The Inheritance Tax (IHT) landscape is changing. As rising asset values meet frozen allowances and imminent pension rule changes, more UK families will be pulled into the IHT net.
High net worth individuals (HNWIs) and their families could see significant liabilities unless plans are put in place, and reports suggest that the sooner these plans are formed, the better.
Estate planning can feel like something to consider only in later life. The truth is, though, that it’s never too early to start. Today’s Wills and Probate reports that “late” planning could cost the UK’s most affluent families a collective £12.3 billion in “unnecessary” IHT.
Key takeaways:
- Starting estate planning early could help to significantly reduce a potential tax bill on death.
- Estate planning can be more complex for HNWIs, so professional advice is key.
- Various strategies can help to lower the value of your estate, from gifting to making use of Business Relief.
Keep reading to find out more.
Early estate planning could reduce an Inheritance Tax bill by nearly £400,000 from April 2027
Data suggests that delaying estate planning to age 70 could cost the UK’s wealthiest 10% a collective £12 billion, compared to forming plans at age 50.
This is based on post-April 2027 rules when unused pensions and some pension death benefits will come into the scope of IHT. But even under current rules, the figure is approximately £7.9 billion.
Planning early allows you to take advantage of available exemptions and allowances. These could enable you to pass an extra £397,000 to your family, on average, on death after April 2027. The figure is £258,000 under existing rules.
Changes to the IHT treatment of pensions and freezes to the nil-rate and residence nil-rate bands could increase your potential bill as the value of your assets rises. Treasury IHT receipts were £7.7 billion in 2025/26, but the Office for Budget Responsibility expects that this figure will rise to £14.5 billion by 2030/31.
Interestingly, the survey reported by Today’s Wills and Probate found that respondents were well aware that they should start estate planning early but had nonetheless failed to act.
On average, respondents felt that estate planning should begin at around 44 years of age. The typical age for engagement is closer to 61.
3 steps to take now
1. Understand your IHT allowances
IHT is generally payable at 40% on the value of your estate that exceeds the nil-rate band. This currently stands at £325,000 and has done since 2009. You can also make use of the residence nil-rate band of up to £175,000. This is applicable only if you leave your main residence to a direct descendant.
A key point to note here is that the residence nil-rate band begins to taper once the value of your estate reaches £2 million. The band decreases by £1 for every £2 above this £2 million threshold, which means it vanishes completely once your individual estate exceeds £2.35 million.
If your estate exceeds these amounts, it’s never too early to begin estate planning.
2. Consider tax-efficient gifting
IHT is payable based on the value of your estate on death. Rather than leaving all of your estate in your will, you might consider gifting a portion of it during your lifetime. This can be done tax-efficiently and has the benefit of lowering your estate’s value for IHT purposes, reducing a potential bill.
You can give away as much of your wealth as you like during your lifetime, but the gifts only become tax-free if you survive for more than seven years after the date the gift is made. Such gifts are known as potentially exempt transfers, and it follows that the earlier these gifts are made, the stronger your chance of surviving for more than seven years.
Some HMRC exemptions allow you to give gifts that are IHT-exempt from the moment you make them.
While you might use up your £3,000 annual exemption easily each tax year, the “normal expenditure out of income” exemption could provide a useful opportunity to gift large sums over time. The latter exemption can be used to make regular IHT-free gifts, as long as you can prove that the gift:
- Is made out of your usual income
- Comprises part of your normal outgoings
- Doesn’t detrimentally affect your standard of living.
You might use this exemption to make regular contributions to a loved one’s pension or Junior ISA, for example. Doing so is tax-efficient for you but also allows you to pass money on sooner. According to This is Money, 80% of over-45s want to receive their inheritance while parents and grandparents are still alive, based on research conducted among well-off older generations.
Thorough record-keeping is key, so speak to your adviser if you need any assistance.
3. Make use of Business Relief
Since April 2026, Business Relief rules mean that qualifying business interests receive 100% IHT relief up to £2.5 million (spread across qualifying Business Relief and Agricultural Relief assets), with 50% relief on qualifying assets above the £2.5 million threshold.
For investors, Business Relief may also apply to certain shares in qualifying unlisted trading companies, subject to the normal ownership and qualifying-business conditions. Business Relief investments can carry higher investment risk and may not be suitable for all investors.
What’s more, any unused 100% allowance can pass between spouses or civil partners, giving your surviving partner a potential allowance of up to £5 million.
Other assets – including some land, buildings, and machinery used by a qualifying business and some shares traded on markets such as Alternative Investment Market (AIM) – are specifically eligible for 50% relief.
As you don’t need to own a business to benefit from Business Relief, you might allocate a portion of your portfolio to Business Relief-qualifying assets as part of your estate planning strategy. The types of investments involved can be higher risk but offer access to potentially significant IHT relief.
Get in touch
If you have any questions about your complex estate planning, contact HFMC Wealth today. Contact us online or call 020 7400 4700 to help plan your loved ones’ financial future.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
