Inheritance Tax Planning

Protect your choices today while planning how your wealth may pass in the future.

You may have spent many years building your wealth. Inheritance Tax planning can help you understand how much of it may eventually pass to your family, whether action is needed and which options could be appropriate for your circumstances.

Habitual Wealth takes a joined-up approach to estate and intergenerational planning. We consider your potential Inheritance Tax position alongside your own income needs, retirement plans, investments, business interests and family priorities - so tax planning does not come at the expense of your financial security.

Inheritance Tax may be payable when the value of an estate exceeds the allowances and exemptions available.

• An estate can include:
• property
• savings
• investments
• personal possessions
• some trust interests
• business interests; and
• from 6 April 2027, most unused pension funds and pension death benefits.

For the 2026/27 tax year, the standard nil-rate band is £325,000.

A residence nil-rate band of up to £175,000 may also be available where a qualifying home is left to direct descendants.

Unused proportions of these allowances may be transferable between spouses or civil partners, subject to the relevant conditions.

This means a qualifying individual estate may potentially pass up to £500,000 without Inheritance Tax, while a qualifying surviving spouse or civil partner may potentially have allowances of up to £1 million.

The residence nil-rate band is tapered for larger estates and the precise position depends on the assets, gifts, beneficiaries and reliefs involved. Inheritance Tax is generally charged at 40% on the taxable part of an estate, although different treatment can apply in some circumstances. Tax law is complex and can change, so the figures and assumptions used in a plan should be reviewed regularly.

Trusts are not regulated by the Financial Conduct Authority.

Do not give away tomorrow what you may need later

A plan that reduces a potential Inheritance Tax liability but leaves you short of money is not a successful plan. Before considering significant gifts or long-term arrangements, we can help you explore:

• the income you need to maintain your preferred lifestyle
• the capital you may need for emergencies or major purchases
• the possible cost of care or support in later life
• how long your wealth may need to last
• the effect of inflation and investment risk
• whether your family circumstances could change and
• how much flexibility you want to retain.

Cashflow modelling can help illustrate the effect of different gifting levels and timings. It cannot predict the future or guarantee an outcome, but it can make the trade-offs more visible before you commit to a decision.

Give with purpose, affordability and good records

Lifetime gifting is one of the most common areas considered in Inheritance Tax planning, but the rules are more nuanced than simply giving money away seven years before death.

Using available exemptions

Certain gifts may be immediately exempt, including gifts between spouses or civil partners and gifts covered by annual or other specific exemptions. Regular gifts from surplus income may also be exempt where the detailed conditions are met.

The seven-year rule

Many outright gifts to individuals are potentially exempt transfers. If the person making the gift survives for seven years, the gift will generally fall outside their estate for Inheritance Tax purposes. If they die sooner, the gift may use some or all of the available nil-rate band and tax may be payable depending on the circumstances.

Gifts with reservation of benefit

Giving an asset away while continuing to use or benefit from it can mean the asset remains within the estate. A common example is transferring a home to a family member but continuing to live there without paying a full market rent.

Keeping records

Executors may need evidence of what was given, when it was given, who received it and whether an exemption was claimed. Good records can make the eventual administration of the estate much clearer. We can help you consider gifting as part of your wider financial plan. Legal or specialist tax advice may also be required, particularly where property, trusts, business assets or international issues are involved.

Discuss a gifting strategy

Passing wealth on does not always mean passing it outright

A trust can be useful where you want to set money aside for particular beneficiaries while retaining a degree of control over how and when it is used. Trusts may be considered where:

• beneficiaries are young or may not be ready to manage a large sum
• you want to support several generations
• you want trustees to decide when distributions are appropriate
• family circumstances are complex or
• you want financial and estate planning to work together over time.

Trusts have their own tax rules, charges, reporting duties and legal consequences. Some arrangements may involve an immediate tax charge, periodic charges or restrictions on access to the assets. They should not be treated as a simple or automatic solution. Habitual Wealth can advise on the financial planning and relevant St. James's Place solutions within the scope of our permissions. Trust drafting and legal advice must be provided by an appropriately qualified legal professional, and we can work alongside your solicitor where required.

Help your family access money when it may be needed

Some families choose to use life assurance as part of their Inheritance Tax plan. A policy can be designed to pay a lump sum on death, which may help provide liquidity towards a future tax bill. Where a policy is written in an appropriate trust, the proceeds may be available outside the estate and potentially without waiting for probate. The premiums, medical underwriting, policy terms and trust arrangements all need to be considered carefully. Life assurance does not normally reduce the underlying Inheritance Tax liability. Its role is generally to help provide funds to meet some or all of that liability, potentially reducing the need to sell property, investments or business assets at an inconvenient time.

Review legacy assumptions before the rules change

From 6 April 2027, most unused pension funds and pension death benefits are due to be included within the value of a deceased person's estate for Inheritance Tax purposes. This is a significant change for people who have previously viewed pensions as a way of passing wealth outside the estate. It does not mean that pensions should automatically be spent, accessed or withdrawn. Pension decisions also affect retirement income, Income Tax, investment risk and beneficiary outcomes. A review can help you understand:

• how much of your wealth is held within pensions;
• whether your existing retirement income strategy remains appropriate;
• how pension death benefits may interact with the wider estate;
• whether beneficiary nominations remain suitable;
• the potential effect on liquidity and the eventual tax bill; and
• whether other estate-planning actions should be considered alongside the pension plan.

Any action should be based on the legislation and detailed guidance in force at the time, your retirement needs and personal advice. The rules are complex and further HMRC guidance may continue to develop before implementation.

Plan for the business and the people who depend on it

For business owners, the value of the company may form a significant part of the estate. Inheritance Tax planning therefore needs to connect with succession, shareholder arrangements, retirement income and the future ownership of the business. Business-related reliefs may be available, but the rules are detailed and have changed. Eligibility can depend on the nature of the business, the assets held, ownership history and how the business is structured at the relevant time. We can help you consider the business within your wider financial plan and coordinate with your accountant, solicitor and other professional advisers. Specialist legal and tax advice will usually be required before implementing a succession or relief-based strategy.

Financial, legal and tax decisions should support one another

Effective Inheritance Tax planning often requires more than one professional discipline.

Habitual Wealth can help with the financial planning, investment, pension and protection elements within the scope of our advice. We can work alongside your:

• solicitor, for wills, powers of attorney, trust drafting and legal advice;
• accountant or tax adviser, for specialist tax calculations and business matters;
• estate-planning or probate adviser, where appropriate; and
• other professional advisers involved in your business or family arrangements.

A coordinated approach reduces the risk of one decision undermining another. For example, a gift that appears attractive for Inheritance Tax purposes may create Capital Gains Tax, legal ownership or cashflow consequences that also need to be understood.

Wills, Powers of Attorney, Probate and other Legal advice are not regulated by the Financial Conduct Authority.

Inheritance Tax Planning FAQs