your loved ones (again, if you spend the money). Not only that, but if you live for a long time after releasing the equity in your home, the interest you accrue may actually end up being higher than the Inheritance Tax you would have had to pay.

      Equity release is a very big decision and one not to be taken lightly. It’s imperative that you receive professional advice before choosing to release the equity in your home.

    6. Use Life Insurance To Pay Off Your Inheritance Tax BillYou can set up a life insurance policy specifically to pay off part or even all of your Inheritance Tax bill. For example, a ‘Whole Of Life’ Insurance policy pays out upon your death and if it was held in trust and also didn’t fall under the Seven Year Rule, would be exempt from being included in your estate and as such could be used to pay off or towards your Inheritance Tax bill.

      So as you can see, there’s lots of ways to reduce or completely avoid paying Inheritance Tax. However, the amount you save all depends on the value of your estate and the steps you take during your will writing and Estate Planning process. That’s where we can help too.

    Since 1984, farmers with estates worth over £1m have potentially not had to pay any Inheritance Tax due to two specific categories that have offered 100% tax relief.

    • Agricultural Property Relief which covers both land and buildings
    • Business Property Relief which covers aspects such as livestock and machinery etc

    However, from April 2026, APR and BPR will only be available at 100% when the estate is worth £1m or under. If the estate is worth more, then both APR and BPR will only qualify for 100% relief if passed down to a spouse or partner. If that’s not the case, then the relief for both APR and BPR will only be available at 50%.

    In terms of reducing or avoiding Inheritance tax when it comes to your farm, it’s a very similar situation to any other estate. You can look to take advantage of the likes of gifts and life insurance. Plus, when it comes to farms, the APR and BPR £1m allowance is per person, so a couple could look to take advantage of the combined £2m tax free allowance that provides when passing your farm down to the next generation.

    But of course, it’s important that both wills are written with this in mind. We can help advise you on Inheritance Tax matters, will writing and the entire Estate Planning process to help ensure as much of your money and assets are protected and left to your loved ones.

    If you’re thinking of gifting money or any assets as part of your estate planning process to reduce the amount of Inheritance Tax that may be payable upon your death, then it’s important to be aware of the Seven Year Rule.

    Essentially if you’re planning on giving away a gift worth over £3,000 and you unfortunately happen to pass away within 7 years of making that gift, the beneficiary of your gift may well end up paying some of that to HMRC if the gift amount isn’t covered within your Nil-Rate Band.

    This is because that gift will be included as part of your estate in this situation. So if your estate is worth over the Tax Free Threshold (currently £325,000) when you pass away, then the gift will be liable for Inheritance Tax.

    The rules on Inheritance Tax are often changing, much like anything in life. New Governments, new budgets and changes to policy can all have an effect on various taxes and Inheritance Tax is no exception.

    The Government recently announced a rather big Inheritance Tax change coming into effect in April 2027 regarding pension pots. As it stands, most unused private pensions are exempt from being included in your estate after you pass away and can be passed on tax-free. However from April 2027, that will no longer be the case.

    So if you are someone who may be affected by this change, it could potentially be a good idea to look into either spending your pension pot before you pass away to reduce the amount of Inheritance Tax due or look into potentially gifting the money to others.

    ISA’s are subject to Inheritance Tax, however there is a way to delay the potential payment of any tax due. Generally ISA savings can be passed on to any beneficiaries you name in your will, however it’s important to note that ISA’s actually lose their tax-efficient status upon your death. Which means the beneficiary won’t benefit from tax-free income and may have to declare it in any tax return they may file. Unless, the beneficiary is your spouse or civil partner.

    In that case, upon your death, your spouse or civil partner will receive a one-off ISA allowance which is equal to the total value of all your ISA’s. Known as the Additional Permitted Subscription (APS), it can be used to make an ISA subscription with the very same manager who held your ISA (or any other manager that accepts the subscription) and as such your spouse or partner should be able to continue benefitting from tax-free income and of course growth whilst the funds remain in the ISA.

    However upon their passing, the ISA will form part of their estate and as such, may be subject to Inheritance Tax if their estate is over the tax-free threshold. So the ‘issue’ of Inheritance Tax is postponed rather than ‘solved’.

    There are a few common ways to actually pay Inheritance Tax ranging from using the deceased bank account to make the payment to paying in instalments, but before we cover that, it’s important to know when Inheritance Tax must be paid by.

    Generally, Inheritance Tax must be paid by the end of the sixth month after the person has passed away. If not, HMRC will start to charge interest (this currently stands at 8.5%).

    Executors of a will can choose to pay via installments over 10 years on certain aspects of the estate such as property, but the outstanding amount of tax will still be charged interest.

    If your estate is likely to incur IHT charges, it’s a good idea for the executors to make part payment of the Inheritance Tax within the first six months of the death of the person whose estate it is. This is known as ‘payment on account’.

    This can help to reduce the amount of interest it could be charged should the process of selling the property and any other assets take longer than expected.

    If the asset is sold before all Inheritance Tax is paid, the executors must ensure that all installments and any interest accrued is paid off at that point. So it’s important to take that into account if you’re an executor.

    As for actually paying the Inheritance Tax, here are the most common ways to do so

    1. Using The Deceased’s Bank AccountMost UK banks will release funds directly to HMRC if they’re provided with the following documentation:
        • A valid copy of the death certificate
        • An IHT423 Form
        • The Payment Reference Number from HMRC

      More often than not, this is the simplest way to settle an Inheritance Tax bill.

    2. Use Personal Funds & Reclaim It BackAnother way to pay for an Inheritance Tax bill (if the funds aren’t available in the deceased’s bank account yet) is to use your own personal funds and claim the money back from the estate later once probate has been granted.This is common in urgent situations, but it requires trust and strong communication between family members and beneficiaries.
    3. Pay In InstallmentsIf most of the estate is tied up in land or property, HMRC may allow the Inheritance Tax to be paid in 10 annual instalments, with the first payment usually due within 6 months of the person’s death.However, interest is charged on the outstanding balance starting from the moment the first payment is made.

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