The cost of applying for probate is set to rise by 75% next month, leaving grieving families forking out hundreds of pounds extra.

The Ministry of Justice (MOJ) has confirmed the Grant of Probate fee will increase on 13 July from £300 to £526, subject to parliamentary approval.

Martyn James, consumer expert, said the hike would leave people “absolutely justified in feeling upset and ripped off”.

He added: “Probate is one of the most antiquated, bureaucratic and complex processes we will encounter – precisely at the point where we need simple and clear help the most.”

The MOJ confirmed it is also set to increase a further 170 court and tribunal fees by 2.6% and 27 by an average of 34% on 13 July. Four fees will be reduced to account for a fall in underlying costs.

HM Courts and Tribunals Service said the time taken to resolve a probate case had more than halved since 2023 thanks to its investment in staff as well as system improvements.

A MOJ spokesperson added:  “We know that losing a loved one is already a difficult time. That’s why it’s vital the probate service remains as smooth, swift and simple as possible. 

“The new fee reflects the full cost of an ever-improving service which enables families to resolve disputes in as little as two weeks. Increasing fees is always a last resort, however the new cost accounts for rising inflation as well as investment in delivering an efficient and modern service.

“The worst off will face no fees whatsoever and anyone struggling can still apply to have the fee reduced or removed entirely through our Help with Fees scheme.”

What is probate?

Probate is the legal right granted to someone to deal with and distribute another person’s estate (property, possessions and money) when they die.

You can only apply for probate if you’re the executor of a will or the closest living relative of someone that has died who didn’t have a will in place.

Typically, the next of kin or executors of a will have to apply for probate before they can claim, transfer or distribute a deceased person’s assets.

You don’t always need to apply for probate. You may not need it if the person who died only had savings in their estate. You may also not need probate if they owned shares or money with others, in which case the shares and money go to the surviving owner.

You also don’t need to apply for probate if the deceased person owned land or property as a joint tenant. In this instance, the land or property is automatically passed to the other tenant.

Financial institutions, such as banks and mortgage lenders, have different rules on whether you can access a deceased person’s assets without having been granted probate, so it’s worth contacting them to find out what you need to do.

How do you apply for probate?

You can apply for probate by post or online via gov.uk, which is usually quicker.

If you’re applying by post, the form you need to fill in is different depending on whether the person left a will or not.

If they did, you need to fill in the application form PA1P. If they didn’t have a will, you need to fill in the PA1A form.

The government says the probate is typically granted within 12 weeks of submitting an application.

It’s crucial you do a few things before applying for probate though.

This includes working out an estimate of the value of the dead person’s estate for inheritance tax (IHT) purposes.

Even if no IHT is due, you’ll need the value as part of your probate application.

If IHT is due on the estate, you have to report its value to HMRC within one year via an IHT400 form. You can’t apply for probate until this is done and normally need to start paying any IHT due before you can get probate granted.

If IHT is owed on an estate, you also need to send “full details” of the estate to HMRC within 12 months of the person dying and before applying for probate.

Full details refers to the estate’s assets and debts, any gifts made, and any reliefs and exemptions.

Even if no IHT is owed, you may still need to send full details of an estate to HMRC.

For example, if the person who died gave away over £250,000 in the seven years before they died or if their estate is worth more than £3 million, you will need to contact HMRC.

There is a whole list of reasons on the gov.uk website of why you may still need to send full details of an estate to HMRC despite no IHT being owed.

You don’t have to give full details of an estate’s value to HMRC if all of the following applies:

• The estate counts as an “excepted estate”,
• There’s no IHT to pay, and
• There are no reasons, as per gov.uk, the full details of an estate still need to be sent to HMRC, despite IHT not being due.

An estate is typically classed as excepted if its value is below the nil-rate band (£325,000) or it’s worth £650,000 and any unused nil-rate band was transferred to a surviving spouse or civil partner.

An estate is also classed as excepted if the person who died left everything to a spouse living in the UK or a qualifying charity and the estate is worth less than £3 million.

The last way an estate can be excepted is when the deceased person was living permanently outside the UK when they died and the value of their UK assets is £150,000 or less.

HMRC is increasingly hitting bereaved families with penalties for filing inheritance tax returns late as they struggle with long, complicated forms, according to data from a Freedom of Information request.

The number of penalties issued by HMRC for filing inheritance tax (IHT) returns late increased 35% from 3,850 to 5,200 over the last five years, data up to the tax year 2024/25 obtained by TWM Solicitors showed.

Fines for late filing rapidly increase over time, from an initial £100 to up to £3,000 after 12 months.

Many families with modest estates have been drawn into paying IHT in recent years, largely because the IHT threshold has remained frozen since 2009. Even an average house can now trigger an IHT bill on its own.

But Duncan Mitchell-Innes, partner and deputy head of private client at TWM, said the increase in late penalties is also being driven by more families attempting to complete IHT returns themselves, without realising the complexity involved.

“People often underestimate the complexity of the UK’s IHT rules. What seems like a straightforward task can quickly become time-consuming and technically challenging, particularly when HMRC requires extensive supporting evidence. This can lead to penalties if deadlines are missed,” he said.

Complex IHT forms

The basic IHT400 form alone has 122 questions, often requiring detailed financial and historical information.

This is the main form families will need to fill in for inheritance tax purposes. But in many cases, it must be supplemented by additional schedules – requests for information – of which there are more than 30, depending on the nature of the estate.

One of the most time-consuming parts of an IHT return, according to lawyers, relates to the valuation of assets. Many assets, such as residential property, need to be valued professionally – market estimates are not enough.

In addition, some assets, such as shares, have specific ways of being valued for IHT purposes. Getting these valuations completed on the correct technical bases can be time consuming without prior technical knowledge.

Delays can also arise where executors struggle to identify all the relevant details needed for the IHT400. This can include tracing all bank accounts, investments and historical gifts, which sometimes go back many years – for instance due to the seven year rule. Many banks only provide this information by post.

Missing out on inheritance tax reliefs

Mitchell-Innes said it can be hard for people handling their loved one’s IHT return on their own to identify all the relevant technical reliefs and exemptions that may apply, together with gathering the evidence to support them.

For example, gifts made out of surplus income or more than seven years before death may be exempt, but finding evidence to support that exemption can take time.

Some families handling their own return even lose out on reliefs and exemptions available to them simply because they do not know they exist.

“Reliefs aren’t applied automatically. People must actively claim reliefs and exemptions and find the evidence to support them where needed, which can be time-consuming. Without proper advice, families risk penalties and leaving valuable reliefs unclaimed,” said Mitchell-Innes.

The number of penalties for late filing of inheritance tax returns is likely to increase further after unused pension pots are brought into the IHT net from April 2027, leading to more families having to submit a return.

The development is expected to increase the demands on personal representatives – those in charge of administering the estate left behind after a death – to get the pension IHT paperwork right, or face potential fines themselves.

Inheritance tax is a tricky topic. Taboos around speaking about money and the emotion that comes with thinking about death create a perfect storm for misunderstanding it. But with such complex rules around inheritance, it is a topic well worth talking about – and sooner rather than later.

Lisa Conway-Hughes, a certified financial adviser and founder of LCH Wealth, speaks to Kalpana Fitzpatrick on MoneyWeek Talks about how the inheritance tax regime is changing from April 2027. She reveals her biggest trick to help protect your pension. Tune in now on YouTube or on most podcast platforms.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

The £1 million inheritance tax-free allowance figure is one of those numbers that has taken on a life of its own. Most people know about it, but very few have checked whether it applies to them.

At first glance, it seems straightforward. A couple has two nil-rate bands – also known as inheritance tax-free thresholds – at £325,000 each and two main residence nil rate bands at £175,000 each. Add the allowances together and you get £1 million you can pass on free of inheritance tax, which is otherwise charged at up to 40%.

But in reality, it is more complicated.

For example, if you’re married or in a civil partnership, any unused inheritance tax-free threshold can be added to your partner's threshold when you die. This tax perk does not apply to unmarried couples.

Sue Allen, chartered financial planner at Chester Rose Financial Planning, warns. “Care needs to be taken to ensure you qualify or know where you stand,” she says.

The issue usually lies with the £175,000 residence nil-rate band, which you could get if you give your home to your children or grandchildren. This extra allowance is often treated as part of the standard allowance. But it isn’t – and certain rules mean you may not get it.

When does the £1 million inheritance tax-free allowance not apply?

In practice, there are a few common scenarios where the main residence nil rate band is assumed to apply but doesn’t.

1. Couples without children

Couples without children are a straightforward example of where the £1 million inheritance tax-free allowance doesn’t apply.

“It is common for them to assume they are comfortably within the £1 million threshold, only to find that, without direct descendants, the main residence nil rate band doesn’t apply to them,” said Allen.

“At that point, the IHT allowance drops to £650,000 between them, which can come as quite a shock.”

2. Estates worth more than £2 million

The £2 million inheritance tax threshold acts as a tapering point for the residence nil-rate band. If your estate – total assets minus debts – is worth more than £2 million, the residence nil-rate band is reduced by £1 for every £2 that the estate exceeds this threshold.

If an estate's net value exceeds £2.35 million, the residence nil rate band is completely lost for a single individual. For a surviving spouse, the threshold for complete loss is £2.7 million.

“There is a growing number of people, particularly in London and the Southeast, who find themselves over the £2 million threshold without really thinking of themselves as having large estates. A property and a reasonable level of investments can get you there,” said Allen.

“We often find that, as a result, these clients don’t qualify at all for the main residence nil-rate band.”

Inheritance tax on pensions is due to change in April 2027, with most pensions being treated as part of the estate by HMRC for IHT purposes from then. This will increase the value of estates, potentially pushing them over the £2 million threshold when the residence nil rate band starts to taper.

3. Downsizers

Later-life decisions can create further complications when it comes to inheritance tax thresholds. Downsizing, for example.

There are rules that allow you to preserve a percentage of the main residence nil rate band when you sell a property – known as the downsizing addition or downsizing relief. However, these rules are not straightforward and require careful planning.

The amount of the downsizing addition will usually be the same as the residence nil rate band lost when the former home is no longer in the estate. Again, the amount of the preserved main residence nil rate band needs to be left to direct descendants to qualify.

It will also depend on the value of the other assets left to direct descendants. The downsizing addition cannot be more than the maximum amount of residence nil rate band available if the sale or downsizing had not happened.

The estate’s personal representative must make a claim for the downsizing addition within two years of the end of the month that the person dies. HMRC can extend this time limit in some circumstances.

You do not have to tell HMRC when the downsizing move, sale or gift of the former home happens. The estate’s personal representative makes a claim for residence nil rate band and any downsizing addition when filling in the inheritance tax returns.

You should keep the details of the move, gift or sale so that the estate’s personal representative can get that information when they make the claim.

You can only take one move, sale or other disposal of a former home into account for the downsizing addition. If the person that died downsized more than once, or sold or gave away more than one home between 8 July 2015 and the date they died, the estate’s personal representative can choose which to use to calculate the downsizing addition.

4. Blended families

Blended families are another area where things don’t always align when it comes to inheritances. They are increasingly common, but the inheritance rules haven’t kept pace. This can often lead to disputes over inheritances.

“It’s easy for assets to be passed in a way that makes perfect sense from a family perspective but doesn’t meet the technical requirements for the main residence nil-rate band,” said Allen.

For residence nil rate band purposes the direct descendant is:

• a child, grandchild or other lineal descendant
• a spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)

This also includes:

• a child who is, or was at any time, their step-child
• their adopted child
• a child fostered at any time by them
• a child where they’re appointed as a guardian or special guardian when the child is under 18

The person who inherits the home does not have to be under 18. But a person’s step-child is only someone whose parent is, or was, the spouse or civil partner of that person – cohabiting doesn’t count.

Direct descendants also do not include nephews, nieces, siblings and other relatives.

How to avoid the £1 million inheritance tax trap

The key thing to do is forget the £1 million inheritance tax-free threshold – unless it actually applies to your specific situation. If you’re able to, using gift allowances and giving gifts early on could reduce a potential inheritance tax bill, as inheritance tax is not charged on gifts made more than seven years before death.

“Plan around the actual position,” said Allen, from Chester Rose. “In many cases, that means starting to gift earlier rather than later, as the seven-year rule is only useful if there is enough time for it to work.”

Regular gifting out of surplus income is also often overlooked, despite being one of the more practical options available.

“However, careful record-keeping and a clear understanding of the rules are essential, as not all assumed income qualifies. It is also important to have a cash flow plan in place that identifies how much you can afford to gift and when. You do not want to leave yourself short in later life,” said Allen.

Wills might need to be revisited to ensure the structure doesn’t prevent the claiming of the main residence nil rate band, or that planning can be undertaken after death to ensure this can be claimed. “This is particularly important when trusts are incorporated into wills,” said Allen.

For those close to the £2 million threshold, even small adjustments can help preserve part of the main residence nil-rate band. Without such planning, it can disappear entirely.

“The £1 million figure isn’t wrong, but it is conditional,” Allen said. “The difficulty is that most people don’t realise how conditional it is until they look more closely at their own situation. By then, the number they have relied on for years isn’t quite right.”

Inheritance tax planning can be complicated and is highly individual to specific circumstances. It’s always a good idea to get specialist legal and financial advice before acting.

HM Revenue and Customs (HMRC) is cracking down on property valuations in inheritance tax (IHT) returns as rising house prices see more families dragged into the taxman’s net.

The number of cases HMRC referred to the Valuation Office Agency (VOA) rose by 23.5% from 11,845 in the 12 months to September 2024 to 14,631 in the year to September 2025, according to new Freedom of Information (FOI) figures obtained by private wealth and law firm TWM Solicitors.

Executors of estates have to include property valuations in inheritance tax returns which HMRC then uses to determine how much an estate should be taxed.

However, HMRC can refer cases to the VOA if it believes a property has been incorrectly valued, with TWM finding HMRC is ramping up its scrutiny of property valuations.

The solicitors said its lawyers would usually be contacted about incorrectly valued homes “once or twice every few years”, but this was now happening more frequently.

It comes as frozen inheritance tax thresholds and rising house prices push more people into handing over money to the taxman.

Laura Walkley, head of the private client team at TWM, said: “HMRC is clearly focusing on property valuations as a significant potential source of revenue. There has been a noticeable shift towards questioning figures submitted in inheritance tax returns, rather than accepting them at face value.”

An HMRC spokesperson said: “The majority of people pay the correct amount of inheritance tax. As has always been the case, where it is suspected an individual has not, investigations can be opened.”

Why it’s important to value a property correctly

Executors need to value a property correctly so HMRC has an accurate view of how much inheritance tax should be paid.

If the property within an estate sells for significantly more than its date of death value – the value of the home on the date the person died – HMRC may ask the VOA to examine the valuation, Walkley explains.

If it is found that the date of death value was higher than the one included in the inheritance tax return, the estate is charged additional inheritance tax on the difference between the two values.

HMRC will also apply interest (of 7.75% per year) on the extra tax due from six months after the end of the month of the death. So, if the person died in January, the interest would begin accruing from 1 August that same year.

If HMRC finds the executor intentionally undervalued the property [in order to pay less inheritance tax for example], or did not take reasonable care in obtaining a valuation, it may apply a penalty in addition to the interest.

“Broadly speaking, HMRC could deem a failure by the executors to value property in accordance with established best practice as careless,” Walkley explains.

How to value a property correctly

According to Walkley, executors are considered to have taken reasonable care if they either get a survey carried out on the property by the Royal Institution of Chartered Surveyors (RICS) or have three estate agents carry out valuations and take the average of the three.

In any case, the key to valuing a property for inheritance tax purposes is that the value is the open market value of the property at the date of death, she says.

She adds: “There is a perception that there is such a thing as a ‘probate value’, which is lower than the open market value, but this is incorrect.”

How you can pay less inheritance tax on property

There’s not much you can do about rising house prices, but there are steps you can take to ensure your beneficiaries pay less inheritance tax on an estate including property.

Leave your property to a child or grandchild and transfer bands to a spouse or civil partner

Inheritance tax is usually payable on estates worth £325,000 or more but this increases by £175,000, known as the residence nil-rate band, if you are leaving your home to a child or grandchild. You can pass this £175,000 allowance to a partner if you die.

This means couples who are married or in a civil partnership could leave up to £1 million to loved ones and they wouldn’t owe any inheritance tax.

Do note, for every £2 your estate is worth more than £2 million, you lose £1 of this residence nil-rate band until it disappears. This means estates left by a single person worth £2.35 million receive no residence nil-rate band, while for couples it’s £2.7 million.

Charlene Young, senior pensions and savings expert at investment platform AJ Bell, says the gradual loss of the residence nil-rate band for estates worth more than £2 million is “potentially storing up another tax trap for wealthy pensioners with high value properties”.

Sell your home

Gifts of any size are free from inheritance tax if made seven years or more before your death, so you could, in theory, sell your home and its value would end up outside your estate if you live long enough, Young points out.

However, if you want to carry on living in the property, you will have to pay the new owner rent at market value.

“If you don’t, the value of the property simply gets added back to your estate, no matter how long has passed under the gifts with reservation rules,” Young says.

We look at how to claim money back if asset prices fall in a separate guide.

Inheritance tax bills are on the rise and there are some parts of the UK where the liability is set to hit six figures.

Despite a £325,000 threshold and a £175,000 main residence allowance, frozen thresholds, high house price growth and rising asset values have pushed increasing numbers of estates into the inheritance tax trap.

Research by The Private Office reveals that homes in 136 local authorities are already exposed to inheritance tax in 2026, with estimated average liabilities ranging from just over £150 to more than £340,000 per estate.

The wealth manager analysed average property prices by local authority and estimated inheritance tax liabilities even with the nil-rate band and main residence allowance.

The Private Office’s analysis found that Kensington and Chelsea ranks as the UK’s most expensive inheritance tax hotspot, with most liability in London and the South East of England.

More regions could be hit from 2027 as well when unused pension savings are included in inheritance tax calculations.

Here are the regions facing the highest inheritance tax bills.

The regional inheritance tax divide

The data suggests a regional imbalance in inheritance tax exposure across the UK in 2026, with liabilities heavily concentrated in London and the South East.

This is compounded by higher house prices in these regions meaning an estate could easily surpass the current frozen thresholds.

Kensington and Chelsea tops the list, where the average property value is £1.18 million.

The estimated IHT liability reaches £343,924 per estate and the total average estate values exceed £1.3 million, according to the research.

Other London boroughs, including Camden, Richmond upon Thames and Hammersmith and Fulham, also show projected tax bills well into six figures. Beyond the capital, affluent southern areas such as Elmbridge, St Albans and Windsor and Maidenhead remain within taxable territory, reflecting sustained house price growth across commuter-belt locations.

In contrast, northern England features very limited exposure at higher levels, with only a small number of areas approaching the tax threshold.

Trafford is the only northern authority appearing in the dataset, with an estimated average inheritance tax liability of around £20,814.

The impact of pension changes on inheritance tax

More estates could be caught as a result of pension changes coming next year.

From 6 April 2027, unused pension funds will be included within an individual’s estate for inheritance tax purposes.

By combining average property values across 372 local authorities with estimated pension wealth, the research indicates that 152 areas previously below the threshold could become liable, bringing the total number of exposed local authorities to 288.

New regions that could face inheritance tax bills for the first time after the pension changes include Stevenage in Hertfordshire as well as the City of Edinburgh in Scotland and Cardiff in Wales.

Pippa Vick, financial adviser at The Private Office, said: “Inheritance tax is increasingly becoming a property tax by default.

