Protecting Your Family from Inheritance Tax 🔒

If you’re a UK resident with assets to protect—whether it’s your home, investments, or business—you’re likely feeling the squeeze from rising inheritance tax (IHT) bills. In our recent webinar, “Protect Your Family from Inheritance Tax“, we dove deep into why IHT is becoming a bigger headache and shared practical strategies to safeguard your hard-earned wealth for your loved ones. IHT receipts have skyrocketed from £2.5 billion in 2000 to over £8 billion in 2024/25, and it’s no coincidence. Frozen thresholds, soaring property prices (up ~70% on average), and demographic shifts mean more estates are caught in the net.

This blog post recaps the key insights from the session, including actionable steps, exemptions, and a real-world case study. Whether you’re just starting your planning or refining it, the sooner you act, the better—time is your biggest ally here. (Quick note: This is for UK residents only; international rules add layers of complexity.)

If you missed the live event, check the recording out HERE.

Why Inheritance Tax Is a Growing Threat

IHT isn’t just for the ultra-wealthy anymore. With the nil-rate band (NRB) frozen at £325,000 since 2009 (until at least 2030, and possibly longer), what would be £500,000 if inflation-adjusted is dragging more families into the 40% tax bracket. Add in rising asset values (thanks to low interest rates and inflation) and frozen thresholds across the board, and suddenly your estate could face a hefty bill—eroding what you’ve built over a lifetime.

Key drivers of the rise:

  • Frozen thresholds: NRB, residence nil-rate band (RNRB), and gift exemptions haven’t budged in years.
  • Asset inflation: Property and investments grow, but reliefs don’t.
  • Demographics: Longer lifespans mean more estates tip over the edge.

The good news? Proactive planning can slash your liability. But first things first…

Step 1: The Foundation—Get Your Will in Place

Dying intestate (without a will) hands control to the state, and it’s rarely optimal for IHT or family harmony. Under intestacy rules:

  • If you have a spouse and children: £322,000 goes to the spouse, then 50/50 split thereafter.
  • Spouse only: Everything to spouse.
  • Children only: Split equally at 18.

This could trigger unnecessary IHT, spark disputes, or leave assets unprotected. A will lets you:

  • Direct assets exactly as you wish.
  • Minimise IHT through spousal exemptions and trusts.
  • Protect against care fees or divorce claims.

Pro tip: Review your will after major life events (marriage, birth, divorce). Most of you likely have one, but it’s worth a refresh—intestacy causes chaos.

Step 2: Calculate Your IHT Liability

Knowledge is power. Start by mapping your estate:

1. List assets: Property, investments, business shares, pensions, cash.
2. Deduct liabilities: Debts, mortgages.
3. Record gifts: Track potentially exempt transfers (PETs) and the 7-year rule.
4. Note wishes: Specific bequests?
5. Apply reliefs: NRB (£325k/person), RNRB (£175k/person, tapering above £2m estate).

Without planning, your family will face 40% on everything over thresholds. With it? Massive potential savings and peace of mind.

Heads-Up: Major IHT Changes on the Horizon

The Autumn Budget is November 26, 2025 – join my Bournemouth debrief on the 27th for a summary and networking event with ambitious business owners. But key shifts are locked in:

  • April 2026: Business Property Relief (BPR) and Agricultural Property Relief (APR) capped at £1m (100% relief), then 50% thereafter. (20% IHT on excess—lock in 100% now via trusts!)
  • April 2027: Pensions lose IHT exemption. No more “touch last”—plan draws or transfers ASAP.
  • Joint planning note: BPR/APR caps aren’t transferable between spouses, unlike NRBs.

These changes hit families, farmers, and business owners hard. Act now.

Everyday Exemptions: Start Gifting Smartly

Gifts reduce your estate’s value—legally and effectively. Combine these for compound impact:

Exemption Details Annual/Max Amount
Annual Exemption Per person; carry forward unused from prior year. £3,000 + £3,000 = £6,000/couple (up to £12k with carry-forward).
Wedding Gifts From parents/grandparents/others. £5,000/£2,500/£1,000 per donor.
Small Gifts Per recipient/year. £250/person.
Normal Expenditure out of Income Gift surplus income (not capital) without 7-year rule. Prove it sustains your lifestyle. Unlimited—if documented (grab our template!). Ideal for high earners with low outgoings.

 

Game-changer: Normal expenditure lets you gift from excess income (e.g., if earning £100k but require £50k to sustain lifestyle, potential for £50k to be gifted per annum). For minors, use:

  • Bare Trust: Child gets full access at 18.
  • Junior ISA: £9k per annum per child – note child also gets full access at 18.
  • Discretionary Trust: You control distributions as trustee.

