It’s one of those things we’d all rather not think about, a bit like the expiry date on a passport or checking the attic for leaks. But Inheritance Tax (IHT) is quietly creeping up the list of concerns for families across the UK.
We’ve put together five things you should consider if you or a relative are likely to be affected by IHT - and one thing everyone should do, no matter their IHT circumstances.
Scroll down to read find out what they are.
Inheritance Tax is a tax charged on your estate (your money, property, and possessions - most investments including ISAs) you leave behind when you pass away. Since George Osborne introduced the Residence Nil-Rate Band (RNRB) in 2015 - giving homeowners a £175,000 allowance each when passing their home to direct descendants - married or civil partner couples have effectively had a £1 million total allowance to leave behind.
While this allowance is higher than most people in the country typically leave behind, inflation and IHT policy mean that more and more UK families will be left with a significant tax bill when a loved one passes away soon.
So, where do you start?
In the 2022 Autumn Statement, then-chancellor Jeremy Hunt confirmed two key IHT thresholds would be frozen until at least 2028. Typically these have risen in line with inflation. And inflation and property values have continued to rise, so children and grandchildren who never expected their parents’ estate to cross the threshold are now paying HMRC.
Unfortunately, without proper planning, your loved ones may face substantial tax burden. Sometimes this even means selling off some of their family assets to pay the bill.
There’s a strong risk that this catches many people off guard, and if your estate may be affected, planning is important as there are often steps you can take to reduce how much IHT is paid on your estate.
So we’ve put together five things you should consider if you or a relative are likely to be affected by IHT - and one thing everyone should do, no matter their circumstances.
Even if IHT isn’t a concern, writing a will remains one of the most important financial and emotional acts you can offer your loved ones. It ensures your wishes are honoured and gives your family the clarity they need when it matters most.
From a tax perspective, a well-structured will can also make a meaningful difference. For example, if you leave your home to a child or grandchild in your will, you may be able to claim the residence nil-rate band - an additional allowance that could significantly reduce your estate’s IHT liability.
Gifting allows you to pass on wealth during your lifetime whilst reducing the size of your estate. As well as helping your children renovate their home, or supporting a grandchild’s education, giving gifts will also soften how much they’ll have to pay on your passing.
Each year, you can gift:
Trusts can be a powerful tool for reducing IHT and maintaining control over how and when your wealth is passed on. Trusts can offer some protection from IHT, although they come with rules, responsibilities, and sometimes tax implications of their own.
If you want to support vulnerable beneficiaries or stagger access to money over time, they may be particularly worth exploring.
For example:
However, trusts can be complex and sometimes irreversible. Please take professional financial and legal advice before proceeding.
A whole-of-life insurance policy, when written in trust, can help your beneficiaries pay any IHT due without needing to sell assets. While it doesn’t reduce the tax itself, it provides readily available cash at a critical time.
Please note:
The truth about inheritance tax planning is that it needs to be personal. When crafting a plan, a thoughtful conversation about your goals, your family situation, and your values should always be involved, as depending on your assets and wishes there may be other options that are open to you.
Please contact us to arrange a meeting with our financial planners Matthew Coppin and John Ditchfield, to discuss how you can create a plan that reduces your IHT liability and looks after your loved ones according to your wishes.
Leaving at least 10% of your estate to charity in your will can reduce the IHT rate on the remainder from 40% to 36%. All charitable donations are also exempt from IHT, making them a generous as well as tax-efficient option.
With responsible investment being a speciality of ours at Harmonic, we’re familiar with many ways you can create lasting impact with your capital. We can explore this option with you and also help you find mission-led organisations that reflect the values that matter most to you
John and Jane, both in their early 70s, have spent a lifetime building up their estate, which now stands at £5 million. Their wealth includes a family home, savings, and an investment property they no longer need. They’ve worked hard, invested wisely, and want to see their money help the next generation thrive by funding university degrees, first homes, even the occasional business idea.
But with inheritance tax at 40% on anything above their £1 million joint allowance, they’re facing a potential bill of over £1.7 million.
ohn and Jane decide to place a £700,000 buy-to-let property into a discretionary trust to fund their grandchildren’s education. The move triggers a modest immediate tax charge of around £7,600, as the gift exceeds their personal allowance limits. But this is a fraction of what they'd owe if they did nothing.
If they live seven more years, that entire gift will fall outside their estate, saving their family a staggering £280,000 in inheritance tax.
Over time, they also make regular gifts, helping their grandchildren with deposits for first homes, paying for weddings, and even contributing to early career ventures. These make use of annual gifting exemptions: smaller, regular transfers to family that steadily reduce their taxable estate without triggering any tax liability.
Without this careful planning, their estate would face a tax burden of around £1.7 million. With it, they’re able to save about half a million pounds and get the peace of mind that comes from knowing more of their wealth will be used as they intended.
Please Note: This information is for general education purposes only and does not constitute personal advice. All figures are illustrative and not a guarantee of savings. If you'd like to discuss your circumstances in detail, please contact us.
We'd welcome an initial discussion, and a first appointment can be booked using the links below.
If you require advice based on specific circumstances, contact our professional advisors.