"Many families don’t consider themselves wealthy, yet long-term house price growth – particularly in London and the South East – means their estates can face substantial tax bills. Without proper planning, beneficiaries may be forced to sell assets simply to settle the liability. Early advice and structured estate planning can significantly reduce the eventual tax burden.

“Pensions have long sat outside inheritance tax calculations, so bringing them into scope has a major regional impact. In high-property-value areas, the effect is dramatic, but even in more affordable regions, families who previously expected no inheritance tax may now face a bill. Planning early will be crucial.”

Business owners and farmers must play by strict new rules when it comes to passing on assets, after changes went live at the start of the new tax year on 6 April. But some families will be left much worse off than others under the switch.

The beneficiaries of unmarried couples, divorcees and single farmers and business owners could face paying potentially hundreds of thousands of pounds more in inheritance tax compared to if they had been married, following the implementation of the controversial changes to some IHT reliefs this month.

Sean McCann, chartered financial planner at NFU Mutual, said: “While married couples can potentially leave up to £6.3 million of qualifying agricultural and business assets free of inheritance tax, the same is not true for single farmers or divorcees who haven’t subsequently remarried who are limited to a maximum of £3.15 million.”

What are the new APR and BPR rules?

Businesses and farms are entitled to what’s known as business property relief (BPR) and agricultural property relief (APR) – these reliefs limit the amount of inheritance tax due.

In the 2024 Autumn Budget, the government announced plans to cap the value of agricultural properties and businesses that could be passed on free of inheritance tax to £1 million – anything above that level would only get 50% tax relief.

Inheritance tax is charged at 40%, so the change would effectively introduce a 20% tax rate on the value of inherited farms or businesses over £1 million.

Following pressure from farming and business groups, the government amended the policy in December 2025, announcing it would raise the cap to £2.5 million.

It also permitted the allowance to be inherited by a spouse or civil partner – on top of existing allowances of £325,000 IHT-free per person, plus the nil rate residential allowance of £175,000 per person – boosting the amount that could be passed on IHT-free to £5.65 million.

But certain groups are set to miss out on the more relaxed rules, leaving their families with much bigger inheritance tax bills.

Hardest hit by new inheritance tax rules

Married couples and civil partners have significant advantages when it comes to inheritance tax planning. Anything left to the surviving partners after the first death is normally free of IHT.

The survivor can also benefit from any unused part of their late spouse’s £2.5 million inheritance tax-free APR and BPR allowance as well as the £325,000 inheritance tax-free allowance.

Unmarried couples do not benefit from the spousal exemption, meaning that leaving assets to a surviving partner could trigger a bigger IHT bill. In this case, while the deceased’s £2.5 million APR and BPR allowance and £325,000 tax-free allowance would cut the amount of IHT payable, only the survivor’s allowances would be available on the second death when passing assets to the younger generation – not the combined allowances as would be the case of a married couple.

Divorcees also miss out – while widows and widowers can benefit from their late spouse’s unused £2.5 million 100% APR/BPR allowance, regardless of whether they owned agricultural or business assets, the same is not true of divorcees who have not remarried. Beneficiaries of divorcees can only benefit from the person who has died’s allowances.

Bigger inheritance tax bill

McCann from NFU Mutual has highlighted one example which shows the significant difference in the IHT bill depending on whether the deceased is a widower or a divorcee.

Take Steve, who owns a farm and business assets worth £6.5 million. He has:

• 300 acres worth £3.5 million
• machinery and stock worth £1 million
• farmhouse and buildings worth £2 million

The table shows the difference in how Steve would be treated for inheritance tax purposes depending on whether he is a widow or a divorcee.

Ways to avoid inheritance tax

There are some strategies those affected by the changes to agricultural property relief and business property relief can use to help avoid inheritance tax or reduce their inheritance tax bill.

Couples who are not married face additional complexities as they don’t benefit from the tax-free exemption available to spouses. This means leaving assets to a common law partner could trigger an inheritance tax liability, followed by a second charge on their subsequent death.

“Unmarried couples who want to maximise the amount passed on to younger generations could consider using the £2.5 million 100% APR and BPR allowance and £325,000 tax-free allowance to leave assets to the younger generation on first death, leaving the survivor free to do the same,” said McCann.

For those unmarried couples who don’t wish to get married, it’s important to take advice on the advantages and disadvantages of this approach before taking any action, he said.

McCann added: ‘’Before the inheritance tax proposals were announced, the approach of many farmers was to gradually hand over more of the day-to-day management to the younger generation while holding onto the ownership of the assets until a later date.

“The new rules will prompt many to pass on the assets at an earlier stage, because if they live seven years [after giving the gift], they would normally be free of inheritance tax.

‘’For that to work it’s important that the farmer doesn’t continue to benefit from the assets they give away. If they intend to continue in the business, they’ll need to pay a market rent to the new owner or if in partnership with them, reduce their profit share to reflect the new ownership.’’

The number of probate cases taking almost two years to be finalised has more than doubled since 2020/21, according to Freedom of Information data from the Ministry of Justice.

In a significant worsening of delays, the share of probate cases taking between 21 and 23 months to be granted has risen by 131% (from 88 to 203) in the past five years.

The biggest increase in the length of time taken to grant probate was in the category of people waiting ‘over a year’ for the process to be completed, which was up by 171% since 2020/21. There were 737 cases waiting this long at the time, compared to 2,040 in 2024/25.

Financial experts are warning the situation is likely to worsen further when pensions are brought into the scope of inheritance tax (IHT) from April 2027. They are urging people to take action now to reduce complexity for those left behind and avoid probate disputes and delays.

Ian Futcher, financial planner at wealth manager Quilter, which obtained the FOI data, said: “A growing number of families are now waiting well over a year, and in some cases nearly two years, for probate to be granted. That creates real stress for executors and beneficiaries alike.”

With pensions set to become part of the taxable estate, there is a real risk that these delays become even more entrenched, he added. “Executors may need to track down information across multiple pension schemes, confirm valuations and deal with additional tax reporting, all while the clock is ticking on inheritance tax.”

We look at how to navigate the maze of inheritance tax paperwork in a separate article.

What is probate?

Probate is the legal right to deal with someone's estate (such as their property, money and possessions) when they die and to distribute it according to their will, or the law if there is no will.

Typically, before the next of kin or executor named in the will can claim, transfer, sell or distribute any of the deceased's assets, they have to apply for a grant of probate.

However, Freedom of Information data, obtained from the Ministry of Justice by wealth manager Quilter, showed a significant increase in delays with the process – leaving families waiting months or even years to access estates.

Without access to the money in the estate, it is often not possible to fully pay inheritance tax bills, which are due within six months of the deceased person dying, though in a catch-22 situation probate won’t typically be granted until HMRC has been sent at least partial payment for IHT.

In 2024/25 alone, around one in eight estates took longer than six months to clear probate, increasing the risk of interest accruing on inheritance tax where it was due.

How long should probate take?

According to government guidance, a grant of probate should typically be issued within 16 weeks of submitting an application.

However, the data showed a growing proportion of estates waiting well beyond this timeframe, with a sharp rise in cases taking more than a year and a notable increase in those waiting nearly two years.

Delays in probate can prevent executors from accessing bank accounts, selling property or managing investments, leaving estates frozen at a time when families may already be under financial and emotional strain.

Where inheritance tax is due, HMRC can charge interest on unpaid tax from six months after death, meaning prolonged probate can translate into higher tax bills even where delays are outside the family’s control.

How to reduce risk of probate delays

Futcher, from Quilter, said one of the most effective ways to reduce the burden on executors is to treat the start of the new tax year as a time to do a financial MOT – spring‑cleaning your finances while you’re alive can significantly ease delays later on.

“That might include consolidating old pensions or ISAs, keeping a clear record of accounts and providers, ensuring beneficiary nominations are up to date, and putting powers of attorney in place,” he said.

“Given how stretched the probate system already is, anything people can do now to reduce complexity will help their executors navigate the process more quickly, avoid unnecessary costs and reduce stress at an already difficult time,” he added.

A Ministry of Justice spokesperson said the department has worked hard to reduce waiting times for probate applicants, including through staff training and improving how applications are processed, which has resulted in record numbers of grants being issued over the last year.

They added: “Most probate applications are now granted within five weeks, down two weeks on a year earlier – but we understand how distressing delays can be in some cases.

“Applicants who feel their cases are not progressing can request an appointment with the probate team.”

The number of people taking their tax-free pension lump sums as early as they can has hit a five year high, according to a Freedom of Information (FOI) request to HMRC.

Currently the earliest you can take your pension tax-free lump sum is age 55 (rising to 57 in April 2028). As many as 116,000 Brits aged 55 years old opted to do this in 2024/25, the FOI data, as they rushed to beat incoming inheritance tax (IHT) rule changes.

This is up from 110,000 in 2023/24, and marks a five year high for the earliest possible withdrawals of the pension tax-free lump sum.

The total value withdrawn by those aged 55 also reached a five-year high of £2.3bn in 2024/25, up from £2.1bn the previous year.

Inheritance tax pension rule change

More people have been taking lump sum withdrawals from their pensions following the announcement in the 2024 Autumn Budget that unused pensions will face inheritance tax of up to 40% from April 2027, said Andrew Tricker, chartered financial planner at Lubbock Fine Wealth Management, which submitted the FOI.

Tricker said: “As pensions will be dragged into the inheritance tax net, many are rushing to take money out as soon as they can to help mitigate what they see as excessive tax bills for their dependents.”

“What is surprising is that this trend has spread to people who have decades left based on average life expectancy.

Based on 2022 to 2024 Office for National Statistics data, life expectancy at birth in the UK is around 83 years for women and 79.1 years for men. Life expectancy at age 65 is around 21.2 years for women and 18.7 years for men.

But despite the risks of outliving their pensions, the number of people withdrawing money from their pot early is likely to rise further as the new IHT changes draw closer, said Nicholas Clark, chartered financial planner at Lubbock Fine.

Clark said: “As we get closer to the deadline, more people will tap into their pension pots – particularly those who can do so without creating a big tax liability.

“Pensions were widely seen as highly ‘tax-efficient’, so many people built and preserved very large pots to pass on wealth to their loved ones free of IHT. Some of them have now started to change course, often without fully thinking it through.”

Some are choosing to pass these funds on to their families during their lifetime to reduce IHT bills, added Clark.

Gifts made more than seven years before death generally fall outside inheritance tax, known as the seven year inheritance tax rule.

Pension withdrawal warning

But over-55s are being warned to avoid making decisions to transfer funds elsewhere without proper planning, as money withdrawn from a pension is difficult to put back.

Tricker said: “It is worrying that more people are tapping their pension pots so long before the usual retirement age. Some are taking too much, too soon. Without careful planning, they could find themselves short of money in retirement.”

“People are living longer, and health and care costs are very unpredictable in retirement. That is why retirees need a financial buffer. Income is much harder to increase once you stop working.”

In many cases, it can make sense to keep money within the pension, shop around for the best draw down provider, and draw it down gradually. Being able to review retirement income over time and adjust as needed is one of the main benefits of the pension freedoms introduced in 2015.

“Keeping funds within the pension also allows people to make greater use of the ‘gifts out of surplus income’ exemption. Income drawn from a pension can qualify as surplus income, meaning it can be passed on to loved ones without triggering an inheritance tax bill,” Clark pointed out.

A spokesperson for HM Treasury said: “We continue to incentivise pension savings for their intended purpose of funding retirement instead of being openly used as a vehicle to transfer wealth – more than 90% of estates each year will continue to pay no inheritance tax after these and other changes.”

Could taking out life insurance help ease the worsening headache of inheritance tax (IHT) facing hundreds of thousands of families in the UK?

It could certainly help, say financial advisers, but that advice comes with a string of caveats – including a warning that you could end up paying out more in total premiums than the tax bill your family eventually ends up with.

Certainly, sales of whole-of-life insurance policies – the type of cover best-suited to inheritance-tax planning – are booming. Britons spent 18% more on premiums on such policies last year than the previous year, reflecting a growing concern that a tax once paid only by a wealthy minority is rapidly becoming an issue for middle-class families who don't regard themselves as especially affluent.

The government says very few families currently pay inheritance tax. That's true – in 2022-2023, the most recent tax year for which figures are available, fewer than 5% of deaths resulted in an inheritance-tax charge. Just 31,500 families faced a bill. But the numbers are set to rise quickly. The government's own projections suggest 10% of deaths will trigger an inheritance-tax liability by the 2029-2030 tax year; in other words, the number of families paying the tax is expected to more than double within just seven years. The official forecast is that inheritance tax receipts will rise to £14.5 billion by 2030-2031, 67% more than the Treasury expects to net in the current financial year.

This trend is well under way, says Shaun Moore, a tax and financial planning expert at wealth management firm Quilter. “IHT receipts for the 2025-2026 tax year reached £7.7 billion by the end of February, surpassing the 2023-2024 total of just under £7.5 billion with a month still to go,” he says. “IHT is certainly no longer a tax aimed only at the mega wealthy.”

There are a couple of reasons for this. First, the inheritance-tax threshold – the size of estate at which the tax becomes payable – has now been frozen since April 2009. The then Conservative government did introduce an additional “residence nil-rate band” in 2017, providing extra headroom against the value of the family home, but this has also been frozen at £175,000 ever since. The current government has said these freezes will remain in place until at least April 2031. This inevitably drags more people into the inheritance-tax net as household incomes and asset prices rise. The average value of a house, for example, has risen by more than 70% since April 2009.

In addition, the current government has added to the list of assets that count towards the value of your estate for inheritance tax purposes. Most significantly, from April 2027, any private pension savings you hold in defined-contribution schemes that are remaining at the time of your death will count towards your estate. Currently, most pension assets are exempt from inheritance tax.

The government is cutting some of the inheritance-tax reliefs available to families. Its plans include a cap on the 100% business or agricultural relief applied when bequeathing businesses or farms – from 6 April, you will only be able to pass on assets worth up £2.5 million free from tax per person; above this threshold, inheritance tax will apply at 50%. However a couple will still be able to pass on £5 million assets between them.

Taking out life insurance is becoming increasingly popular

Against this backdrop, many more families are rightly concerned they will one day face an inheritance-tax bill – and potentially a significant charge. That is prompting more families to plan ahead, with strategies such as taking out life insurance becoming increasingly popular. “As the screw is being turned on reliefs and exemptions, more families and their advisers are now reaching for the security of insuring against the IHT liability,” says Ian Dyall, head of estate planning at wealth-management firm Evelyn Partners.

It's a relatively simple concept. The idea is to work out how much inheritance tax your family is eventually likely to be liable for, and then to take out a life-insurance policy that will pay out enough to meet this bill. The most common – and simplest – type of life cover is term assurance, which pays out a fixed sum if you die during the term of the policy. However, this won't work for an inheritance-tax liability, since you can't be sure when you will die – if you live beyond the term of the policy, there won't be a pay-out. Instead, you typically need whole-of-life cover: as long as you continue to pay the premiums, these policies will pay out whenever you die.

It's also important that the policy is written inside a trust, a legal structure that ensures the proceeds of the insurance fall outside your estate. Otherwise, your family may face an additional inheritance-tax liability courtesy of the insurance pay-out. Most advisers and insurers will be able to help you structure the cover in this way, though there may be fees to pay for this service.

So far, so good, but there are issues with whole-of-life cover. First, it's important to understand what the cover will cost you – both today and in the future. Insurers calculate premiums according to factors such as your age, health and the size of the policy, and you may have to undergo a medical examination. The cover comes in two forms: reviewable, where the insurer has the right to increase your premiums over time, and guaranteed, where the premium you start with will never change. The latter tends to be more expensive at the outset, but gives you certainty that premiums will remain affordable for as long as you need the cover.

Whole-of-life premiums can be costly. Evelyn Partners says that for a healthy 50-year-old client seeking guaranteed cover of £1.4 million, the monthly premium would be roughly £1,250. Such a client would have to live until the age of 143 to have paid out more in premiums than the value of the insurance pay-out, but these are still sizeable monthly payments. Moreover, for older policyholders, the cost will be higher, particularly as health deteriorates, and some people may even struggle to secure cover. In some cases, total premiums paid will exceed the payout insured much sooner. For this reason, advisers often suggest taking out life insurance when you're younger – in your 50s or 60s, say.

“We'd look at whole-of-life insurance as a young person's game, comparatively,” says Tom Mullard, business director for tax services at TIME Investments. “If you get guaranteed premiums, you know what you're paying, and you may even have investments generating returns from which you can pay the premiums so that you're not really seeing a decrease in your capital.” This does mean it's likely you'll be paying the premiums for longer, but the good news, adds Dyall, is that costs could fall. “Prices appear stable and, in some instances, are even coming down as providers compete for market share in the growing market.”

Is it better to save the money instead?

Still, some question whether whole-of-life insurance offers good value, particularly for policyholders in good health with many decades of life ahead of them. And once you've signed up for a policy, changing course by cancelling the cover will mean you've wasted the money spent so far. James Baxter, founder of financial planning firm Tideway Wealth, says it makes sense to think of a such policies as more like a savings plan than an insurance contract. You're effectively putting money aside each month so that eventually there is enough to pay a bill. “People should ensure that they understand these policies before signing as it could cost them more than they realise,” Baxter argues. “If a couple take out a policy aged 64 and one of them lives beyond 90, the effective return drops below risk-free rates, making the policy a less attractive savings vehicle.”

What he means is that by the time you get into your 90s, you'll have paid so much out in premiums that the sum your beneficiaries will get back represents a negligible – or even negative – return on the money. You'd have been better off putting the same amount of money into a risk-free bank or building society savings account each month. The counter to this argument is that funding an IHT liability through regular savings would not provide the certainty that many families want and need. You can't be sure you'll live long enough to put enough money by to settle the bill. Nevertheless, if you are going to go down the insurance route, it's vital to keep costs down. Shopping around will help –an independent broker can provide valuable help here – but it's also important not to think of insurance as a silver bullet for IHT planning.

Importantly, the more you can do to reduce your family's IHT liability, the less insurance you'll need to take out. That means ensuring you take full advantage of other IHT planning opportunities. “Life cover does not replace good planning – it supports it by dealing with the elements that planning cannot fully remove and by creating certainty,” adds Lyall. “The better the underlying planning, the smaller the amount of life cover required and the more manageable the premiums become.”

Make full use of gifts to reduce inheritance tax

Certainly, it's important to make full use of your gifting allowances to reduce the size of your estate. You can make gifts of up to £3,000 each year with no liability for tax, as well as many smaller gifts worth no more than £250 per person. Gifts of any size to charity are also exempt from tax and there are additional allowances for gifts for a family member's wedding or civil partnership. Gifts from income can also work well. If you can show that your regular monthly income exceeds what you need, you can give away as much of the excess as you like with no tax consequences.

In addition, consider making potentially exempt transfers – these are gifts that will fall out of the value of your estate for tax-planning purposes as long as you live for at least seven years after making them. You can even insure for the possibility of not living that long (see below).

Beyond gifting, professional advisers can help you with other IHT planning strategies, from the use of investment vehicles such as the enterprise investment scheme (EIS) to maximising business relief. “The bigger point is that planning has to start earlier,” adds Mullard. “It can be hard to justify thinking about these issues when you may have 40 years of life left ahead of you, but it will make it easier to come up with a holistic solution.”

