IHT is a type of tax that can apply to both lifetime gifts and people’s estates when they pass away. It’s charged at a standard rate of 40%, but only paid on estates worth more than £325,000 (or up to £650,000 for married couples or civil partners). The Office for Budget Responsibility estimates it’ll raise £9.1bn in 2025/26 alone . Inheritance tax can be charged on the estate you pass on after you die.

This estate might include:

• personal possessions
• money, savings and investments
• properties, land and other assets

In addition any gifts made in the 7 years before the person’s death can also be subject to IHT.

Also worth noting is that from April 2027, any unused pension assets will also fall under the scope of an estate. Without forward planning, this could mean a much higher percentage of your pension is paid in tax.

Not everyone will need to budget for inheritance tax. Different allowances and thresholds can affect what your estate pays:

• Benefits for spouses and civil partners. IHT won’t apply if your spouse or civil partner inherits everything (or everything above your nil rate band)
• Standard nil rate band. Estates valued at up to £325,000 aren’t subject to IHT. This is called the nil rate band (NRB) and is the threshold up to which an estate pays 0% IHT, 
• Residence nil rate band (RNRB). The RNRB can extend your tax-free IHT threshold by £175,000 if you leave a home to your direct descendants. Note this allowance is reduced for estates over £2 million.
• Passing on unused allowances. There’s another benefit for married couples and those in civil partnerships. If one partner fails to use their nil rate band or Residence nil rate band when they pass away, it’s possible for the surviving person to claim it. This could result in a tax-free allowance of £1m.

According to HM Revenue & Customs (HMRC) data, only 4.62% of deaths led to IHT charges in the 2022/23 tax year. Here are some of the reasons it might not apply to your estate might:

• Value of the estate. If your estate falls below the nil rate band, there’s usually nothing to worry about.
• Exempt beneficiaries. For example, if you decide to leave all taxable elements of your estate to a spouse, civil partner or charity.
• Gifting money. An ‘annual exemption’ lets you gift up to £3,000 to loved ones each tax year, without it counting towards your estate. Gifts above £3,000 can also be exempt if they meet other conditions (eg: on marriage) or if you pass away at least seven years after making them
• Making regular payments. Providing regular support to another person shouldn’t count towards IHT, so long as it is made out of excess income it doesn’t impact your standard of living. Grandparents  with sufficient income paying the school fees of younger relatives, for example.

Inheritance tax planning might seem complex at first. But there are plenty of ways to get a head start. If you haven’t already, look at the following four measures.

Write a will

By making a will, you can set out how your estate should be divided once you pass on. It’s a legal document that ensures your wishes are carried out.

Consider gifts and donations

Certain gifts and donations are shielded from IHT. For example, gifts between spouses and civil partners aren’t in scope. The same goes for donations to political parties and charities.

Meanwhile, your annual exemption lets you gift up to £3,000 a year without it impacting your estate. You can also gift up to £5,000 to your children on the occasion of their marriage (or £2,500 for Grandchildren).

Look into trusts

With a trust, you pass on money or assets to another party, called a trustee. They can then manage them on behalf of your beneficiaries. For example, parents might choose to place cash, investments or properties in a trust. These assets would be managed by a trustee for the benefit of their children.

Gifts into trusts are irrevocable and have broader tax implications, such as an immediate IHT charge on gifts in excess of the Nil Rate Band, which require consideration and professional advice should be sought.

Seek professional advice

With different thresholds and exemptions, inheritance tax planning can be challenging on your own. A professional financial advice service could make everything clearer.

Depending on your needs and goals, an adviser can review your assets and potential tax liabilities. They may also get you thinking about your retirement income, healthcare costs, living expenses and other later-life considerations.

See how our financial advice works

Yes! Inheritance is a human, as well as a financial, reality. As our lives change and our situations evolve. IHT planning will be different for everyone. But here are some key steps you can take to prepare:

Plan early!

Nobody can be sure what life will throw at them. IHT and estate planning aren’t just for older people – consider what your family would need if you’re not around anymore.

Regularly review your plans if your life changes.

Estate planning shouldn’t be a one-time event. A plan made a decade ago may not still be the best solution today – whether that’s because your financial position is evolved, tax regulations have changed, or simply that your life, relationships, needs and expectations are different to what they were 10 years ago. Whether checking a will, monitoring gifts or staying up to date with tax thresholds, it’s important to evolve as your circumstances change.

Maintain full and accurate records.

This should stop your estate from underpaying – or overpaying – inheritance tax, meaning your family can get the best support possible.

Keep beneficiaries in the loop.

This can feel awkward on a personal level, but it’s genuinely important for lots of reasons. Talking openly about death and money won’t come naturally to everyone, but a transparent approach could make things easier for your beneficiaries.

Planning around inheritance tax: key takeaways

• Not everyone will face IHT – but planning ahead can get your family and finances ready.
• IHT can form part of your wider later-life planning, along with pension saving and estate administration.
• Open and honest conversations with loved ones and advisers can prevent unexpected surprises.