Estate Planning and Inheritance Tax

Inheritance Tax is generally charged at 40% on the value of an estate above the available allowances:

• Standard Nil Rate Band (NRB) – £325,000 per individual.
• Residence Nil Rate Band (RNRB) – up to £175,000 when passing a qualifying residence to direct descendants.
• Transferable Allowances – unused NRB and/or RNRB from a spouse or civil partner may be transferred, potentially doubling the available thresholds.

Assets included in an estate for IHT purposes typically include:

• Property and land.
• Investments and savings.
• Personal possessions and valuable items.
• Certain life insurance policies not written in trust.
• Gifts made within the seven years prior to death.

Allowances, exemptions, and reliefs can reduce the taxable value of an estate, but these need to be applied correctly and in the right order to achieve the intended result.

Estate planning is not solely about tax. A well-organised estate reduces the risk of disputes and ensures assets are distributed in line with your wishes as efficiently as possible. Organising your affairs in a clear and structured way can significantly ease the burden on executors and beneficiaries. Benefits can include:

• Asset consolidation – combining multiple accounts, policies, or investments into fewer, easier-to-manage arrangements.
• Closure of dormant or unused accounts – avoiding unnecessary administration and ensuring clarity.
• Clear documentation – keeping an up-to-date schedule of assets, liabilities, and important contacts.
• Streamlined beneficiary arrangements – ensuring pensions, life policies, and investment accounts have consistent and up-to-date beneficiary nominations.
• Faster estate administration – reducing the time, cost, and complexity of probate.

Gifts to registered UK charities are generally exempt from Inheritance Tax, regardless of when they are made. This means that any amounts you leave to charity in your will are deducted from the value of your estate before IHT is calculated.

In addition, if you leave at least 10% of your net estate (after deducting all allowances, reliefs, and debts) to charity, the IHT rate on the remainder of your estate may be reduced from 40% to 36%.

Some estate planning opportunities are missed simply through oversight. Addressing these areas can help reduce tax, avoid delays, and ensure assets are passed on as intended. Frequent issues include:

• Delaying action – Gifting requires a set period to take effect; leaving them too late can remove these options.
• Not updating plans after life events – Marriage, divorce, property sales, or new family members can all change how reliefs and distributions apply.
• Ignoring jointly held assets – The default ownership structure can override the terms of a will.
• Incomplete record-keeping – Lack of documentation may lead HMRC to reject exemptions such as gifts from surplus income.