Some nuances to consider

While whole-of-life cover may be ideal for insuring against your family's eventual inheritance tax (IHT) liability, term assurance could help you address a more immediate issue. Giving away large sums or valuable assets will reduce the value of your estate for IHT purposes – and therefore cut your family's bill – but these potentially exempt transfers only drop out of the IHT net seven years after you make them. In which case, a term assurance policy could provide cover against you dying sooner than expected and triggering a tax liability. The idea is to take out the insurance you need only for a set period – until your gift becomes fully exempt from IHT. This will usually be much more affordable than whole-of-life cover.

One nuance to consider here is whether your gift is eligible for taper relief, which could apply if you die with seven years of making it. After three years, many gifts qualify for this, with the rate of IHT payable falling from 32% at three to four years, to 8% at six to seven years. If so, you can take out a “decreasing term assurance” policy, which pays out a reducing amount over the term of the policy, and therefore costs less. Taper relief only applies if the total value of the gifts you make before you die exceeds the £325,000 tax-free IHT threshold.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Increasing numbers of homes are pushing families into paying inheritance tax.

A combination of rising house prices and tax thresholds pushing more estates into the inheritance tax trap – an issue affecting all parts of the UK.

Research by law firms Shakespeare Martineau, Mayo Wynne Baxter and Lime Solicitors found that a home purchased in 2025 is now three times more likely to expose a family to inheritance tax than in 2009.

Analysis of Land Registry data reveals that in 2009, just 13% of all property purchases in England and Wales or 83,266 of 625,205 were at or above the £325,000 inheritance tax threshold. By 2025, that proportion had surged to 41% or 281,734 of 681,054.

It comes as the £325,000 nil-rate band has remained frozen since 2009 and is set to stay at that level until at least 2031.

Even the main residence nil-rate band threshold £175,000, which technically pushes the inheritance tax allowance to £500,000, is of little help to many homeowners.

The number of homes purchased for £500,000 or more has also more than trebled over the same period from 5% in 2009 to 18% in 2025.

The regions with the highest proportion of homes in the inheritance tax net

Perhaps unsurprisingly, London has the highest proportion of homes that could be liable for inheritance tax. The majority (84%) sold for more than £325,000 in 2025, while 52% sold for more than £500,000. The proportion is up from 35% and 15% in 2009 respectively.

But it is not just London and the South East where high value homes could push up inheritance tax bills.

Wales has seen the proportion of homes sales above £325,000 soar from 4% to 20% between 2009 and 2025, while the East of England has seen £500,000 home sales rise from 4% to 22%.

Fiona Dodd, private client partner at Mayo Wynne Baxter, said: “When modern inheritance tax – originally introduced as estate duty in the late-1800s – was created, it was designed to apply only to the very wealthy.

“However, with the tax-free allowance frozen for almost two decades, rising property prices have steadily drawn more families into the scope.

“Many people assume inheritance tax will never affect them. But as our analysis shows, a growing proportion of homes now approach or exceed the £325,000 threshold – before savings, investments or personal possessions are even considered.

“With inheritance tax charged at 40% above the threshold, families can be left facing a substantial and unexpected bill at an already difficult time.”

This is even before homeowners consider the value of their pension, which will be included in inheritance tax calculations from April 2027.

How to reduce your inheritance tax bill

There are steps you can take to reduce your inheritance tax bill such as gifting while still alive and leaving assets to your spouse, which would be tax-free.

Andrew Wilkinson, head of inheritance disputes at Lime Solicitors, said: “With estates growing in value, pensions becoming subject to inheritance tax and the threshold remaining static, there is simply more at stake – financially and emotionally.

“Tax-efficient decisions, such as leaving larger proportions to charity or to a spouse or civil partner, can unintentionally create tension in blended families or among dependants who expected a different outcome.

“We are likely to see more disputes as families grapple with the competing pressures of tax efficiency and fairness.

“The best protection against future disputes is careful, professional advice and open, honest communication within families. Many of the cases we see stem from a lack of clarity and unexpected provisions in a will.”

Growing evidence is suggesting pensioners with larger defined contribution pension pots are starting to run them down much faster – or use them up in full – in a bid to reduce potential inheritance tax (IHT) liabilities.

From April 2027, unspent defined contribution pension pots will be added to the value of the estate when inheritance tax is worked out. Likewise certain defined benefit death benefits such as ‘death in deferment’ lump sums. The changes were announced in the 2024 Budget.

The government estimates the move will bring around 10,000 estates each year into paying inheritance tax for the first time as well as increasing IHT bills for a further 40,000 estates.

But the long gap between the announcement of the change and it being implemented has given wealthy pension savers and their financial advisers time to put in place a range of strategies to offset the impact of the move.

This impact is most likely to be seen with larger pot sizes where the inheritance tax risk is greatest.

Steve Webb, partner at pension consultants LCP and a former pensions minister, said: “For many years, one of the attractions of defined contribution pensions has been their favourable treatment under inheritance tax rules, especially for those with larger pots.

“But the 2024 Budget announcement has changed things, and people with larger pots are now exploring a range of strategies to reduce any potential IHT bill for their heirs.”

What are pension savers doing to avoid inheritance tax?

Pension savers are increasingly turning to two financial products – annuities and whole of life insurance policies – to help them overcome the fact pensions will be subject to inheritance tax from April 2027, Webb says.

Annuities

Annuities allow savers to convert some or all of their defined contribution pot into a lifetime income stream. This income can be potentially gifted using the “normal expenditure from income” exemption.

Provided the rules are followed, these gifts can immediately be exempt from IHT.

If a joint life annuity is bought, then this carries on after the death of the first person. This is free from inheritance tax for the second life, even if the couple aren’t married or in a civil partnership.

There has recently been a surge in annuity purchases bought with larger pension pots. Sales of annuities over £250,000 rose by 31% year-on-year in 2025, and sales of annuities valued at over £500,000 rose by 54%, according to data from the Association of British Insurers (ABI).

In the case of an annuity, those in poorer health will generally get a better rate, as the annuity will pay out for a shorter period.

Whole of life policies

With ‘whole of life’ insurance policies, savers can pay for regular premiums for a policy which pays out a guaranteed lump sum when the saver dies. These payouts are free of inheritance tax, provided the policy is set up under a trust.

Alternatively, this lump sum could pay for any inheritance tax bill.

In the case of a couple, the policy can be set up to pay out on the ‘second’ death, meaning that it pays out only at the point the estate passes between generations. This reduces the cost of the policy. Doing it this way is known as a ‘joint life, second death’ policy, and typically applies for deaths up to age 90.

Industry sources suggest a surge in demand for whole of life policies, with an increase of 92% year on year reported in Spring 2025.

The terms for whole of life policies will generally be better for those in good health, because the premiums will run for longer and the expected payout date will be later.

Webb said: “Defined contribution pension providers can expect to see changing behaviour amongst savers with the largest pots, with more interest in drawing down more rapidly for gifting or purchase of a whole-of-life policy, or even using the whole pot for annuity purchase. Providers may find that the largest pots disappear the quickest post-retirement.”

Annuity or whole of life policy – which is best to avoid inheritance tax?

Financial advisers will be able to recommend the right strategy for each individual, but according to Webb, factors which pension savers are likely to consider if deciding between an annuity or a whole of life policy include:

Timing: With the annuity option, the pension saver is ‘giving while living’ – passing on regular income immediately to heirs. By comparison, a ‘whole of life’ policy delivers a lump sum on death.

Health: Those in poor health could potentially get favourable annuity terms, though risk giving up their capital for a relatively limited payout period. Meanwhile those in good health could get favourable terms from a whole of life policy, especially one which only paid out on the ‘second death’ in a couple.

Adjusting for inflation: Whole of life premiums can be fixed in cash terms, providing assurance the policyholder can keep up the payments for life, or can be set to increase, thereby helping to maintain the real value of the eventual payout.

With both a whole of life policy and an annuity, the policyholder will need to keep records so their heirs can demonstrate ‘where the money went’ while the saver was alive, to ensure HMRC do not attempt to add the money gifted (or spent on premiums) back into the estate after death.

Clare Moffat, pensions and tax expert at Royal London, said: “It is clear that there is growing interest for clients who might be affected by IHT in financial products such as annuities or whole of life policies. But the options are complex and it may be worth an inheritance tax bill if that makes family members better off.

“Most people would benefit from taking professional financial advice so they can work out the best course of action for their specific circumstances.”

We look at how to navigate the inheritance tax paperwork maze in nine clear steps in a separate article.

Thousands more estates will be hit with a double inheritance tax (IHT) blow within two years – but there are ways you can lower the bill for your loved ones.

The number of estates worth more than £2 million which will start to lose their residence nil-rate band is set to rise by 76% from 3,620 in 2023 to 6,400 by 2028, according to new research by wealth management firm Quilter.

This figure will increase to over 16,000 by 2031 due to frozen IHT thresholds and pensions being subject to IHT from April 2027. Rising house prices will also increase the value of peoples' estates.

IHT is usually payable on estates worth £325,000 or more but this is topped up by an additional £175,000, known as the residence nil-rate band, if you are leaving your home to a child or grandchild. You can pass this £175,000 allowance to a partner if you die.

This means couples who are married or in a civil partnership could leave up to £1 million to loved ones and they wouldn’t owe any IHT.

However, for every £2 your estate is worth more than £2 million, you lose £1 of this residence nil-rate band until it disappears. This means estates left by a single person worth £2.35 million receive no residence nil-rate band, while for couples it’s £2.7 million.

With IHT tax bands frozen at their current levels until 2031 and pensions falling into the scope of IHT from April 2027, more estates will start losing this allowance, Quilter said.

Shaun Moore, tax and financial planning expert at Quilter, said: “Many estates are likely to be hit by the double whammy of pensions being brought into scope for IHT and frozen tax allowances.

“IHT is already a devilishly complicated tax to navigate, and given the rise of asset prices in the past decade or so, many more are having to adapt their strategies in real time to help mitigate it and pass on wealth efficiently to future generations.”

How to reduce your estate to less than £2 million

If you believe you could be set to lose some or all of your residence nil-rate band, because your estate is likely worth more than £2 million, you might want to plan ahead now to protect your wealth.

1. Gifting

You can give up to £3,000 away each tax year without it being added to the value of your estate as well as up to £5,000 to someone getting married or entering into a civil partnership.

Gifts worth up to £250 can be given to as many people as you like each tax year, so if you have eight grandchildren, you could give them £250 each and remove £2,000 from your estate.

However, you can’t use this allowance if you’ve used another allowance on that person. So, you wouldn’t be able to pay someone a £250 gift and another £3,000 gift in one tax year and benefit from both the small gift and annual allowances.

You can also give an unlimited amount of money away and your estate won’t be subject to IHT if you live for seven years after giving it.

Moore said: “Lifetime gifting remains one of the most reliable ways to bring an estate back below the threshold.”

Do note, it’s important to keep records of when and how much you’ve gifted as this will make it easier for your executors to disclose any to HMRC.

2. Charitable giving

Donations to charity left in your will are taken off the value of your estate before IHT is calculated.

If 10% or more of your estate is donated to charity, your overall IHT rate will fall to 36% rather than the standard 40%.

3. Downsizing

You can move to a less valuable home and release some of the equity tied up in your current property to lower the value of your estate.

You will have to give away or spend this equity to actually reduce the size of your estate though and note the seven year rule may apply if you’re giving away money outside of your allowances.

There are also the costs associated with moving home such as estate agent fees, surveys and paying removal firms to factor in.

Rebecca William, financial planning divisional lead at wealth manager Rathbones, said: “Options such as downsizing later in life can help, provided people understand what they can afford to give away and when.”

4. Remove pension wealth earlier

With pensions subject to IHT from April 2027, you may want to start drawing down on your pension or take your tax-free lump sum earlier than planned to release funds from your estate.

Just make sure you’ve got a plan in place so it doesn’t leave you out of pocket down the line in retirement.

Tax-free lump sums can’t be added back into your pension once they’ve been taken out as well, so bear that in mind if you’re planning on withdrawing yours early.

5. Onshore bonds

Onshore bonds written in trust can be an effective way of reducing your future IHT liability if gifted to a family member.

As long as the giver survives seven years, there will be no IHT to pay.

Inheritance disputes within families have jumped in recent years due to changes in how and where we live, according to lawyers, who warned of the urgent need for people to get their affairs in order to avoid a fight later on.

Approximately 10,000 individuals contest wills annually in England and Wales.

This figure could rise further with new complexities around inheritance tax rules, which will see pensions included in the estate for IHT purposes from 2027. On the other hand, a well drafted will can help reduce the inheritance tax bill your loved ones pay.

Emma Bryson, board director at the Association of Lifetime Lawyers and a senior associate in law firm Michelmores disputed wills, trusts and estates team, said: "Modern families are changing fast, but the legal documents meant to protect them aren’t always kept up to date.

“People often assume everything will be obvious to their loved ones, but that’s rarely true. The reality is, without a will, or – even with one that’s out of date - confusion and uncertainty about someone’s wishes can quickly turn into painful inheritance disputes."

Ahead of Free Wills Month in March, we look at why you should write a will and what happens when inheritances are fought over.

3 key reasons why wills contested

Estates and wills are being contested more often in recent years due to three main factors, according to lawyers; the rise in cohabitation, older children still living at home with parents, and a rise in age-related mental health conditions like dementia.

1. Increased cohabitation

More people are choosing to cohabit rather than marry, preferring to spend money on getting on the housing ladder rather than having a wedding. The problem is, sharing assets without being legally wed doesn’t give you a strong claim to the estate of a deceased loved one.

Bryson said: “Rightly or wrongly, the current law provides protection for spouses of a deceased's estate. The same protection does not exist for unmarried couples.

“This rise in co-habiting couples has led to an increase in situations where a partner dies without a will, and the surviving partner has no automatic legal entitlement to their estate (which may include the whole or a share of the property).”

This gives rise to a claim by the cohabitee under the Inheritance (Provision for Family and Dependants) Act 1975.

2. More adult children living at home

Another reason for an increase in disputed estates is the current economic situation, with millions of adults still living at home with their parents.

“With the cost-of-living crisis continuing to bite, people are increasingly reliant on their parents' estates for housing or financial provision, meaning an increase in claim by adult children under the Inheritance (Provision for Family and Dependants) Act 1975,” said Bryson.

3. Age-related illness

An increase in will disputes is also due to an ageing population with increasing care needs, on the basis the person whose will it is lacked mental capacity when they wrote their will.

This is an increasing problem – by 2030, the amount of people in the UK with dementia is expected to increase to over 1 million people, according to NHS England.

“People are living longer, but many will experience dementia and other illnesses which affect the capacity to make a will. People making wills late in life whilst unwell, or without professional assistance, gives rise to probate claims,” said Bryson.

Tips on how to prevent an estate being contested

Making a will is incredibly important, however each set of circumstances is unique – and there is no golden bullet which ensures that an estate cannot be contested.

“There are, however, a number of things which can strengthen a will and provide more protection in the event that someone wishes to challenge a will or bring a claim against an estate,” said Bryson.

1. ‘No contest’ clauses

If a person anticipates that inclusions or omissions in their will might be controversial, they might wish to consider including a 'no contest' clause in the will.

“A no-contest clause is a provision designed to deter beneficiaries from challenging the will's validity or bringing a claim against the estate by stipulating that any challenger forfeits their inheritance if they do. It can act as a financial deterrent to prevent costly litigation and enforce the testator's wishes,” said Bryson.

2. Capacity assessments

If someone has suffered with mental illness or is elderly, it is wise to ensure that their will is witnessed by a medical practitioner who can attest to their capacity to execute a will at the relevant time.

Bryson said: “In this scenario a formal capacity assessment should also be carried out on the person making the will to confirm that they have capacity to do so. This capacity assessment can then be used as evidence should anyone seek to contest the will after the person making the will has died.”

3. Use a solicitor

It is possible to write and prepare a will yourself, but it can be wise to consult a professional to avoid errors and omissions.

“Not only does the will appear more professional, but the solicitor who has prepared it should also prepare and keep a corresponding file which evidences what the deceased person wanted the will to include, the decisions they made and their reasons for making a will through attendance notes and correspondence,” said Bryson.

“If correctly prepared, this evidence is a strong shield to someone who wishes to attack the validity of a will,” she added.

How to successfully contest an estate

If someone has died and you wish to contest their estate, the first step is to contact a specialist contentious probate solicitor.

After obtaining information from you they will then be able to assess whether there are any questions to be answered or if a challenge to a will or claim against estate would have good prospects of success.

Bryson said: “The success of a will challenge will depend on the merits, any evidence from the time the will was made, and how well the claim and pre action correspondence is prepared.”

The success of a claim under the Inheritance (Provision for Family and Dependants) Act 1975 depends on a variety of factors, including, but not limited to:

• financial needs/resources of the claimant and beneficiaries
• the estate's size
• the deceased's obligations

“It will also likely depend on how well the claim and pre action correspondence is prepared, which is why legal advice early on is crucial,” Bryson said.

Finally, alternative dispute resolution mechanisms such as a formal mediation are common in practice and Bryson said “are a useful tool” for formally resolving disputed estates without court action being necessary.

More than 14,000 investigations into families suspected of underpaying inheritance tax have been launched by HMRC since April 2022, a Freedom of Information (FOI) request found.

The FOI data also shows a sharp rise in the number of new inheritance tax investigations  launched by the tax authority during the first nine months of this tax year.  

In the current 2025/26 tax year alone, 3,636 probes have been opened, according to the figures obtained from HMRC by financial adviser NFU Mutual.

These investigations – launched between April 2025 and December 2025 – account for  almost a quarter of all IHT investigations opened since April 2022. 

The number of new inheritance tax investigations into estates where the tax is suspected to have been underpaid jumped by 33% in the three years to April 2025 – from 3,163 in 2022/2023 to 4,200 in 2024/2025.

More families are set to be dragged into the inheritance tax net in the coming years which could lead to greater numbers of HMRC investigations into suspected underpaid IHT.  

Inheritance tax is payable at 40% on anything inherited over the £325,000 tax-free threshold (also known as the nil rate band). If a home is being passed to children or grandchildren, then an additional £175,000 allowance is applied. Couples can combine their allowances to pass on a total of £1 million tax-free.

Sean McCann, chartered financial planner at NFU Mutual, said: “IHT remains one of the most feared and least understood taxes, with unspent pensions falling within the inheritance tax net from 2027 and many farms and businesses from April 2026, more and more families will find themselves dragged into paying inheritance tax.”   

The Office for Budget Responsibility (OBR) has forecast that 9.5% of deaths could trigger inheritance tax bills by 2029/30 up from 5.1% in 2022-23.  

Fresh figures from HMRC show IHT receipts collected between April 2025 and January 2026 jumped by £130 million compared to the same period in the 2024/25 financial year, rising to a total of £7.1 billion in the first 10 months of the current 2025/26 tax year, as more families part with some of their inheritance.

An HMRC spokesperson said: “Most people pay the correct amount of Inheritance Tax. In cases where it is suspected someone has not, investigations can be opened to address issues and ensure the system remains fair.”

How does HMRC investigate inheritance tax?

HMRC has substantial investigatory powers and will check a range of sources to build a picture of the deceased individual’s financial affairs where there is a suspicion inheritance tax has been underpaid through error, omission, or undervaluing assets, said McCann.

This can include analysing bank statements to identify income which may suggest the existence of undisclosed assets such as investments or property or significant foreign currency transactions.

McCann added: “HMRC leaves no stone unturned in these investigations.”

For example, they will look at outgoings such as gifts made in the seven years before death, or premiums for life insurance policies which if not written in trust will form part of the taxable estate.

