Inheritance Tax (IHT) remains one of the biggest financial concerns for many of our clients. The IHT threshold (known as the nil-rate band) has been frozen at £325,000 since 2009.
The residence nil rate band (£175,000 person) can provide an additional threshold when passing your home to your children or grandchildren.
At a rate of 40% on assets above the available limits, wealth transfer between generations can be greatly affected.
Inheritance tax receipts
IHT receipts totalled £8.25 billion in the 2024/25 tax year, an astounding increase of more than £700 million compared to the previous tax year, which had itself been a record high.
In November 2025, the Chancellor announced that the IHT allowances would remain frozen until 2031. As property and asset values continue to rise, this prolonged freeze is expected to bring more individuals and families within the scope of IHT.
The 2024 Autumn Budget introduced significant IHT changes, most notably bringing unused pension funds into the estate for IHT purposes from April 2027
Where death occurs after age 75, pension beneficiaries will also be liable to income tax at their marginal rate on the remaining funds, following any IHT deduction.
Taking a proactive approach to estate planning
The good news is there are often steps you can take. Many clients are now revisiting their estate planning arrangements with a view to improving tax efficiency.
Below are some of the strategies we have been discussing:
1) Spending more
By using more of your estate assets during your lifetime, potentially less will be subject to IHT. We use advanced modelling software to help clients understand the impact of increased spending and assess its long-term sustainability.
2) Direct giftings
You may wish to assist your children or family with education costs or property deposits. Gifts take seven years to fall completely outside your estate for IHT purposes, so careful planning is essential to balance your own needs with those of the recipient. We work with clients to assess future requirements when making larger direct gifts.
3) Gifting from surplus income
If your income exceeds your expenditure, you may be able to make regular gifts that are immediately exempt from IHT. However, HMRC requires Executors to maintain detailed records in the correct format. Please note that only qualifying income, such as salary, pensions, dividends, or rental income counts; capital withdrawals do not.
4) Using fixed-term of whole-of-life insurance
Sometimes gifting assets isn’t practical – for example, if you rely on properties for income. In these cases, an insurance policy, either fixed-term or whole-of-life, can provide cover to match the anticipated IHT liability. Such policies can also be used to protect direct gifts, ensuring that if the donor passes away within seven years, any resulting tax liability is covered.
5) Investing in business-relief qualifying assets
Certain assets, such as smaller UK AIM-listed companies or unquoted businesses that meet specific criteria, may qualify for Business Relief. If held for at least two years and still owned at death, these assets can be exempt from IHT. While these investments carry higher risk than more traditional markets, when used as part of a diversified financial plan, they can be highly effective.
6) Gifting to charity
You may have causes you wish to support during your lifetime, and it is also possible to provide for them through a bequest in your Will. If you gift at least 10% of your net estate to charity, the IHT rate on the remainder of the estate is reduced from 40% to 36%.
7) Using Trusts for protection and tax-efficiency
Sometimes making a direct gift isn’t appropriate, for example, when creating a fund for young children or grandchildren. Gifting into a trust provides a vehicle for tax-efficient, long-term growth, with access and management terms set by the original donor.
Trusts generally involve higher costs and administrative responsibilities than other options. There are various types of trusts available, depending on your intentions and family circumstances, so it is important to seek advice from a qualified professional.
8) The rise of Family Investment Companies
For larger estates, transferring assets into a Family Investment Company (FIC) is becoming increasingly popular, particularly as the administrative complexity of trusts has grown in recent years. A FIC allows parents to retain control over investments while gradually passing value to their children through share ownership in the company.
As with trusts, it is important to seek advice from a qualified professional to determine whether this approach is suitable.
Our approach
Estate planning is about structuring your affairs and finances responsibly, ensuring your wealth supports both you and the people you care about most.
When helping families with their estates, there are often multiple factors to consider – both financial and personal. Professional guidance can help identify which options are appropriate and when, increasing the likelihood that more of your legacy passes to your family.
If you are concerned about your potential IHT liability, the first step is understanding your current position. Get in touch today to start a confidential conversation about your estate planning.
Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.