Charity Bonus: Leave 10% of your net estate to charity? IHT drops to 36%.

CGT vs. IHT: The Eternal Trade-Off

Lifetime gifts save IHT but may trigger Capital Gains Tax (CGT). Weigh it:

  • Uplift on Death: Assets pass at market value, wiping pre-death gains (no CGT for heirs).
  • Hold-Over Relief: Defer CGT on gifts to relatives/trusts (base cost carries over—bigger future bill?).
  • Death-Bed Planning: Consider transferring to the shorter-lived spouse for full uplift, then gift (tax-free spousal transfers).
  • Rollover Relief: Reinvest business sale proceeds into qualifying assets, defer CGT.

CGT rates align at 18% (basic) or 24% (higher) from October 2024; Business Asset Disposal Relief rises to 18% on first £1m (April 2026). Pay CGT now if assets will appreciate wildly—better than 40% IHT later. But beware: Gift too soon, and you could pay both if you die within 7 years.

Lifetime Gifting: Master the 7-Year Rule

Gifts (PETs) exit your estate after 7 years, with taper relief:

  • 0-3 years: 40% IHT.
  • 3-4: 32%; 4-5: 24%; 5-6: 16%; 6-7: 8%; 7+: 0%.

Pitfalls to Avoid:

  • Gift with Reservation of Benefit (GWROB): Live in a gifted home? It stays in your estate.
  • Pre-Owned Assets: Sell home, gift cash, kids buy you a new one? Rent market rate or face IHT/income tax.

Timeline gifts carefully—cash/investments are low-friction; property triggers CGT/SDLT. Use trusts for control.

Maximise Allowances: NRB, RNRB, and Trusts

  • NRB: £325k/person, transferable (up to £650k/couple).
  • RNRB: Extra £175k/person for main home to direct descendants (up to £1m/couple), but tapers £1 per £2 over £2m estate. (Lose it entirely above ~£2.35m.)
  • Transferable Reliefs: Claim unused from pre-2017 deaths or multiple spouses (capped at 100%).

Trusts 101:

  • Discretionary: Control access; hold-over CGT; use NRBs to settle £650k tax-free.
  • Discounted Gift: Retain income rights; HMRC discounts value (e.g., £200k in = £100k estate reduction).
  • Entry/Exit Charges: 20% IHT on excess over NRB; 10-year/periodic fees apply.

For larger estates, Family Investment Companies (FICs) shine: Fund the FIC (through debt or equity), issue growth shares (minority discount 75-80% valuation cut – consider building in a hurdle to mitigate IHT entry charge on issue), freeze some growth outside your estate while retaining control. Achieve minority discounts on founders shares over time (through gradual gifting of founder’s shares). Suited for business owners facing BPR caps, as well as corporate landlords with larger estates.

Other Tools:

  • Life Insurance in Trust: Covers IHT bill without inflating estate (whole-of-life for guarantees).
  • EIS/SEIS/AIM Shares: 100% IHT relief after 2 years (50% post-2026); rollover CGT relief. Higher risk—seek advice.
  • Deed of Variation: Rewrite will within 2 years of death (with consent) to skip generations or claim reliefs.

Don’t forget Lasting Powers of Attorney (LPAs)—your “living will” for health/finance if incapacity strikes.

Case Study: John and Mary’s £4m Estate Makeover

John and Mary (married, adult kids) have £1.5m home, £650k investment properties, £2m business shares, £500k savings. Unplanned IHT? £1.34m bill (RNRB fully tapered).

Their Plan:

  • Wills/Trusts: Bulk to spouse on first death; use NRB/RNRB to shield £1m.
  • Lifetime Gifts: £650k properties into discretionary trust (save £260k IHT post-7 years).
  • Business Shares: Settle into trust pre-April 2026 for 100% BPR (£800k saved).
  • Discounted Gift Trust: £200k in, £100k immediate reduction + balance post-7 years.
  • Whole-of-Life Policy: Covers remaining £360k liability.

Result: £1m+ saved. Their family’s legacy? Preserved and thriving.

Final Thoughts: Start Today, Thank Yourself Tomorrow

IHT planning isn’t morbid—it’s loving. It ensures your family gets more of what you built, not the taxman. Review annually, document everything, and blend exemptions with trusts/investments for max impact.

Questions from the webinar? We covered gems like normal expenditure timing (same tax year, ideally) and pension lump sums (clarified in follow-up). For personalised advice, book a chat using the Calendar below.