“The revenue recovered through these investigations is significant and the rising value of assets and the potential sums at stake would appear to justify HMRC increasing the number of cases they look at. The increased level of information available to HMRC also allows them to be more forensic and targeted in nature,” McCann said. 

Furthermore, the interest rate you pay on overdue inheritance tax stands at 7.75 % which can add a significant amount to the bill. This can compound what for many is already a challenging and distressing situation. 

 “With the £325,000 nil-rate band and the £175,000 residence nil-rate band frozen until 2031, more families will be caught in the inheritance tax net with ever increasing bills for those affected,” McCann added.   

Inheritance tax is the gift that keeps on giving to the chancellor but for families mourning loved ones it can be a complicated minefield to get right at an already difficult time, with an avalanche of paperwork to manage in a very tight deadline.

Record inheritance tax receipts are expected to rise even further, as frozen IHT thresholds and rising property prices bring more people into scope of paying inheritance tax.

Furthermore, new rules introduced by the government in the October 2024 Budget will see more farms and small businesses paying inheritance tax for the first time from this April. Plus, from April 2027, unused pensions will also be subject to inheritance tax.

Both these new developments increase the demands on personal representatives – those in charge of administering the estate left behind after a death – to get the IHT paperwork right, or face potential fines.

Rebecca Minto, board director at the Association of Lifetime Lawyers, which specialises in later life and estate planning, said: “Inheritance tax paperwork is rarely straightforward, and the window for getting it wrong is surprisingly small: miss the six-month payment deadline and interest starts clocking up immediately.

“What we're seeing now is families who thought they had everything planned suddenly facing new questions,” she added. “Our advice is always the same; don't wait for a death to start thinking about this. The families who cope best are those where someone sat down with specialist professionals well in advance.”

Inheritance tax planning: what paperwork you need

Dealing with a loved one's estate is stressful enough without being caught off guard by the paperwork demands of inheritance tax. Whether a bill is due or not, families need to know what's required and with significant changes on the horizon for business assets and pensions, the stakes are rising.

Here's what you need to have in order:

1. Find out whether a full tax return is needed

Not every estate triggers a mountain of forms. If the estate qualifies as ‘excepted’, meaning no inheritance tax is due, the family simply completes the probate application and a short online declaration. This is common when the estate is modest or when everything is left to a spouse or charity.

An estate is usually excepted if:

• the gross value is £325,000 or less;
• it's worth up to £650,000 and a nil rate band is being transferred from a late spouse or civil partner;
• everything passes to a UK-domiciled spouse or UK charity and the estate is under £3 million;
• the deceased was permanently resident outside the UK with UK assets below £150,000.

“It’s worth checking before assuming the worst,” said Minto. HMRC has an inheritance tax checker tool you can use.

2. If inheritance tax is due, expect detailed paperwork

Where the estate doesn't qualify as ‘excepted’, personal representatives must complete HMRC's full Inheritance Tax Account (the IHT400). This is a comprehensive document covering:

• the deceased's family circumstances
• a full breakdown of assets and liabilities
• any lifetime gifts and settlements
• tax exemptions and tax reliefs claimed
• supporting valuations

Minto said: “Getting organised early – gathering bank statements, property valuations, and share certificates – will save considerable time and stress.”

3. What if no inheritance tax is due?

If no tax is due you still need to fill in form IHT205 at least. But even if no inheritance tax is due you could still be required to send full details of the value of the estate – within 12 months of the person dying – if the person who died:

• gave away over £250,000 in the seven years before they died
• gave gifts then continued to benefit from them in the seven years before they died
• left an estate worth more than £3 million
• was ‘deemed domiciled’ in the UK
• had foreign assets worth more than £100,000
• was living permanently outside the UK when they died but had previously lived in the UK
• had a life insurance policy that paid out to someone other than their spouse or civil partner and also had an annuity
• had increased the value of a lump sum from a personal pension to be paid after their death, while they were terminally ill or in poor health
• had agreed that property they’d given away during their lifetime would be part of their estate rather than pay a pre-owned asset charge.

4. Other forms you might need

Other forms you may need to complete as part of the inheritance tax process, according to solicitors at DLA Law are:

IHT402 – this should be submitted in conjunction with form IHT400 to claim the unused nil rate band from a late spouse or civil partner (to extend the inheritance tax threshold to £650,000).

IHT403 – to report gifts made during the deceased’s lifetime where they kept some benefit (e.g. continuing to live in a gifted property) or if the deceased made regular gifts out of income, to determine whether any extra inheritance tax is due

5. Don't miss the inheritance tax payment deadline

IHT is normally due six months after the end of the month in which the death occurred. Miss this and interest starts accruing automatically.

“The problem families can face is that the Grant of Probate, which unlocks the estate's assets, hasn't been issued yet. This is where planning ahead in terms of paperwork-gathering really pays off,” said Minto.

With a window of only a few months after the person’s death, try to locate as much documentation about pensions, property and insurance while your loved ones are still around to ask for details. Pension provider Royal London has a helpful ‘When I’m Gone’ document anyone can download and use to share helpful details with family and friends.

6. Sort paperwork for paying the inheritance tax bill

There are multiple potential options for paying an inheritance tax bill. Banks and financial institutions can pay HMRC directly before the Grant of Probate is issued using a form called the IHT423 – this Direct Payment Scheme is often the most straightforward route.

If the estate includes property, land, or qualifying business assets, the IHT on those assets can generally be spread across up to 10 annual instalments, though selling the asset usually makes the balance fall due immediately.

Where funds simply can't be accessed in time, HMRC can sometimes postpone payment via a ‘Grant on Credit’ arrangement, though interest continues to run up.

Personal representatives or beneficiaries can also advance funds personally and be reimbursed later, or a specialist probate bridging loan could be used to cover the liability while the estate is administered.

“It's also worth taking legal advice on whether a post-death variation of the estate could reduce the bill in whole or in part,” Minto said. This ‘deed of variation’ allows beneficiaries to legally alter a will or the rules of intestacy within two years of a death, often to reduce IHT.

7. Consider life insurance written in trust

Business owners and farmers in particular, may wish to consider this bit of paperwork sooner rather than later, said Minto.

A life insurance policy written in trust sits outside the estate, meaning the proceeds are accessible quickly and without probate – providing ready cash to meet a tax bill without having to sell or borrow against illiquid assets.

“For those in reasonable health where premiums aren't prohibitive, it's one of the most practical tools available,” Minto said.

8. Understand changes to business and agricultural relief from April 2026

From 6 April 2026, the 100% business property relief (BPR) and agricultural property relief (APR) will only apply up to a cumulative £2.5 million allowance per person. Business owners and farmers whose estates currently pass IHT-free may find a significant inheritance tax bill emerging overnight.

Where the estate includes company shares, a farm, or other qualifying assets all this paperwork will need to be gathered and valuations obtained. Where it is valued above the £2.5 million threshold, “families will need to think carefully about how to fund the excess – whether through dividends from the company, a share buy-back, borrowing, or an insurance policy”, said Minto.

“Each option has its own tax implications and commercial consequences, so specialist advice well in advance of April 2026 is essential,” she added.

The government’s guidance is that the majority of personal representatives claiming the BPR and APR will not face additional ongoing administrative burdens. For the estates which only hold shares that are not listed, there are no new obligations as the only change will be an update to the rate of the relief and there will be no change to how they interact with HMRC.

Where the estate now seeks to claim relief for assets in excess of £2.5 million, personal representatives will need to undertake an additional calculation at the reduced 50% rate. This will be reflected on updated IHT400 forms and guidance.

9. Remember pensions will be subject to inheritance tax from April 2027

Currently, pension funds sit outside the inheritance tax net. From April 2027, that changes. This will require pension schemes and personal representatives to share detailed information with one another. The exact processes for doing this are still under consultation. However it is expected to follow this pattern:

• personal representatives will have to inform pension schemes of a member’s death
• the pension scheme will then need to share details of unused pension funds and death benefits
• personal representatives will have to calculate and share how much inheritance tax nil-rate band is apportioned to the relevant pension
• pension schemes will be required to use this information to calculate the amount of inheritance tax due on the unused pension funds and death benefits, and to report and pay this to HMRC

Other variations of this are under consideration. The practical reality, though, is that this is a genuinely complex area.

Minto said: “Personal representatives and pension scheme administrators will need to share information and coordinate carefully, and delays in doing so could lead to late payment interest. Families with substantial pension pots should be reviewing their planning now.”

More families were put under scrutiny by HMRC last year over what the taxman believed to be outstanding inheritance tax bills, and it successfully clawed back almost £250 million in unpaid inheritance tax.

The number of investigations into underpaid inheritance tax (IHT) rose from 3,793 to 3,977 over the course of the year ending 5 April 2025, a new Freedom of Information request to HMRC by TWM Solicitors found.

HMRC netted an additional £246 million as a result of these inheritance tax investigations, the FOI showed.

The rise in the number of investigations reflects HMRC’s increased efforts to recover revenue from underreported and misvalued estates, TWM Solicitors said.

With the annual inheritance tax take rising more than 61% to £8.3 billion since 2020, the law firm said it believes HMRC is alert to the risk that more families may be tempted to underpay and avoid inheritance tax, a tax that some consider to be unfair.

David Lunn, partner in the private client team at TWM Solicitors, said: “HMRC’s investigations are becoming increasingly complex, particularly when it comes to residential property.

“With tax rules growing ever more complicated, and the IHT net widening with each Budget, people need to ensure they obtain proper advice. Penalties can run into tens of thousands of pounds.”

Why is the number of IHT investigations rising?

HMRC is now using artificial intelligence, data-matching and other advanced big data tools to detect unpaid tax, TWM Solicitors has found. As a result it is getting increasingly adept at identifying inconsistencies and errors in IHT returns, prompting a growing number of investigations.

Rising house prices and asset prices, combined with frozen tax thresholds, have resulted in more people having to pay inheritance tax, and also increases the potential for evasion.

Since April 2009, the IHT nil-rate band has been frozen at £325,000. This is a marked difference to the not so distant past – since 1986 the tax threshold has risen every year until 2009 (except in 1993 and 1994). That is 21 rises in 23 years followed by no rises in 17 years with no increases predicted in the near future either.

Lawyers have said a sharp increase in the burden of any tax can lead to a rise in tax evasion and avoidance.

The government’s decisions to bring unspent pension pots into the scope of IHT and cut agricultural and business property reliefs will likely drag more estates into the tax net, TWM said. The firm expects this could trigger further HMRC scrutiny of families’ inheritance tax filings.

“Inheritance tax investigations have risen because HMRC knows that, as the extent of IHT widens, irregularities become more common, and so the amount of tax, interest and penalties they can recover is likely to rise,” said Lunn.

“Recent Budgets are a good example, as they have drawn even more assets into the scope of IHT. That inevitably leads to more challenges and investigations.”

Why does HMRC investigate inheritance tax returns?

HMRC investigates what it believes are errors in inheritance tax returns. These errors commonly include failing to declare personal items such as jewellery and furniture – assets many people do not realise must be included.

“Not declaring goods has prompted countless IHT investigations in the past,” Lunn said.

“HMRC is very strict about what must be included in an IHT return, so items such as jewellery or even a valuable set of dining chairs must be declared at their full market value,” he added.

However, some of the biggest – and most complex – disputes between families and HMRC revolve around residential property valuations, Lunn said, which remain a “significant area of friction between HMRC and estates that have to pay IHT”.

The freeze in IHT thresholds has been particularly painful for homeowners, as property prices have risen sharply in recent years.

HMRC has become increasingly sophisticated in identifying underpayments. To challenge undervalued properties, for example, the taxman is reportedly drawing on data from the Land Registry, the Trust Registration Service and even Google Maps.

Lunn said: “The IHT threshold was originally set so that only families with significant assets would pay the tax. But after years of being frozen, even families with a relatively modest home are now finding they owe IHT.”

An HMRC spokesperson said: “The majority of people pay the correct amount of inheritance tax. In cases where it is suspected someone has not, investigations can be opened to address issues and ensure the system remains fair.”

Junior ISAs (JISAs) are emerging as an effective inheritance planning tool amid impending pension inheritance tax changes.

The inheritance tax system is facing an overhaul in the coming years, with pensions forming part of taxable estates from April 2027.

The House of Lords last week criticised the pension changes but many people are now looking to find ways to pass on wealth to their loved ones in a more tax-efficient way to avoid giving too much unnecessarily to the taxman.

One option is for parents or grandparents to put money into a JISA - savings accounts for children under age 18.

Increasing numbers of people are making use of the full £9,000 JISA allowance, a Freedom of Information request by Murphy Wealth to HMRC found. The research showed 78,330 accounts maximised their allowance in 2023/2024, the most since 2019/2020’s 80,060.

It also marks a 9% increase on the previous tax year (71,910) and a 41% rise since 2020/2021 (55,570).

Adrian Murphy, chief executive of Murphy Wealth, said: “A lot of families are exploring different ways of passing down wealth to their loved ones earlier in life.

JISAs are a great way of doing that, providing tax-free growth and income that can compound over a significant period of time.

“With pensions becoming part of people’s estates from next year – the decision about which wouldn’t be reflected in these figures, as it was announced in the Autumn 2024 Budget – we would expect to see a further acceleration in the number of JISAs being maximised.”

The benefits of a JISA for inheritance planning

There are lots of ways to pass on money to your grandchildren or children.

Pension wealth is set to form part of an estate for inheritance tax purposes from April 2027, which may affect how much can be passed on.

You could give financial gifts during your lifetime but, if they exceed inheritance tax gift allowances, there are risks of a tax bill if you pass away within seven years of the transfer.

JISAs provide another tax-efficient way that parents and grandparents can give their loved ones a financial boost.

You can gift up to £3,000 a year, either to one person or several people, without the money being liable for inheritance tax. If you don’t use all your allowance, anything left carries over into the next year, but only for one year. So you could technically put £6,000 into a JISA.

Murphy added: "Children can't access the accounts until they are 18, which also provides a level of assurance that the money will be used for some of the big life events that take place around that age – whether it's buying a first car, help with university costs, or taking that first step into a career or onto the property ladder.

“And the people making the contributions will likely get to see their child or grandchild enjoy that money, which may not be the case with other ways of tax-efficiently passing wealth down.”

Alice Haine, personal finance analyst at Bestinvest, highlights that the tax benefits mirror those of an adult ISA – with no capital gains or income tax.

But there are other advantages. She said: “JISAs sidestep the parental tax rules.

“If a child earns more than £100 in interest on money gifted by a parent and held in a regular savings account, that income is taxed as if it were the parent’s – an issue that does not apply to JISAs. Parents should tread carefully, however. There’s no point topping up a JISA if they might require the money for their own needs, because they can’t get it back.”

However you plan to pass wealth onto family members, Murphy said it’s important you have a plan and don’t leave yourself short.

He added: “Speak to a financial adviser who can provide guidance on how to sustainably gift money to children and grandchildren, while ensuring your financial requirements are taken care of in retirement.”

Entrepreneurs and family business owners are being urged to act now to avoid some potentially damaging tax bills ahead of changes due to come into force in April.

A new cap on agricultural property and business inheritance tax reliefs will come into force on 6 April. This means the families of business owners are likely to face greater inheritance tax (IHT) bills at death. In some cases this could spell jeopardy for the firm itself, financial advisers have said.

Lee Matthews, senior partner in financial planning at wealth management firm Evelyn Partners, said: ‘For many business owners looking at the long-term prospects for their firm and their family’s financial security, 6 April this year is a date that creates a clear deadline for planning.

“They can still take steps now to mitigate some potentially damaging tax liabilities. A sudden and unexpectedly large IHT bill, particularly where liquid assets are in short supply, could spell the end for even a successful enterprise and the jobs it provides.”

What inheritance tax change is happening in April 2026?

From 6 April 2026 there will be a £2.5 million cap on the combined value of assets eligible for 100% Business Property Relief (BPR) and Agricultural Property Relief (APR). Any value above this cap will only receive 50% relief, potentially leading to an effective 20% IHT charge on the excess for farms and businesses.

The government had originally set the BPR and APR cap at £1 million but later U-turned on this policy to up the limit.

Another recent policy revision means spouses will be able to inherit unused tax relief, similarly to the inheritance tax allowance (also known as the nil-rate band). Any of the £2.5million allowance unused at death will be transferred to the surviving spouse – and it is not necessary for the deceased spouse to have owned qualifying assets.

What should business owners consider doing before April to avoid inheritance tax?

Evelyn Partners’ Matthews said there is a six step sequence business owners could follow ahead of April 2026, particularly in the event they want to transfer their business into a trust or sell it. What matters is not just the steps – but the order in which they are carried out.

1. Identify which assets qualify for business relief

Not all parts of a business may qualify for business relief. Owners should review the company structure, activities and balance sheet, potentially with the help of professional advisers. Large cash holdings, investment activities that creep into the company over time or group structures with mixed trading and investment entities may not qualify, said Evelyn Partners.

2. Consider a gifting strategy before the April 2026 deadline

With the rules for business relief changing, now is the time to review gifting strategies to avoid inheritance tax, particularly where trusts are involved, Evelyn Partners said.

Before 6 April 2026, it is possible to transfer business relief-qualifying shares – of any value – into a discretionary trust, with no immediate inheritance tax charge, provided the shares qualify for relief.

From 6 April 2026, the amount of business relief-qualifying assets that can be transferred into trust with 100% relief will be capped at £2.5 million per individual. Any excess above this will attract only 50% relief, potentially giving rise to an immediate inheritance tax charge.

This £2.5 million allowance is now transferable between spouses or civil partners, allowing a couple to pass up to £5 million of qualifying assets free of IHT on the last spouse’s death.

Matthews said: “Trusts can be key to succession planning, family wealth preservation and long-term control, but they should be considered as part of a broader strategy. Gifting, whether directly or into trust, must be affordable and should not put your own financial security at risk.”

If you are considering using trusts, allow for plenty of time to allow time for legal drafting, valuations and any required shareholder approvals.

3. Carry out ownership changes early

Many financial planning strategies for businesses, Matthews pointed out, require changes in the ownership structure before shares can be settled into trust or before a sale can proceed. These changes often take longer than expected due to legal processes, valuation work and the need for shareholder consent, so should be done as early as possible.

Examples include creating new share classes or preparing a holding company for a future transaction.

“It is critical that reorganisations are completed before any trust transfers are attempted,” Matthews said. “Poor sequencing can inadvertently break business relief conditions or create unexpected tax exposures.”

4. Begin life insurance underwriting

If a business is sold, business relief qualifying shares convert into cash. “The moment this happens, the potential inheritance tax protection they offered is lost. If the owner dies before the proceeds are reinvested or placed into an appropriate structure, their estate may face a large inheritance tax exposure,” Matthews said.

Life insurance held in trust can provide a simple and effective bridge through this risk period, but underwriting can take weeks or months. Medical evidence, GP reports and financial information can create delays that may push completion too close to the deadline.

“Starting the underwriting process early can help to have cover in place when it is actually needed rather than after the event,” Matthews advised.

5. Make sure your business and personal financial plans align

Business owners often prepare for a sale or refinancing without considering how this interacts with their own wills, trusts and estate plans. This can be risky.

Matthews said: “For example, a new holding company may change business relief status, or a change in voting rights may affect succession intentions. Wills may need to be updated to make best use of the business relief allowance or to direct assets to trusts in a way that preserves and maximises potential relief.”

Advisers should coordinate legal, tax and investment teams so that both the business and personal sides of the plan support each other. “A short misalignment at the wrong moment can jeopardise years of planning,” Matthews warned.

