Inheritance tax planning, preserving wealth for future generations

The standard nil rate band is £325,000 per person. On top of this, the residence nil rate band allows an additional allowance of up to £175,000 where a home is passed to direct descendants such as children or grandchildren. Unused allowances can be transferred between spouses or civil partners on death, meaning a married couple may have a combined threshold of up to £1 million. Estates above these thresholds are generally subject to Inheritance Tax at 40 per cent.

Your estate includes most assets you own at the time of death: your home and other property, savings, investments, vehicles and personal possessions. It can also include certain gifts made in the seven years before death and assets held in some types of trust. Pensions have historically sat outside the estate for Inheritance Tax purposes, though this is expected to change from April 2027, making it a particularly important time to review estate plans.

Gifts you make to individuals are generally known as potentially exempt transfers. If you survive for seven years after making the gift, it falls outside your estate for Inheritance Tax purposes. If you die within seven years, the gift may be counted back into your estate, though taper relief can reduce the tax owed on gifts made between three and seven years before death. There are also annual gifting allowances that fall outside the estate immediately.

Trusts allow you to transfer assets out of your estate while retaining a degree of control over how and when beneficiaries receive them. Different types of trust have different tax treatments and rules, and they are not a one-size-fits-all solution. Used carefully, they can form an important part of an estate plan, particularly for larger estates or where there are specific wishes about how assets should be passed on.

A will is fundamental to effective estate planning. Without one, your estate passes under the rules of intestacy, which may not reflect your wishes and can create significant complications for your family. While we do not draft wills, we work alongside solicitors and can help ensure your financial planning and your will are properly aligned.

Currently, most pension pots sit outside the estate and are not subject to Inheritance Tax, making them a tax-efficient way to pass wealth to the next generation. However, from April 2027 pension assets are expected to come within the scope of Inheritance Tax, which will significantly change how pensions fit into estate planning for many people. This is an important reason to review your arrangements well ahead of that change.