6. Prepare for post-business sale cash

Once a business sale is complete, if that is the chosen route, owners often hold large amounts of cash for a period while deciding how to reinvest. Evelyn Partners cautioned this creates an immediate inheritance tax risk and can also lead to missed opportunities if reinvestment is slow.

“A forward plan should outline where liquidity will be held, whether a family investment company or personal investment company is appropriate and how the proceeds will be managed until a long-term portfolio is established,” said Matthews.

Planning for this stage now reduces stress after completion and makes the overall transition more tax efficient.

Get financial advice

Ultimately, given the complexity of business relief and inheritance tax rules, it makes sense to speak to a Financial Conduct Authority-regulated professional financial adviser before taking any action. You can find a directory of your local experienced financial advisers on websites like VouchedFor and Unbiased.

Tens of thousands of self-invested personal pension (Sipp) plans with property holdings could land their beneficiaries with an inheritance tax (IHT) nightmare after new rules come into effect next year.

Loved ones may not have enough time to sell commercial property assets held in the more than 50,000 plans within a crucial six-month HMRC deadline, warns financial firm Bowmore Financial Planning.

Unused pension funds, including those from Sipps, will be subject to IHT from April 2027, as announced by the chancellor Rachel Reeves in the 2024 Autumn Budget.

However, plans with commercial property holdings could leave their beneficiaries scampering to find cash to pay IHT bills upon the owner’s death.

Figures obtained from the Financial Conduct Authority (FCA) via a Freedom of Information request by Bowmore reveal there are currently 54,387 Sipp plans that hold commercial property.

Commercial property includes offices and industrial and retail units. Sipp owners can invest in a commercial property fund, which pools money from multiple investors to buy and sell properties through an investment manager.

The money in a Sipp can also be used to directly buy commercial property, with any rental income earned from it exempt from income tax.

Why commercial property in Sipps poses an IHT risk

Commercial property is a relatively illiquid asset, meaning it can be hard to sell quickly, unless you drastically lower the price.

IHT is normally due within six months of someone’s death. But Bowmore warned that, from April 2027, beneficiaries may struggle to sell commercial property in order to raise liquidity to foot the IHT bill fast enough to meet this deadline.

Payment plans can be agreed with HMRC if the six-month deadline is missed, but interest will accrue on any unpaid tax.

John Clamp, financial planner at Bowmore, said: “Introducing IHT on pensions fundamentally changes the risk profile of holding commercial property inside a Sipp.

“These assets were never designed to be accessed quickly, and with the changes to IHT rules families could suddenly find themselves trying to raise a six-figure tax bill without the liquidity to do so."

A Treasury spokesperson said: “We continue to incentivise pension savings for their intended purpose of funding retirement instead of being openly used as a vehicle to transfer wealth – more than 90% of estates each year will continue to pay no inheritance tax after these and other changes.”

What should Sipp owners invested in commercial property do?

Clamp said one option is a ‘Whole of Life’ (WOL) insurance policy.

These policies pay out a guaranteed lump sum upon someone’s death, which can be used by beneficiaries to pay an IHT bill and prevent them from having to sell assets, like commercial property, instead.

You will have to pay the insurer for one of these policies, but it could prove more cost-effective than having to rush through the sale of commercial property.

Another is by reducing the value of your estate by spending more of your money so any eventual IHT bill is lower and the sale of any commercial property by your beneficiaries is not needed.

The rules can be incredibly complex, Clamp added, so it’s worth seeking advice from a financial adviser.

Pension savers are being encouraged to switch beneficiaries on their pension paperwork now to protect their retirement pot from inheritance tax for the next 16 months.

When someone starts saving into a pension they have to fill out certain forms. This includes a section on ‘beneficiary nomination’ – essentially telling the pension provider who should inherit their retirement pot when they die.

Many people fill in and forget this part of the paperwork and typically their current spouse is named as beneficiary. But looming policy changes to inheritance tax and pensions mean there is now a roughly 16-month window where pension beneficiary nominations really matter.

One financial advice firm told MoneyWeek it is currently flagging to clients they may want to temporarily change their pension beneficiaries in case they die before April 2027 when the stricter new rules come in and pensions become subject to inheritance tax.

Oliver Saiman, co-founder of wealth manager Six Degrees, said: “Some families may want to temporarily nominate their children – or any other longer-term intended heirs – as pension beneficiaries now, with a view to switching nominations back to a spouse once the new regime starts in April 2027.”

Avoiding inheritance tax on pensions

The guidance comes as new rules mean from 6 April 2027 unused pension funds are due to be brought into an individual’s estate and potentially subject to inheritance tax at 40%. Until then, pensions still sit outside the inheritance tax net.

By changing the nominated beneficiary to your children – or other heirs beyond your spouse – if death occurs before April 2027, the pension can pass outside the estate free of inheritance tax to the next generation.

After April 2027, you can change the nomination form back, often to benefit a spouse, allowing the survivor to access the pension flexibly under the new rules. Spouses inherit free of inheritance tax in any case.

“No assets move and no irrevocable decisions are made – it’s an administrative change that can be reversed at any time – but the timing could materially affect outcomes for some families,” said Six Degrees’ Saiman.

“While investors and families are going through their ’spring clean’ of their personal finances we find that pension beneficiaries is an area that can be overlooked,” he added.

How to save on inheritance tax

Saiman gave the example of a married individual who has a pension of £1 million.

“Normally, if the pension holder dies, it passes to the spouse free of inheritance tax due to the married couples exemption. However, it then forms part of the spouse’s estate on their death, meaning IHT is ultimately paid when the surviving spouse dies (assuming that takes place after April 2027),” he pointed out.

But by temporarily nominating a child – or if there are no children, any one else you would like to inherit – before April 2027, the pension can pass directly out of the estate if the holder dies before that date.

Saiman said: “This avoids IHT on the pension entirely. Before 6 April 2027 when the new rules come into effect, you could revert the nomination back to the spouse, so they retain flexible access to the pension.”

Without the temporary change: £1 million passes to the spouse and is included in their estate, meaning an IHT bill of potentially £400,000 later.

But with the temporary alternative person nomination, £1 million passes outside the estate on death, so there is no inheritance tax on the pension.

“This is purely an administrative change, but the timing can make a substantial difference in some families,” said Saiman, adding “clearly this is applicable only if the remaining spouse is not reliant on the deceased’s pension”.

Family circumstances can change, for example due to death, divorce or remarriage, so it is always a good idea to check your nominated beneficiary is up to date.

How to change your nominated pension beneficiary

Changing pension beneficiaries is usually straightforward – most providers allow you to update nominations online or via a simple form.

The change doesn’t move any money. It just updates who receives the pension when you die. You can switch it back at any time.

To change your pension beneficiary, log in to your online pension account and find the ‘beneficiaries’ or ‘nominations’ section to update details.

Or call your provider to request a new ‘expression of wishes’ form, which you'll complete, sign, and return, noting that any new form replaces older ones.

If you choose to downsize to a cheaper property or sell your home to pay for care, you may worry you’ll lose valuable inheritance tax (IHT) allowances.

More than six million adults are thinking about or planning to downsize at some point in the next four years, according to analysis by Suffolk Building Society.

But experts say the ability to claim inheritance tax relief based on the value of your previous home, known as downsizing relief, is not widely known – which could result in a higher than necessary tax bill levied on your estate when you die.

We explain how downsizing relief works and how it also applies to those who no longer own a home and have moved into care.

What is the residence nil rate band?

Inheritance tax is only payable on estates valued over £325,000 thanks to a tax-free allowance called the nil rate band.

On top of that, the residence nil rate band (RNRB) gives qualifying homeowners the opportunity to pass on up to £175,000 of their home’s value as a further tax-free allowance. This means the threshold above which inheritance is charged could jump to £500,000.

Both these allowances are transferrable between spouses. For example, if Mr Jones dies first and he hasn’t used his nil rate and residence nil rate bands, he can pass them to Mrs Jones. On her death, Mrs Jones’ estate will be inheritance tax free up to £1 million. Above this, it is taxed at 40%.

Who qualifies for the residence nil rate band?

To be eligible for the extra relief to boost your IHT-free allowance there are certain qualifying factors you must meet:

• You must have died on or after April 6, 2017.
• Your property, or a share of it, must be left to a direct lineal descendant defined as children, stepchildren, adopted children or grandchildren.
• You must have lived in the property at some point, which rules out buy-to-lets.

Jessica Graham, solicitor, private client department at Brabners Personal, said: “Some of my clients have two properties that they’ve lived at some point and ask which one they should claim the residence nil rate band against. In this case, the executors get to choose and it can’t be claimed against both.”

The property the executors choose is usually the most valuable, to maximise the RNRB benefit.

For estates more than £2 million, the RNRB will reduce by £1 for £2 over the £2 million threshold.

Consequently, this means no RNRB is available at all for an individual’s estate with a value of more than £2,350,000 or £2,700,000 for couples.

When pensions become liable for IHT from 6 April 2027, more households could wind up losing their RNRB.

What is downsizing relief?

Normally, you can pass on up to £175,000 of your home’s value inheritance tax–free through the residence nil-rate band.

Downsizing relief, also known as downsizing addition, can protect people who sell or move out of their home later in life from losing the full RNRB that they may have been entitled to if they’d stayed in their previous home. There are no restrictions on why you might be downsizing to qualify for the relief.

“It was recognised that people who were downsizing or moving into care would lose the resident’s nil rate band altogether which the government sees as unfair,” said Graham.

“They don’t want Mrs Smith staying in an £800,000 property for the sake of not being able to claim this tax-free allowance, they want her to be able to move to a more suitable property which means that home becomes available for someone else.”

The name downsizing relief is slightly misleading, however, because it applies even if you no longer own a home at all because you sold your property to move into a care home to either pay for your care or because you didn’t want the hassle of renting it out.

To be eligible, the person who has died must have sold, given away or downsized to a less valuable home on or after 8 July 2015.

How downsizing relief works

If you’ve downsized to a cheaper property that’s worth less than £175,000 or, the share you own in your current property that you plan to leave to direct descendants is worth less than £175,000, you can apply for downsizing relief.

The relief will bridge the gap between the amount of RNRB you are entitled to in your current property and what you have been awarded had you still lived in the more expensive house.

Imagine a couple who sold a £400,000 home and moved into a flat worth £250,000.

When they eventually pass away, their estate is worth £900,000 in total, including the new property and other savings.

Had they stayed in the more expensive property, they would have been entitled to combined RNRB allowances of £350,000.

The couple is entitled to a £325,000 inheritance tax-free allowance each.

Sitting above this combined nil-rate tax band of £650,000, the couple’s estate is potentially facing an IHT liability unless they make full use of their RNRB.

Based on the value of the flat they wish to leave to their children, without downsizing relief, their combined RNRB would be capped at £250,000.

But under the rules of the relief, the executors can claim a £100,000 downsizing addition, given the value of their previous home was £400,000. This ensures the couple’s estate still benefits from the full £350,000 residence nil-rate band available.

By claiming the full residence nil-rate band, there’s the opportunity to avoid inheritance tax completely.

'I've moved into a care home. Will our inheritance tax allowance be cut if we sell our home?'

You will not automatically lose your some of your inheritance tax allowances if you sell your home after moving into a care home.

Downsizing relief is there to protect the value of your assets passed on through your estate.

Shaun Moore, tax and financial planning expert at Quilter, said: “Selling a property to move into care doesn’t mean you lose your residence nil-rate band, so long as your estate still leaves assets of an equivalent value up to £175,000 to direct descendants.

“For instance, if the proceeds from selling your home are held as savings or investments that eventually pass to your children or grandchildren, your estate can claim the same level of inheritance tax relief as if you still owned the property.”

The key, he adds, is that the value must be inherited by lineal descendants, not friends, charities, or more distant relatives.

What to look out for with downsizing relief:

• The deceased must have lived in the property to qualify for RNRB.
• It’s not automatically applied to you. Some legal firms may ask you for this information, but not all. It’s up to you to claim the relief.
• Downsizing relief only applies when assets are left to lineal descendants; children, stepchildren, adopted children or grandchildren. If your will leaves property or proceeds to nieces, nephews, siblings, friends or a flexible trust, the allowance is lost.
• Residence nil rate band tapers once your estate exceeds £2 million.

What records should you keep?

Executors will need evidence of the property’s sale price and date, details of how the proceeds were used or invested, and valuations of the smaller property if one was purchased.

HMRC will also expect proof that the equivalent value was left to children or grandchildren so keeping a clear paper trail avoids unnecessary stress at an already difficult time.

Moore said: “People often underestimate how valuable the residence nil-rate band can be and how easy it is to accidentally lose it. If you’re considering downsizing or moving into care, it’s wise to speak to a financial planner or tax specialist before selling, so they can structure things in the most tax-efficient way and ensure the relief isn’t lost.”

In the next couple of decades, more than $100 trillion (£74.8 trillion) of global wealth is expected to pass from one generation to the next. But many of the world’s wealthy are worried about securing a legacy that reflects their values, according to a new report.

Wealthy individuals who don’t set out a clear plan for their money face the risk of family conflict, missed opportunities and the erosion of their fortunes as the Great Wealth Transfer unfolds.

It’s not just financial assets that could be lost over time, but non-financial wealth. In a survey of 1,000 wealthy individuals around the world, nearly three quarters (72%) said their legacy is defined more by the passing on of their values than their financial inheritance, HSBC Private Bank found.

When it does come to inheritances, opinions vary among the wealthy on how they want to spend or pass on their assets. One third (35%) want to enjoy it with their family rather than pass it on after their death. Just over a quarter (28%) want to pass it on while alive, and less than a quarter (23%) plan to do so after their death.

How to create a lasting legacy

Even as wealthy individuals concentrate on building their fortunes, many remain uncertain about what they want their wealth to achieve after they are gone, despite a desire for their legacy to reflect their values, the HSBC report found.

But the wealthy individuals who are best equipped to create a lasting legacy, according to the findings, have done three very specific things:

Set out a wealth philosophy

By having a clear set of intentions for their assets, wealthy individuals can identify the purpose of their fortunes, and the values that the senior generation wish to preserve for the future.

This helps most when it is written down in black and white, so there can be no confusion about wishes. So as well as a formal and legally binding will, many legal experts now recommend a letter of wishes too.

Russell Prior OBE, head of family governance, family office advisory and philanthropy at HSBC, said: “Many wealth creators are so busy building their fortunes that they have under-invested in preparing the next generation.

“What they need is a clear, well-developed wealth philosophy, involving a much wider set of considerations, than just setting out plans for their financial assets.”

Engage the family

Early and open communication is crucial when discussing inheritances and legacy planning. But conversation can be difficult when some parents lack confidence in their children’s readiness to manage wealth.

The survey reflects this – more than two thirds (70%) of those asked said they want to delay transferring their wealth to help instil financial responsibility into the next generation.

Ann Ling, head of wealth planning and advisory for Asia Pacific at HSBC, said: “Wealth brings freedoms and a lot of convenience, but at the same time, the senior generation know there are also many responsibilities.”

Similarly, children can also feel pressure from that burden of expectation, as they are often worried about making mistakes. As their parents have often been so successful in business and creating wealth, they often feel they are unable to measure up.

This is why strong communication channels between generations are crucial. “From my experience, I've never seen people complain about having the family discussion too early,” Ling said.

“To achieve a lasting legacy, families need open communication about what they are passionate about and can unify around.”

Unify behind a cause

One way to build family unity is to back a cause all members can support. Within the Great Wealth Transfer, approximately $18 trillion (£13.4 trillion) is expected to go to good causes, according to analysis by Cerulli Associates in 2024.

“Philanthropy can be a powerful way to create a legacy that can last long after the wealth creator has gone, and which can simultaneously unify the family,” said Prior.

Charitable giving is also a smart estate planning strategy that can mean your loved ones avoid some inheritance tax.

Ultimately, planning ahead is essential. Family members that engage with each other on the purpose and impact of their collective wealth will be well placed to build something enduring.

Ling said: “Combining aligned philanthropic values with good planning gives a legacy relevance and energy. This will also help to perpetuate harmony in future generations.”

But failing to do so brings risks that go beyond financial inefficiency: it can create conflict that threatens a lasting legacy.

The government has announced a climbdown on controversial plans to reduce inheritance tax relief on farms and businesses, raising the threshold at which businesses will be taxable from £1 million to £2.5 million.

In the 2024 Autumn Budget, the government announced plans to reduce inheritance tax relief on agricultural properties and businesses worth over £1 million to 50%. The change was due to take effect from April 2026.

Inheritance tax is charged at 40%, so the change would effectively introduce a 20% tax rate on the value of inherited farms or businesses over £1 million.

The proposals sparked outrage from campaigners and rural groups. They argued that charging inheritance tax on farms, which could easily contain £1 million or more in nominal assets without being particularly large or profitable operations, would force the inheritors to sell off assets and reduce the size of the farm in order to meet the cost of paying an IHT bill.

Farmers staged a protest in Westminster on 26 November, the day of the 2025 Autumn Budget.

The government has today partially rowed back on its proposals, announcing it will raise the threshold to £2.5 million.

That will allow spouses or civil partners to pass on up to £5 million in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances, according to the government.

Married couples and civil partners can pass on a farm worth up to £5.65 million without paying inheritance tax, by combining two £2.5 million agricultural/business property allowances and two £325,000 nil‑rate bands that can be transferred between them on death.

“We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms,” said environment secretary Emma Reynolds. “We are increasing the individual threshold from £1 million to £2.5 million which means couples with estates of up to £5 million will now pay no inheritance tax on their estates.”

What is agricultural property relief?

Agricultural property relief (APR) is a type of inheritance tax relief. It reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation.

Business property relief is similar, but for business assets that are part of the estate. The threshold increase will also apply to business property relief, which will be a cause for celebration for family business owners.

Critics arguing against the reforms to APR have pointed out farms tend to have a lot of expensive assets that can’t be easily divided up and sold to foot an inheritance tax bill, such as land or machinery.

“Although farm asset values can be high, the returns are often low,” said Sean McCann, chartered financial planner at financial advisory firm NFU Mutual. “In many cases we could still see land and buildings having to be sold on the farmer’s death to pay the tax bill, with the next generation inheriting smaller less efficient farms as a result.”

That would be particularly acute for the owners of relatively small family-owned farms that wished to pass ownership on to their children.

The government estimates that the new threshold of £2.5 million will reduce the number of estates that are subject to inheritance tax on their farms or businesses by half, from 375 to 185, in the 2026-27 tax year.

“While this is a significant improvement on the previous proposals and will take many smaller farms and businesses out of the inheritance tax net, it will still leave many farming and business owning families facing a large inheritance tax bill,” said McCann.

Giving a loved one cash for Christmas isn’t the most imaginative present idea, but it can be ideal if you’re low on ideas and strapped for time. It could also reduce your inheritance tax bill.

Inheritance tax receipts surged to £5.8 billion in the first eight months of the current tax year, the latest figures from HMRC show, up £84 million annually and continuing an upward trend.

However, gifting money to friends and family this festive period could be a win–win – topping up their bank account and reducing the value of your estate for inheritance tax purposes.

Reducing the value of your estate could see less of it exposed to a standard 40% tax rate (on any amount over the £325,000 nil-rate band).

Bear in mind, it's also worth keeping records of any gifts you have given so it is easier for the executor of your will to declare them to HMRC after you die.

Sarah Coles, head of personal finance at Hargreaves Lansdown, shared five ways you can use inheritance tax gifting rules this festive period to lower the value of your estate.

Max out the annual gift allowance

You can give money away up to the value of £3,000 each tax year without it falling into your estate through the annual gift allowance.

The allowance can be split between multiple people so you could, for example, give £1,500 to one relative and £1,500 to another and would be within the allowance.

The annual allowance can also be carried forward to the next year.

“If you didn’t use any of your £3,000 allowance in the previous tax year, you can carry it forward and give £6,000,” Coles said.

Use the small gift allowance

You can also give as many gifts of up to £250 per person each tax year, so long as you haven’t given that same person money through the annual exemption.

This is known as the small gift allowance.

Give gifts for a wedding

You can give larger financial sums within inheritance tax rules if it’s a gift for a wedding or a civil partnership.

Coles said: “You can give £5,000 to a child as a wedding present, £2,500 to a grandchild or great-grandchild and £1,000 to any other person.”

Wedding gift allowances can be combined with other allowances as well, except the small gift allowance.

Gifting money out of your “surplus income”

You can gift money if it’s part of your “surplus income” through what’s known as the “normal expenditure out of income” exemption.

This allows you to gift potentially more than £3,000 per year (the current annual gift allowance) without it being subject to inheritance tax later on.

You have to meet three conditions to qualify for the exemption. These are:

• The gifts must be part of normal expenditure (you need to establish a clear, regular pattern of gifts. Christmas can be a good time to offer these gifts once per year)
• You have to be able to maintain a normal standard of living after making the gift (and avoid dipping into savings or investments to pay for it)
• The gift has to come from “normal” income. This includes pension, rental and dividend income.

Coles said: “You don’t need to make the gift direct to the individual. You can pay into a Junior ISA for children, which they can access when they turn 18.”

It could be worth speaking to a tax expert or financial adviser if you’re considering this exemption as the rules can be technical and complicated.

Potentially exempt transfers (PETs)

You can give away unlimited sums of cash that are exempt from inheritance tax through the “seven year rule”. These are known as Potentially Exempt Transfers (PETs).

Coles said: “You might choose Christmas as a time to make these gifts. It’s not just a very generous Christmas gift, it’s also a useful time when the family is together, to discuss any issues that come up around the topic.”

The rules dictate that gifts outside of your allowances are not subject to inheritance tax, as long as you don’t die within seven years of giving them.

If you do die within seven years, the inheritance tax due is paid on a sliding scale known as “taper relief”. Tax is paid on the estate at different rates depending on when you died.

For example, gifts given in the three years before your death are taxed at 40%, while gifts given three to seven years before your death are taxed between 32% and 0%.

We explain what a trust is in another article – and how they can be used to pay less inheritance tax.

Generous Brits are unknowingly leaving their loved ones open to inheritance tax bills by failing to document how much they have given and to whom, according to latest research.

Nearly half (45%) of wealthy individuals have no written record of what they’ve gifted to loved ones, according to new research from Charles Stanley, a wealth manager. This gives rise to potential problems later on.

Making financial gifts is a popular way to pass wealth onto loved ones and avoid inheritance tax (IHT) on estates.

But without detailed written records of what has been gifted this could leave loved ones with potentially costly and unexpected inheritance tax bills.

Almost one in three (29%) of those surveyed said they are relying on keeping mental notes on what they’ve gifted or plan to. Meanwhile 17% simply have no record of what they’ve gifted in their lifetime.

Harry Bell, director of financial planning at Charles Stanley, said: “Making gifts by the book is what really matters. While many claim to keep a record of what gifts have been made, it’s only those with written records that HMRC can track.”

How much are wealthy Brits gifting?

Of those who have made financial gifts in the last year, they averaged £8,367. However, this far exceeds what individuals can give away under the current gifting rules of up to £3,000 each tax year.

Looking across generations, Baby Boomers (aged 61-79) say they have gifted an average of £11,756 in the last year, while Generation X (aged 45-60) have gifted an average of £6,795.

While generous, this means that if individuals were to pass away within seven years of making these gifts, beneficiaries could be subject to paying inheritance tax on what they were gifted.

How does gifting work?

Just under half (48%) of those asked in the Charles Stanley survey say they have a written list of exactly what they’ve gifted or plan to. Ideally you should keep the following records:

• what you gave and who you gave it to
• the value of the gift
• when you gave it

This will make the job simpler for any executors of your estate, who will be responsible for reporting any financial gifts through the IHT400 form, particularly those made in the seven years prior to death – following the seven year inheritance tax rule – and working out if any inheritance tax is due.

It is important to remember that any inheritance tax due on gifts is usually paid by the estate – unless you give away more than £325,000 in gifts in the seven years before your death.

Once you’ve given away more than £325,000, anyone who gets a gift from you in those seven years before you die will have to personally pay inheritance tax on their gift.

HMRC gives the example of Sally, who died on 1 July 2022. She was not married or in a civil partnership when she died. She gave three gifts in the nine years before her death:

• £50,000 to her brother nine years before her death
• £325,000 to her sister four years and two months before her death
• £100,000 to her friend three years before her death

There’s no inheritance tax to pay on the £50,000 gift to her brother as it was given more than seven years before she died.

There’s also no inheritance tax to pay on the £325,000 she gave her sister, as this is within the inheritance tax-free threshold.

But her friend must pay inheritance tax on her £100,000 gift at a rate of 32%, as it’s above the tax-free threshold and was given three years before Sally died. The inheritance tax due is £32,000.

Bell said “Making financial gifts is one of the best ways to offset inheritance tax, and is seeing a growth in popularity as a way to transfer wealth from generation to generation.

“With IHT thresholds also remaining frozen and private pensions set to be included in estate valuation from 2027, gifting will only become more popular as a tool for families to pass their wealth on.

“However our research shows that there is a concerning lack of understanding around gifting and the potential unintended consequences if not done appropriately.”

Some of Britain’s wealthiest families have been sent retrospective inheritance tax demands of around £3 million, according to new estimates, because their loved ones waited too long to give away cash and other assets.

The bills arose because the families tried to take advantage of the “potentially exempt transfer” (PET) rules but didn’t survive long enough to use them properly.

PETs allow individuals to make gifts of unlimited value which become exempt from inheritance tax if the giver survives a further seven years, known as the seven year rule.

But HMRC’s admin systems captured 14,030 ‘failed gifts’ – where inheritance tax became due as a result of the giver sadly dying within the seven years – a Freedom of Information (FOI) request from wealth manager RBC Brewin Dolphin has revealed.

The top 25 failed gifts in the 2022/23 tax year averaged £7.93 million per family estate after allowances and exemptions.

A gift of this size would trigger a tax bill of up to £3.17 million if the PET failed in the first three years, meaning 40% IHT was due. The bill would be less the more time passed since the gift was given, until, once seven years passed, and providing the giver was still alive, inheritance tax would be avoided.

The average failed gift stood at £171,000 per family estate after allowances and exemptions, according to analysis of the FOI, meaning a recipient paying 40% inheritance tax on that sum faced a bill of £68,400 if the PET failed in the first three years.

Michelle Holgate, director of financial planning at wealth manager RBC Brewin Dolphin, said: “If the donor dies within the seven years, then inheritance tax, on the amount in excess of the available £325,000 tax-free threshold, is payable by the recipient, on a sliding scale of eight to 40% depending on the time that has passed between the gift being made and the donor passing.

“This news can come as a massive shock to people who are already mourning the loss of a loved one. That’s why we would urge clients to plan well ahead of time or consider insurance policies which meet these bills.”

Looming changes to IHT on pensions and family businesses

Tax changes announced by chancellor Rachel Reeves in her 2024 Budget are fueling interest in gifting as families look to avoid inheritance tax and pass something on to the next generation, according to RBC Brewin Dolphin.

Under the current rules, retirees are still able to pass on unspent pension pots without their descendants incurring inheritance tax. But that will change from April 2027 when unused pension pots will come into the IHT net. Many people are grappling with whether to convert their 25% tax-free lump sum into a gift, the wealth manager said.

In addition, the chancellor last year announced proposed changes to agricultural property relief (APR) and business property relief (BPR), which historically meant no inheritance tax was due on most farmland, property and business assets in agricultural estates.

The initial proposals limit the 100% APR and BPR relief to the first £1 million of combined agricultural and business property. From April 2026, property above that value will benefit from 50% relief, leaving an effective IHT charge of 20% on the value of the APR/BPR above the first £1 million.

Holgate said: “Strategic gifting was once seen as a tactic of the super affluent, but has now gone mainstream.

“We’re seeing enquiries in particular from farmers looking to pass on assets such as land to the next generation without triggering a big IHT bill.

“People are naturally protective of family businesses which in some cases have been built up over several generations. They want to keep these businesses in the family and see them thrive long into the future.”

Source FOI to HMRC: Figures are after allowances and exemptions

IHT bills to double

Inheritance tax receipts to the Treasury are predicted to almost double over the next five years to £14.3 billion, according to the Office for Budget Responsibility (OBR).

IHT is currently charged at 40% for estates worth more than £325,000 with an extra £175,000 allowance towards a main residence if it is passed to direct descendants.

Married couples or civil partnerships can share their allowance, meaning they can pass on £1 million to their children without any tax. Co-habiting couples do not benefit from transferable allowances.

But there are ways to reduce your IHT bill, including by using trusts.

Using trusts to mitigate IHT

Making gifts into trust can help families avoid surprise inheritance tax bills triggered by the seven-year rule.

Trusts can be attractive as they allow donors to give away assets indirectly. Typically, a trust is held and managed by a third party known as a trustee.

Often, grandparents will set aside money for grandchildren with the parents as trustees. Money is typically released when the grandchildren are mature enough to make prudent financial decisions. This is at the discretion of the trustees and there is no obligation to wait until the child turns 18 or 21.

Holgate said: “Trusts can be used to ringfence funds in a way that is tax efficient for inheritance.”

Another option worth considering is gift inter vivos insurance policies which pay out if the donor doesn’t survive the seven years and a tax demand lands on your doorstep, to cover the bill.

Holgate said: “As you would expect, these policies have a seven-year term and should be placed in a trust, otherwise the benefits from a claim on the policy may be added to the individual’s estate, thereby increasing the tax liability.”

She added: “The earlier you sit down with a financial planner, the better if you want to plan your gifting in the most tax efficient manner.

“As the figures in our research demonstrate, the longer you delay your gifting, the greater the risk you won’t survive the full seven years.”

Longstanding gifting rules used as a way to avoid inheritance tax could be under threat in next week’s Budget. Those at risk of leaving their loved ones an inheritance tax bill are being encouraged to review their finances and consider giving money away now where it makes sense for them.

More than one in every 10 retired people (15%) said changes to inheritance tax is their biggest Budget fear, according to a survey of 2,000 people for wealth firm Hargreaves Lansdown in October.

Since the summer, rumours have been swirling that inheritance tax (IHT) could once again be a target. One way chancellor Rachel Reeves could potentially increase IHT receipts is by raising the taxes on giving money away – known as gifting – it has been speculated.

However it is unlikely any Budget tax rises, if they do happen, would be put into practice before the new tax year in April 2026, so those considering making gifts likely still have time to look over their finances, review their options and potentially reduce their inheritance tax bill.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Sensible gifts can help support younger family members at a time when you’re still around to see them make the most of the money. It also gives you more control over how gifts are given – as well as cutting a potential inheritance tax bill.

“However, you need to consider it carefully. Giving away too much, too soon, can end up doing more harm than good if you don’t have enough money to fall back on later in retirement.”

How could inheritance tax gifting rules change in the Budget?

Lifetime gifts

At the moment, you can give gifts of any size and, as long as you live for seven years after making the gift, it falls out of your estate for inheritance tax purposes – known as the seven year rule. But the government is said to have been looking at limiting the total value of these one-off gifts people can make during their lifetime.

Taper relief

Taper relief, which applies if you give away more than the inheritance tax threshold of £325,000 – also known as your nil rate band – before you die, but die within seven years, could also be curtailed. Taper relief means the rate of inheritance tax your loved ones pay on the gift you give them gradually falls between three and seven years after giving the gift, cutting your tax bill.

Extending the seven year rule

Increasing the period you have to live after making a gift in order for it to leave your estate is another option open to the government. If it rose to ten years it would make tax planning more difficult, and drag more people back into paying inheritance tax.

Changing gifts from surplus income rules

The government could revisit annual allowances as well as rules that mean regular gifts can be made from income. However, the fact the annual gift allowance – £3,000 per gift, per recipient – has remained frozen for decades means allowances aren’t as generous as they once were, which would limit how much extra revenue this would bring in.

How can I use gifting rules to avoid IHT now?

When done properly, gifting can allow you to make payments to family or friends without those payments being subject to inheritance tax.

David Lunn, partner in the private client team at TWM Solicitors, said: “Taking professional advice when considering gifting can yield significant benefits, particularly where larger sums are involved. You may be able to gift more than you initially thought and make savings.

“On the other hand, rushing through without planning is a dangerous game which is not recommended.”

As the chancellor is reducing the value of inheritance exemptions under Agricultural Property Relief and Business Property Relief from next April, gifting has become increasingly important as a way of reducing IHT.

TWM Solicitors, a private wealth and family law firm, highlights five things about gifting to consider before the Budget on 26 November.

1. Keep good records of gifts

Keep detailed records of any gifts you give, as this will greatly help the executor of a will. Executors often have to pore over years of bank statements to prove to HMRC that the gifting was done properly, so a failure to keep adequate records could lead to a lot of additional administration and detective work, causing delays. Good record keeping can save time, money and tax.

2. Do not give away too much…

People need to think carefully about how much money they will need towards the end of their lives. If you have too much, it will be subject to IHT. On the other hand, giving away too much comes with risks.

For example, if you need significant social care in the future and are unable to fund it from what you retain, your local authority might determine that you intentionally gave away your assets to avoid paying care fees. If so, it will treat you as if you still had said assets. This would place the burden on those who received the gifts or your heirs and, if they do not pay up, it could leave you needing care with nobody able and willing to pay for it.

3. …But don’t ‘under gift’ either

In TWM’s experience, the people who are likely to get caught out by inheritance tax, out of caution, keep too much money in their estate. By retaining more money than they need, they will leave heirs with a bigger IHT bill than necessary.

For example people often overestimate how much they will have to pay for a care home and their likely longevity. People also often forget that the cost of a care home need not be funded entirely out of capital – if you have a healthy income, this can go a long way towards meeting care fees. That being the case, TWM said individuals should consider gifting money to their loved ones earlier in life.

There are several different tax-free gift allowances that people are failing to make maximum use of:

• These include the £3,000 annual exemption, which, if you do not use it in a given year, can be rolled over once to the following year to make £6,000.
• Others include making wedding gifts of £5,000 per child, £2,000 per grandchild and £1,000 for anyone else.
• You are also allowed to make an unlimited number of small gifts of up to £250 per person annually, provided you have not used one of your other gift allowances for that person.

4. Use surplus income wisely

IHT will be applied to lifetime gifts given from your savings or other assets, unless you live for seven years after giving them, or your total chargeable estate is under the IHT threshold. If the money you are gifting is from income you do not need, there is no limit if it is done correctly.

However, this exemption is subject to various rules and procedures, and advice should be taken before proceeding. You may need to prove that the money was surplus to your requirements.

5. Be careful under a power of attorney

If you are acting under a power of attorney on behalf of someone else, your ability to give gifts on their behalf is extremely limited. Beyond that, you must obtain permission from the Court of Protection if you wish to make further gifts. Failing to do so puts you at risk of the court making you take back the gift or your power of attorney being revoked. HMRC may judge your gifts to be invalid and chargeable to IHT.

More parents are putting money in Junior ISAs (JISA) as they rush to shield their earnings from potential tax threats in the Budget, new data suggests.

October 2025 was the biggest ever month for people opening JISAs with investment platform Hargreaves Lansdown – on average, £870 was paid into these newly opened accounts.

Junior ISAs have been growing in popularity this year, Hargreaves Lansdown data suggests, with four out of the top five months for new Hargreaves Lansdown JISA openings falling in 2025.

It has come amid mounting speculation that the wealthy will be targeted with higher taxes in the upcoming Autumn Budget on 26 November, amid rumours the cash ISA allowance could be cut too.

Parents appear to be alive to these concerns and are considering the most tax-efficient way to shield and transfer their wealth to their families.

With a Junior ISA, parents and grandparents can give money to children while keeping it in a tax-free wrapper.

You are able to contribute up to £9,000 to a Junior ISA every tax year. You can open a cash junior ISA or a stocks and shares junior ISA, or both. You don’t need to pay capital gains tax or income tax on returns or savings interest accrued in an ISA.

The child is the legal owner of the JISA but is not able to withdraw any money from the account until they are 18.

A JISA is a great way for parents and grandparents to build up a nest egg for their children tax-free, and they can also reduce inheritance tax liabilities. We look at how this works.

How can JISAs help shield you from inheritance tax?

A JISA can be appealing for grandparents who want to reduce inheritance tax liabilities by giving gifts during their lifetime.

Contributions into Junior ISAs are considered gifts for inheritance tax purposes. Via the annual exemption, you can give up to £3,000 every year without needing to worry about the money being subject to inheritance tax after they die. This can be given to one person or split between different people. You can also carry any unused annual exemption forward to the next tax year, but only for one tax year. There is also a small gifts exemption – read more in our piece on how to avoid inheritance tax.

You can put more in a junior ISA, but the contributions would become subject to inheritance tax if you die within seven years of the gift being given. Find out more about the seven year rule on gifts and the taper rate in our guide.

Transferring wealth by contributing to a JISA can also be better than giving it as a cash gift, as money held in a JISA is protected from extra taxes on interest or capital gains.

The question you will have to ask yourself is whether the recipient will be mature enough at age 18 to make smart decisions with the cash instead of splurging it.

JISA alternatives

Another tax-efficient way of transferring your wealth is contributing to your child or grandchild’s pension.

Junior self-invested personal pensions (SIPPs) have become more popular in recent years as some parents and grandparents have used them as a way to both support their children far into the future, and shield them from paying inheritance tax.

The downside is that the recipient won’t be able to access the money until they reach the Normal Minimum Pension Age, which is currently 55 but rising to 57.

However, investing for their retirement early means your cash could have several decades to grow and compound, so it could constitute a significant boost to their pension pot.

Any adult can contribute £2,880 annually to the Junior SIPP, which, once 20% tax relief is factored in, brings the total yearly contribution to £3,600. The Junior SIPP reverts to the recipient’s control when they turn 18.

Similar to JISA contributions, Junior SIPP payments count as gifts for inheritance tax purposes, so unless they are within inheritance tax gifting allowances, they could be subject to the levy if you die within seven years.

Few people outside the Treasury understand how a Budget really comes together, or how the fiscal chess game inside Whitehall determines what happens to your tax bill, pension allowances, and savings returns.

One man familiar with the horse trading that goes on ahead of a Budget inside 1 Horse Guards Road, London – home of the UK Treasury – is David Gauke, a former chief secretary to the Treasury (2016-17), the second highest position in the department after the chancellor.

Now chair of Negotient, which advises on partnerships between the government and the private sector, Gauke, speaking exclusively to MoneyWeek, said while speculation about potential policy changes – such as will taxes rise – is playing out loudly in public, the story of this Budget will be in what happens behind closed doors.

“Budgets aren’t invented in a week,” Gauke said, “they are the culmination of complex negotiations between departments, the Treasury, No10, and sectors that matter to the economy: from energy to finance to housing”.

A common mistake many organisations make is to approach the run-up to a Budget as simply a lobbying exercise: a one-way pitch for a particular tax cut or subsidy, said Gauke.

“The Treasury rarely responds well to that. What works is negotiation, a two-way process where both sides understand each other’s constraints and build something sustainable, together,” he added.

MoneyWeek asked the former Treasury insider what Britain could expect from chancellor Rachel Reeves’ second Budget, due on 26 November. He revealed a complex picture of competing priorities and unpalatable decisions.

What could be in the Autumn Budget?

Officials and ministers are – as we speak – weighing how to fill what the Office for Budget Responsibility calls a “fiscal black hole” without stifling investment. The trade-off between fiscal rules and political promises dominates every conversation. Departments want more; the Treasury wants restraint.

With an estimated shortfall ranging from £27 billion (according to analysts at KPMG) and £50 billion (says independent think tank the National Institute of Economic and Social Research), it’s not going to be an easy gap to plug.

“When the fiscal headroom is thin, the question becomes not what the chancellor wants to do, but what she can responsibly afford to do,” Gauke explained.

Each year, this process includes quiet discussions with industry groups and sector bodies whose proposals can shape how policy lands. “These talks rarely make headlines,” Gauke said, “but they decide whether a tax or spending measure works in practice or ends up being reversed.”

The chancellor is clearly going to need to raise a lot of additional revenue. But she also needs to be able to sell the measures to the country as a whole and her political party. This means Reeves will “need to show the richest are making a big contribution”, said Gauke.

Before any decision the key factors Reeves will consider, according to Gauke, are:

• How much revenue will be raised?
• What will the political reaction be?
• Can this be presented as fair, especially to Labour voters?
• Does this disincentivise enterprise and investment?

How might this pan out for workers, pension savers and homeowners? Potentially, said Gauke, something like this.

1. Income tax

"If the chancellor is going to need a very large sum of money, it is very hard to do that without using the big tax levers, the most likely of which will be income tax,” said Gauke.

That would do less economic harm than a series of smaller tax increases, he said, but will be a clear breach of a manifesto commitment not to raise income tax, National Insurance or VAT. Reeves also “needs to show the wealthy will pay a greater share”, Gauke said.

Putting a penny on the basic rate of income tax would cost more than £1 a day in extra tax for higher earners, according to analysis by investment platform AJ Bell. It could also raise almost £7 billion next year for the Treasury, according to HMRC estimates.

2. Property tax

Various property tax changes have been mooted, including replacing stamp duty with a national tax on the sale of homes worth more than £500,000 and introducing a form of mansion tax with a capital gains tax charge on homes that sell for more than £1.5 million.

Further reports in the Daily Telegraph have suggested the chancellor could introduce a regular 1% charge on homes worth above £2 million.

“A property tax must be tempting, in that our current council tax system fails to distinguish between a quite expensive property and a very expensive property,” said Gauke, adding the allure for is stronger as a property tax “is also simple to explain”.

3. Inheritance tax

Changes to inheritance tax are “also possible”, said Gauke, but the ongoing row about agricultural property relief and business property relief shows increasing inheritance tax revenue comes at a high political cost.

“Tightening the ability to make gifts outside the IHT regime, for example, will raise little by way of revenue but will provoke vocal opposition, including from those unlikely ever to be affected,” said Gauke.

“The Treasury might, however, think they need a row here to demonstrate that they are trying to raise revenue from those with greater assets.”

4. Pensions

Various Budget pension policy changes have been suggested, from reducing tax relief to cutting the amount of tax-free cash. In another life, Gauke was also work and pensions secretary (2017-2018), so he knows the struggles of pension reform.

Reducing the pension tax-free amount radically could be criticised as retrospective, he said – people invested in their pensions on the assumption they would get 25% tax free. But if the change is set for some future date, it will not raise substantial revenue for many years, Gauke pointed out.

Either way, constant speculation about changes to the pension tax-free amount “is damaging for our system and Reeves needs to end the uncertainty one way or another”, he said.

5. ISAs

Reeves is heavily tipped to cut the cash ISA allowance, down from its current level of £20,000 to somewhere between £10,000 and £4,000, to get Brits investing in UK companies instead.

“I expect they will go ahead with some reforms here,” said Gauke. “But I think it will get some pushback given this will reduce the tax-efficient options for people who will already have paid tax once on this money.”

Where could Reeves slip up?

Some of the measures Reeves will announce in her Budget will be more about a political message than the revenue raised, Gauke said. But he added “there are a couple of issues where she needs to be careful”.

1. Too much double (or triple) taxation

“Many of the options that appear to be under consideration may well involve the same people being hit multiple times, and that might mean very vocal opposition,” Gauke said.

2. Too hostile to the wealthy

Our tax system already relies heavily on the richest. If the government gives the impression of being hostile to the wealthy, there is a risk more of them will move elsewhere, or that people won't come to the UK in the first place, said Gauke. “When the government is hoping to get the economy growing, that is a bad message to send out."

Budget negotiations behind-closed-doors

Reeves has little room for giveaways – so how the Treasury negotiates with key sectors will determine the real-world effects on your personal finance balance sheet.

“Expect renewed talks with utilities as the government considers longer-term energy-price reform,” said Gauke. “A poorly structured deal could see bills spike again, feeding inflation and higher interest rates – bad news for mortgage rates and bond portfolios”.

Likewise if ministers revive home buyer incentives, the negotiation with lenders and developers will dictate whether that supports supply or merely pushes up house prices. “A well-designed deal could stabilise property values; a hasty one could reignite volatility,” said Gauke.

Examples of successful Budget compromises

Some of the most successful policies of recent years have been born of negotiation, not confrontation. A case in point was the single-use plastics tax, introduced after extensive talks between the Treasury, manufacturers, and environmental groups such as Greenpeace.

“That policy worked because environmental campaigners, business, and government found common ground,” Gauke explained. “Rather than imposing a blanket ban, the Treasury designed a tax that rewarded recycled content and supported investment in cleaner production.”

One of the clearest examples of Budget-era negotiation shaping personal finances came during the 2022 energy crisis. As wholesale gas prices surged, the Treasury, Ofgem, and energy suppliers negotiated the Energy Price Guarantee – a deal designed to shield households from soaring bills.

“It was the right instinct,” Gauke said. “But the negotiation focused on short-term relief rather than long-term resilience. A more creative, risk-sharing approach between government and suppliers could have produced greater stability and less inflationary pressure.

“And that matters, because inflation feeds directly into mortgage rates and the real value of savings.”

He also pointed to the Help to Buy scheme, which emerged from Treasury discussions with lenders and developers to boost market confidence after the financial crisis. “That showed what Treasury negotiation can achieve when the aim is to unlock credit and stimulate investment,” Gauke said.

It also, he added, illustrated the importance of balance, ensuring measures to support growth work alongside policies to increase supply. “Getting that right is exactly what the government faces again now,” he added.

“Whether it’s energy transition, housing, or pensions, the government will have to negotiate intelligently with the private sector,” Gauke said. “That’s how you deliver value for taxpayers while creating opportunities for investors.”

Industry experts are calling for significant reforms to the process through which inheritance tax will be applied to pensions, calling for a fairer and more humane approach to the reform.

Pensions are currently exempt from inheritance tax (IHT) calculations, meaning that the value of a pension does not apply to the nil-rate band or the total value of an estate that is taxed for IHT.

But chancellor Rachel Reeves announced in last year’s Autumn Budget that inheritance tax will apply to pensions from April 2027.

Former pensions minister, Steve Webb, is calling on the House of Lords to revise the planned process through which pensions are included in IHT calculations, and giving evidence today (3 November) to The House of Lords Economic Affairs Committee’s hearing on the Finance Bill and changes to IHT.

Webb, who is also a partner at consulting firm LCP, and Alasdair Mayes, head of pensions and tax at the firm, have written a joint statement calling on the inquiry to enact the changes which they argue will make the process “more effective, efficient and – frankly – humane”.

“The new regime will create a lot more work both for personal representatives dealing with estates and for pension schemes and providers,” said Webb. These complications could delay payments to both grieving families and the taxman.

“This is already a difficult time for families, and they will now face a ticking clock of six months before interest and penalties could apply if IHT is not sorted out.”

Bringing pensions into the purview of IHT is already controversial. Research from wealth manager Saltus revealed in October that a third of people are actively exploring strategies to protect their pension from IHT, while 30% are reviewing or adjusting their pension savings or retirement planning ahead of the change taking effect.

“The decision to bring pensions into scope from 2027 has really sharpened focus on long-term planning,” said Alex Pugh, financial planner at Saltus. Pugh added that many Saltus clients are asking questions about whether or not the tax rules could change again in the upcoming Budget.

But the team at LCP argue there are major wrinkles in the proposed system that need to be ironed out first.

What changes are being proposed to the pensions IHT process?

LCP’s proposal wants changes to be made that makes the process fair and efficient, and to serve its stated purpose of closing direct contribution (DC) pensions as a means of avoiding IHT. These include:

Excluding ‘death in deferment’ lump sums and funeral payments from the IHT net.

The justification for the policy of including pensions in IHT calculations is that DC pensions had been used by some as a vehicle to avoid IHT. But Webb highlights that the proposed changes go far beyond DC contributions and ‘death in deferment’ lump sum payments – the pensions of people who have left the company providing the plan and have died before starting to take their pension – as well as funeral grants out of pension schemes.

“Given that neither of these systems is being used to avoid IHT, it seems unfair to catch them in the scope of the policy,” said Webb.

Ensuring personal representatives aren’t unfairly exposed.

Under the framework as it currently stands, personal representatives will be liable for ensuring that IHT is paid, but in the case of pensions, they may not have direct control over some of the funds.

“One example would be a pension pot payable to a beneficiary who is not the personal representative,” said Webb.

Webb suggests that solutions to this problem could be to ensure representatives are only liable for IHT due on the rest of the estate, or giving them the power to require the pension provider to deduct IHT before paying out.

A fairer approach towards payment delays.

Representatives are responsible for ensuring IHT is paid within six months, and beneficiaries could be exposed to interest and penalties if this deadline is missed.

“But they may be penalised for matters beyond their control, such as delays in obtaining information about fund values and about other beneficiaries,” said Webb. “Ideally a longer deadline or at least waiving the penalties and interest would seem appropriate in such cases.”

Addressing potential payment delays.

Bringing pensions into the scope of IHT could lead to a delay in payments to legitimate beneficiaries.

“Under the new rules, it’s not clear assets can be paid until the whole process has been completed and the personal representative knows the value of all pension and non-pension assets and how these are to be split between exempt and non-exempt beneficiaries,” said Webb.

“This means that even a payout to a spouse – where no IHT can be due – could be put on hold for months. It would be better if such payouts could be released before IHT matters were resolved.”

Addressing delays in information.

“Given the time pressure on this whole process, more needs to be done to ensure that pension schemes become aware of the death of a member as soon as possible,” said Webb.

He proposes allowing the government’s ‘Tell us Once’ service to share information with pension providers, or requiring registrars to share data about deaths faster and more frequently.

LCP also proposes reducing the ‘end-to-end’ delay of the entire process by allowing probate applications to be processed in parallel with IHT assessments.

Help bereaved families track down pensions.

Finally, it could be difficult for bereaved families to track down pensions, which could further delay the process of assessing the estate.

“Once the new pensions dashboard is up and running it should be made available to bereaved families, and the data displayed should be expanded to include unspent pension balances,” said Webb. “This would be of great assistance to those trying to locate all of someone’s pensions following a death.”

Professional advisers to the ultra high net worth – from accountants to wealth managers – are seeing a shift in how their clients want to manage their affairs. More enquiries are coming in for family investment companies (FICs) as a way to pass on wealth while potentially paying less tax on it.

One of the consequences of the Autumn 2024 Budget announcements on inheritance tax (IHT) is that many families are now considering passing assets on to the next generation sooner than they might have otherwise planned, according to accountancy firm RSM. This is where family investment companies come in.

Chris Etherington, partner at RSM, said: “Historically, trusts have been the preferred solution. However, trusts have become more challenging due to potential upfront tax charges that can result in a 20% IHT liability, particularly on larger gifts into a trust.”

No such upfront charge is due on gifts of shares via a family investment company, another way to avoid inheritance tax. “As a result, the use of trusts has steadily declined since 2006 [when then chancellor Gordon Brown brought in the 20% upfront IHT liability for trusts], while in our experience, the use of an alternative vehicle, the family investment company (FIC), has increased,” said Etherington.

Ben Handley, private clients tax partner at accountancy firm BDO, agreed: “Changes to capital gains tax business asset disposal relief and the forthcoming changes to IHT business and agricultural reliefs have forced business owners to reconsider their family wealth succession plans,” he said.

“In some situations, converting an existing trading company into a FIC may be attractive for business owners as part of their overall wealth succession plan.”

What is a family investment company?

A family investment company – or FIC – is essentially a private company set up to hold, invest and distribute family wealth.

The typical structure involves parents as both directors and shareholders, retaining voting control through one share class. Meanwhile children or grandchildren hold different share classes with limited or no voting rights but entitlement to dividends and capital growth.

The experience at wealth manager Six Degrees is that family investment companies tend to become suitable for investment portfolios of around £5 million or more, due to the costs and administration it takes to set them up and run them.

“However under certain circumstances it may be suitable for lower amounts,” said Katherine Waller, co-founder of the firm.

Assets held within a FIC are subject to corporate tax rates – meaning corporation tax of up to 25% and dividend tax rates of 8.75% at the basic rate, the higher rate of 33.75% and additional rate of 39.35% – which may be better versus the assets being subject to personal tax rates.

FICs are sometimes confused with trusts, but they are completely different structures: while ownership of trust assets lies with the trustees, companies are typically owned and controlled by shareholders.

“Settling assets into a trust typically entails giving away assets, and control, while holding assets in a company enables asset owners to retain control and ownership,” said Waller.

Why would you set up a family investment company?

There are a number of reasons to set up a family investment company.

1. Inheritance tax

From an inheritance tax perspective, family investment companies are efficient, as it can remove value from the parents' estates, which might otherwise be subject to 40% IHT, although this liability is transferred to another family member.

Like a transfer into a trust, gifts of shares via a family investment company count as a potentially exempt transfer (PET) for inheritance tax. This means the value of the gift would fall out of the donor’s estate for IHT purposes, provided they survived the giving of it by at least seven years.

James Floyd, managing director at pension firm Alltrust Services, said: “The appeal is understandable. FICs enable parents to freeze the value of assets in their estate for inheritance tax purposes whilst retaining control, and the transferred value begins its seven-year IHT rule immediately.”

2. Asset protection

Shares held by beneficiaries are separated from their personal financial circumstances, offering protection from creditors or divorcing spouses.

3. Better for entrepreneurs

Six Degrees works with a lot of entrepreneurs, who are often more comfortable with a company structure than with a trust.

“A company feels tangible. You can run board meetings, review investments, and involve the next generation in decision-making. It’s a great way to involve the different family members with the wealth, and share ownership responsibly,” said Waller.

4. Retaining control

Wealthy parents who see the value of gifting assets to manage their inheritance tax liability but are concerned about giving large sums to their children and want to retain control are a key demographic for FICs.

5. Tax efficiency

Holding investments in companies can also be tax-efficient, since companies generally do not pay corporation tax on dividends received from shares held.

Giving different share classes to children also lets parents easily distribute dividends to them, taxed at the children’s own marginal rate, which is often low (basic rate) or zero (within the personal allowance). This could be useful when funding university fees for example. “If they are not earning an income themselves this approach can be incredibly tax efficient”, said Six Degrees’ Waller.

6. Flexibility

FICs also offer wealthy families flexibility when it comes to moving their money around. They enable assets to be ‘lent in’, using redeemable preference shares, meaning the original capital may be repaid without triggering any tax.

What are the pros and cons of family investment companies?

Pros

“The biggest advantage is control,” said Waller. “Parents can keep voting rights while shifting value to their children gradually, and the company pays corporation tax on income and gains, which can be lower than personal tax rates. It’s also flexible – you can decide how profits are reinvested, distributed, or lent.”

Cons

The flip side is complexity. You need proper governance, accounting, and a clear plan for how to get money out efficiently. It’s not a set-and-forget structure. “So it’s important to go in with eyes open and see it as part of a bigger family strategy, aligned with the wealth’s purpose, rather than simply a tax play,” Waller said.

How much does it cost to set up a family investment company?

Tax advisers charge between £15,000 and £25,000 to set up a family investment company, in Six Degrees’ experience.

Ongoing compliance – annual accounts, CT600 returns, confirmation statements at Companies House – is likely to add £2,000 to £5,000 annually, according to pension firm Alltrust Services.

“In addition to the monetary cost it’s an investment of time to get the structure right at the start,” said Six Degrees’ Waller. “Setting one up is actually the easy bit – you can incorporate a company in a day. The hard work is in designing it properly. Who gets voting shares, who gets growth shares, how decisions are made. That’s where the value lies.”

Double taxation?

Family investment companies seemingly have much to recommend them. But some experts say they also suffer a “brutal taxation” that undermines their economic attractiveness for many families.

“The structure suffers from double taxation: corporation tax at 25% on profits, followed by income tax on dividends at 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate. This creates significant tax drag on investment returns,” said Floyd from pension firm Alltrust Services.

However David Denton, tax expert at wealth firm Quilter Cheviot, said because of the way FICs are established and invested, this can change the narrative around double taxation in several ways.

“For example, not all profits held within a company – trading or investment – are taxable. This is because most dividends aren’t taxable when equities are owned by another company. An investment policy with a bias to high dividend paying shares can substantially reduce the internal effective rate of tax,” he said.

At the same time, FICs may be partly or fully funded by way of a loan. If structured correctly, loan repayments to the founders are not subject to tax.

As mentioned, if grandchildren are share class owners, then otherwise taxable dividends may fall within their tax-free personal and dividend allowances.

Finally, said Denton, “on final wind-up of a company, it is possible capital gains tax is due at a maximum of 24% rather than dividend taxation at a maximum of 39.35%”.

Family pension trusts – an alternative to family investment companies

A potential alternative to a family investment company that achieves the same control and succession planning aims – but with potentially better tax treatment – is the family pension trust.

Established through a small self-administered scheme (Ssas) or a Sipp, “the taxation advantages to a FIC are substantial and immediate,” said Floyd.

Pension investments grow completely tax-free, he pointed out, eliminating the 25% corporation tax FICs face. Money can be drawn tax-efficiently using pension income rules, avoiding the dividend tax that can make FICs expensive.

“In addition, contributions attract tax relief up to 45%, providing an immediate boost that FICs cannot match,” Floyd said.

Pensions currently remain outside the estate for IHT purposes, though changes are coming in April 2027, when any unused pensions will be subject to inheritance tax.

“For business owners looking to hold trading assets or property not qualifying for pension investment, FICs may represent the most suitable structure,” Floyd said.

“For families whose primary objectives are long-term wealth preservation, succession planning, and tax-efficient transfer to the next generation, the family pension trust delivers substantially better outcomes. The tax savings alone, avoiding both 25% corporation tax and dividend tax whilst gaining contribution relief, transform the economic equation.”

The major downside, of course, is that pensions do not allow for capital access before age 55, soon rising to 57. There are also limits to how much can be contributed to a pension.

Love rather than tax should be the main motivation for getting married but financial planner Scott Gallacher could end up leaving his loved ones with a £214,000 inheritance tax bill if he doesn't marry his long-term partner after April 2027.

That is the startling reality of the government’s plans to bring pensions into the inheritance tax net, which could leave cohabiting couples with a shock bill from HMRC if one partner dies.

Chancellor Rachel Reeves announced in her 2024 Autumn Budget that inheritance tax will be applied to pensions from April 2027.

This means more estates could leave their families with an inheritance tax bill once someone dies.

Gallacher, 51, director and financial planner at Leicester-based advisory firm Rowley Turton is among many who could be hit by the changes, especially if passes away after April 2027 before getting married.

The financial cost of inheritance tax reforms

Gallacher has been with his 59-year old partner for 29 years and they have been engaged for 27.

But they never got around to getting married as they chose to save to buy a house in the 1990s instead of having a wedding and then life got in the way as he built his business and they raised their two boys.

He currently has a £700,000 pension, £150,000 equity in the home he owns with his partner and £10,000 in cash.

Under the current rules, his estate wouldn’t pay any inheritance tax as he can use the £325,000 nil-rate band covering his equity and savings, while the pension remains untouched - leaving £860,000 that can be passed on tax-free for his partner and two children.

The £175,000 residential nil rate band is also 'lost' unless he specifically leaves money to his two boys rather than his partner.

But, after April 2027 the pension value will be included, creating an inheritance tax bill of £214,000, leaving £646,000 in his estate to leave his loved ones.

This is because the tax system currently favours married couples, meaning you can pass on assets to your spouse tax-free.

But this doesn’t apply to unmarried couples.

Gallacher said: “I suspect come April 2027, there will be stories of cohabiting couples where one has died and they weren’t aware of the changes.

“Most people have houses and life cover so for the average person the inheritance tax allowances are pretty generous, but including pensions will flip some people from under to over the limit.”

While Gallacher is lucky to be in a position where he is aware of the changes, other people, both married and unmarried, may be unaware that their pension wealth could soon push them into paying inheritance tax.

Rowley Turton has launched an inheritance tax calculator on its website to highlight the financial difference the pension changes will make so that people can decide if they need to take advice to cut their inheritance tax bill.

Should you get married to reduce your inheritance tax bill?

Gallacher said he was always planning to get married and this has accelerated his plans.

He added: “Some communities may have only got married religiously but UK law does not regard them as married, so the pension change will accelerate that need.

“It’s a boon for the wedding industry and wedding cake manufacturers.

“Luckily I have a short term solution for my own personal liability, but there will be people who still face higher bills even if they are married, so financial advice may still be needed whatever relationship you are in.”

Recommendations to extend the amount of time families have to pay inheritance tax bills once pensions are included from next April have been dismissed by the government.

The government’s incoming pensions inheritance tax rules will place a “huge burden” on those left to pay the bill, a report from a group of Lords said in January. It called on the government to double how long families have to settle inheritance tax (IHT) bills in cases where pensions, family businesses and farms are involved, from six months to a year.

But Dan Tomlinson, secretary to the Treasury, has written to Lord Liddle, chair of the Lords Economic Affairs, which made the recommendation, saying the government will not extend the IHT payment deadline, in a letter published yesterday (30 March).

“The government does not intend to change the existing, longstanding deadlines which ensure tax is collected quickly and efficiently. IHT is due at the end of the sixth month after the date of death. After this point, late payment interest will begin to accrue on the outstanding tax,” Tomlinson said.

Experts predict many estates and beneficiaries are going to face late interest payments at an excruciatingly high rate of 4% above the Bank of England base rate level (which would currently make interest due at 7.75%) when they miss deadlines due to administrative jams. Some have called on the government to extend the IHT deadline in any case, saying it is out of date for complex modern financial affairs.

Rachel Vahey, head of public policy at AJ Bell, said: “It’s disappointing that the government has dug its heels in and isn’t even willing to consider a change to the six-month deadline to pay IHT.

“Adding pensions to the IHT calculation is going to prove to be an administrative nightmare for personal representatives (PRs) – who are often family members appointed to work out what happens to someone’s estate when they die – at a time when they are at their most vulnerable.

“The fact the government will allow personal representatives to put a temporary stop on paying out money from a pension for up to 15 months is tantamount to an admission they expect the two processes of winding up the estate and settling the pensions to be out of sync right from the start. Extending the IHT payment deadline from six months to 12 months would help PRs immensely.”

Burden on personal representatives

Peers on the House of Lords Economic Affairs Finance Bill Sub-Committee scrutinised measures relating to inheritance tax and unused pension funds – which will be subject to IHT from April 2027 – as well as reforms to agricultural and business property reliefs (APR and BPR).

One of the most significant issues raised during the committee’s inquiry was the administrative and potentially financial burden that will be placed on personal representatives – typically the administrator or executor of an estate, often a family member, sometimes in conjunction with a solicitor – by the measure to include unused pension funds in inheritance tax calculations. In many cases, the deadline to pay the inheritance tax bill will be too short for the timescales on which existing pensions processes operate, the committee's report said.

It was “not realistic” to expect personal representatives to be able to meet the statutory six-month deadline for payment of inheritance tax in relation to pension assets, it added. Many personal representatives will be at risk of finding themselves subject to late payment interest, it said, adding: “It cannot be right to impose on taxpayers a timescale for payment of tax if that timescale is for many likely impossible to meet.”

The planned rules could mean personal representatives become liable for inheritance tax on assets they can’t access or control, the report said, creating cashflow issues as well as deterring people – professionals and lay people alike – from taking on the role.

We explain how to navigate the inheritance tax paperwork maze in a separate guide.

How much are HMRC late payment charges?

HMRC charges interest on any tax paid late. In April 2025, the late payment interest was raised to 4% above the Bank of England base rate. Currently this means the rate is 7.75%, but it has been as high as 8.5% in the past 12 months.

Late payment interest will be due on any late payments of IHT, and personal representatives are responsible for paying any IHT due by the end of the sixth month after the month of death.

“So, it’s essential that PRs take steps to ensure that IHT is paid on time to stop late payment interest from building up,” said Vahey from AJ Bell.

Taxpayers can get their fees and charges waived, but only if they meet a certain list of excuses from HMRC. Simply not knowing that you needed to pay IHT or not understanding how to do it are not qualifying reasons. Only ‘reasonable excuses’ such as serious illness, bereavement or unforeseeable events, like computers not working, will pass muster.

From April 2027, personal representatives will encounter additional challenges by having to include pensions in the estate when working out IHT due. “They will be reliant on each pension scheme the deceased was a member of telling them the value of the pension, to allow the PRs to work out the IHT due on each scheme,” Vahey pointed out.

They may then be able to ask the pension scheme to put a hold on to 50% of payments being made to the beneficiaries -- as a buffer for any IHT due. They could then tell the pension scheme to pay the IHT in respect of that pension, and the scheme has five weeks to do that. Vahey said: “Personal representatives will therefore need to be aware of these timescales and plan accordingly.”

APR and BPR reform problems

In relation to the APR and BPR reforms, the Lords committee concluded dealing with estates is “likely to become more complex”, given the increased significance of valuations and the deadlines for paying any IHT due. Issues with being unable to pay on time within the six-month window were flagged repeatedly in evidence given to the Lords’ committee, particularly for small businesses and farms that may be asset-rich but cash-poor, even where payment by instalments is available.

The committee recommended the government also extend the deadline to 12 months for estates with qualifying APR and BPR assets in order to address the liquidity problems many of these estates will face. However, the government also rejected this proposal in its letter of response.

The government's IHT pension reforms explained

The Finance Act 2026 received Royal Assent on 18 March, making it law. Under the new law, a pension will count towards the value of an estate for IHT from April 2027.

This creates plenty of financial planning challenges but will also make it harder for people tasked with administering an estate and ensuring beneficiaries get money or assets that have been left to them.

Under the changes, a personal representative, typically the administrator or executor of an estate, will be responsible for collecting information on pension values to pay any inheritance tax owed.

Personal representatives have always been responsible for valuing an estate and ensuring any owed inheritance tax is paid.

But the House of Lords inquiry has heard warnings that including pensions in an estate raises new complications.

Steve Webb, former pension minister and now partner at pension consultancy LCP, told the MoneyWeek podcast he fears the burden of ‘sadmin’ – sad admin after someone has died – will become ever worse once the new pension inheritance tax rules come in from April 2027.

“Sadmin is the whole hassle of [when] someone has died and you now have to deal with all the paperwork. Once pensions are in [subject to IHT], the hassle, the admin, the delay that is going to cause is just going to be misery for people who may at the end of all that, not have to pay any inheritance tax.”

The six-month IHT rule

Currently, any inheritance tax owed on an estate must be paid within six months of the person dying or there will be charges of 7.5% (4% plus the Base Rate) on the money owed.

Ian Bond, member of the wills and equity committee at the Law Society, said that timetable is already short before you have to factor in finding pension information.

He said: “People rarely die tidily and things are not always in the best of order.

“Many don’t just have one pension and the onus is on personal representatives to find them.

“The IHT clock starts ticking as soon as someone dies. Interest rates will apply if IHT isn’t paid six months after death. That is short as it is but layering pensions on top of that makes it incredibly difficult.

“The government proposals for pension schemes sharing information are welcome but there is no detail on what administrators are going to provide to us.

"It needs to be standardised and frailty sharpish so we don’t end up delaying the administration of estates.”

Inheritance delays for families

There are also warnings that advisers to executors could be reluctant to allow money to be distributed due to uncertainty regarding pension valuations and reliefs, such as if money is going to a spouse.

There may also be conflicts where an executor is acting for beneficiaries of an estate that may be different to the beneficiary of a pension.

John McArthur, a partner at the law firm Gillespie Macandrew, who is a member of the Society of Trust and Estate Practitioners, said this could make it “almost impossible to complete an estate”.

He said advisers to executors will want to be clear that there is no more inheritance tax liability, which can cause delays and make it harder for beneficiaries who are already going through the grieving process.

John Bunker, consultant solicitor and chartered tax adviser at Irwin Mitchell, representing the Chartered Institute of Taxation, added that professional representatives may be deterred from the industry due to fears of incorrect valuations, which means families could miss out on advice and ultimately assets that could be owed to them.

Similarly, Bond warned that professional representatives may not want to be liable for inheritance tax on pensions, which is an asset they don’t control.

Delays for the taxman

Without a market for professional representatives, Bunker warns that there will be delays in estates getting resolved and ultimately tax being paid.

He said: “HMRC will end up with loss of tax revenue.

“There will be delays in getting tax and HMRC will need to deal with laypeople or solicitors where there is no professional to act as executor.

“All those things create problems.”

Charitable giving is on the rise as some families rely on a legal loophole to lower the rate of inheritance tax they pay. But experts are warning gifting errors can lead to costly challenges, unnecessary delays and added complexity for families already coping with bereavement.

Gifts to charity are exempt from inheritance tax, reducing the overall taxable value of your estate. In addition, where 10% or more of your net estate is left to charity, your loved ones will typically qualify to pay a reduced inheritance tax rate of 36%. That is a 10% saving on the normal IHT rate of 40%.

This way to avoid hefty inheritance tax bills is growing in popularity – more than half (53%) of high-net-worth (HNW) families with average wealth above £3 million have increased charitable donations in the past two years, a survey of 100 HNW individuals by Rathbones in August found, with two-thirds (66%) expecting to give more in the next two.

Experts have attributed the rise in charitable giving to attempts by families to reduce their IHT bill after a triple whammy of inheritance tax rule-tightening by chancellor Rachel Reeves in the 2024 Budget – which will see pensions brought into the scope of inheritance tax from April 2027 as well as the property of farmers and business owners from April 2026.

John Roberts, partner and director at Austin Lafferty Solicitors, said: “While leaving a legacy to a good cause is often an entirely altruistic act, it can also provide tangible benefits for your beneficiaries and family.”

Rumours are swirling that in the upcoming Autumn Budget, due on 26 November, the chancellor could opt for a further revenue-raising crackdown on inheritance tax, this time on gifting and the seven year rule.

Any tightening of the charity giving rules seems unlikely, however, leaving the loophole to a reduced IHT bill open for now. To make the most of it, it’s important to avoid some common mistakes.

How to avoid common mistakes when leaving a legacy

1. Make a will

While it is sometimes possible for funds to reach a charity without a will, the only legally certain way to ensure your wishes are honoured is to make a valid will. By doing so, you provide clear instructions on how your estate should be distributed, and it becomes the responsibility of your appointed executor to see that these instructions are carried out.

Almost two-thirds (62%) of the high-net worth families in the Rathbones study included a charitable gift in their will – averaging £233,000 – and 83% of those without a will intend to write one within three years including a charitable gift.

“No matter the size of your gift, it is essential to set out the details accurately in your will,” said Roberts from Austin Lafferty Solicitors. “Doing so avoids unnecessary confusion, complications, or disputes during probate, and ensures your generosity reaches the cause you intended.”

2. Include the charity’s full and correct name

When leaving a legacy to charity, it is vital to use the organisation’s full and accurate name in your will. Many charities have similar names, operate under different branches, or may have changed their legal structure over time – this is particularly true of smaller organisations.

“Being precise helps to ensure your gift reaches the intended organisation without delay,” Roberts said.

3. Provide the official charity registration number

Including a charity’s registered number in your will adds an extra layer of certainty that your gift will go to the right place. While names can sometimes be similar or change over time, a charity’s registration number is unique and permanent.

Roberts said: “Citing this number helps your executors identify the correct organisation quickly and ensures your legacy is directed exactly as you intended.”

4. Confirm whether the donation is before or after IHT

“It is essential to provide clear direction on whether a charitable donation is to be made before or after inheritance tax (IHT) has been deducted, as this distinction can significantly impact both the charity and other beneficiaries,” said Roberts.

When a gift is made before IHT is calculated, the donation is deducted from the estate prior to tax assessment. As charitable legacies are exempt from IHT, this approach typically reduces the taxable value of the estate and may increase the amount available to other beneficiaries.

In contrast, when a gift is made after IHT has been applied, tax is first charged on the entire estate. The donation is then taken from the remaining balance, which can result in the charity or other beneficiaries receiving a smaller legacy than intended.

5. Be explicit about the use of your donation

In most cases, gifts left to charity in a will are combined with others to fund the charity’s core work, such as delivering services, supporting research, or raising awareness. Donors who would like their legacy to be directed toward a specific project or location are encouraged to discuss their wishes with the charity in advance.

“This ensures the gift can be honoured as intended and used in a way that truly reflects the donor’s values,” Roberts said.

6. Have open conversations with family

Openly sharing your intention to leave a gift to charity in your will is a thoughtful and practical step. Clear communication can help prevent misunderstandings, reduce the risk of disputes among family members, and provide reassurance that your wishes will be respected.

7. Outline an alternative use of the funds should circumstances change

If you are supporting a small or local charity, the organisation may close, merge, or change direction before your will takes effect. A solicitor can provide guidance on wording that ensures your gift is redirected to a similar charity should your original choice no longer exist, safeguarding your legacy for the cause you care about.

“Alternatively, you can leave discretion to your executors or solicitor to select a suitable charity within a theme close to your heart,” said Roberts, “whether that’s children, wildlife, heritage, culture, developing countries, or even keeping the local cricket club supplied with tea and biscuits”.

More families are being dragged into paying inheritance tax (IHT), but Brits can lower the bill for their loved ones through a legal loophole known as the seven year rule.

Put simply, it means you can give away as much of your estate as you like during your lifetime, and if you live for another seven years, the gifts won’t be subject to inheritance tax.

The rule is designed to prevent people from giving away large sums on their deathbed to avoid inheritance tax and, used efficiently, it can significantly lower the bill for your loved ones.

But there are rules to consider, including what happens if you die less than seven years after making a gift.

Alex Race, financial planner at investment management company Rathbones, said: “Gifting during your lifetime can be an effective way to manage inheritance tax, but the seven-year rule is often misunderstood.

“If you were to pass away within seven years of making a significant gift, its full value may still be brought back into your estate for IHT purposes, depending on how much of your nil-rate band remains available.”

Taking advantage of the seven-year rule has become more important than ever with pensions to be included within estates from April 2027 and inheritance tax allowances remaining frozen until at least 2031. It means effective estate planning now could save your loved ones a major tax headache years down the line.

What is the seven year rule for inheritance tax?

Gifts made seven years or more before your death won’t be subject to IHT under the seven year rule.

However, if you die within seven years of making a gift, IHT may still apply. The tax charge reduces on a sliding scale the closer you get to the seven-year mark.

This is known as taper relief. It can significantly cut the tax bill on gifts that exceed the nil-rate band. Here’s how the taper relief scales:

• 0–3 years: 40% full IHT rate
• 3–4 years: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%
• 7+ years: 0% gift fully exempt from IHT

Do note, taper relief only kicks in for gifts above the nil-rate band – which is £325,000 per person – because there is no inheritance tax due on gifts below this threshold.

You could also reduce or avoid an inheritance tax bill by utilising inheritance tax gift allowances – for instance, the annual exemption lets you give away a total of £3,000 worth of gifts per tax year. Other allowances include the small gifts allowance, the wedding (or civil partnership) gift allowance, and regular payment gifts, known as normal expenditure out of income.

How does the seven year rule work in practice?

Timing gift giving will be unique to each family. But we look at a few scenarios where Rathbones has pointed out the seven year rule would apply.

1. Late gifting to children

Imagine someone gives £100,000 to their children at age 78, hoping to reduce their estate. If they pass away five years later, that gift falls within the seven-year window and could be subject to IHT – potentially up to 24%, depending on the nil-rate band and other gifts made.

2. Misunderstanding exemptions

A person believes their £3,000 gift is covered by the annual exemption – where everyone is allowed to give away up to £3,000 inheritance tax-free – but in actual fact they’ve already used it that year. Where they die within seven years, the gift is added to their estate for IHT purposes.

3. Gifting from capital, not income

Regular payments to a child are made from savings, not surplus income. The donor dies within seven years, and because the gifts weren’t from income, they don’t qualify for the surplus income rule – in which they are exempt from IHT – and so are potentially taxable.

How to avoid being caught out by the seven year rule

Race said one common issue when it comes to the seven year rule is around proof of when gifts were given, so it’s worth getting organised and keeping a paper trail if you want to save your loved ones too much hassle down the line.

“Careful planning is essential, particularly around record keeping, the interaction with other reliefs and taxes and ensuring that gifts don't adversely affect your own financial security,” Race said.

Other ways people can avoid being caught by the seven year rule, Rathbones said, include:

Starting early: The sooner you begin gifting, the more likely you are to survive the seven-year period. This is especially relevant for those looking to pass on wealth to children or grandchildren.

Using exemptions: Annual gift allowances – such as the £3,000 annual exemption and small gift exemptions – are immediately outside your estate and not subject to the seven-year rule.

Regular gifting from income: Gifts made from surplus income (not capital) that don’t affect your standard of living can be exempt from IHT, even if you die within seven years – provided they’re regular and well documented.

Think about how you structure gifts: Gifts made jointly are taxed as half to each person, so one joint gift could see someone’s estate liable for IHT if it tips them over the nil-rate band and they die within the seven year period. As an example, a gift of £500,000 made jointly by a couple is effectively a gift of £250,000 by each person. If the value of someone’s estate was £450,000 before giving the £250,000 gift, IHT may be owed on the remaining £125,000 above the nil rate band.

IHT and the problems with gifting

Gifting is a useful but often irreversible IHT planning strategy that requires careful thought. According to Katherine Waller, co-founder of wealth manager Six Degrees, it is “incredibly common to see divergent views on gifting within couples”.

“One parent may, for example, wish their child to graduate university debt-free, while the other may believe a student loan helps the child understand the value of a degree and drives better behaviours,” she said.

Large gifts can have a potentially negative impact on a child or young adult. But under the seven year rule, money could be gifted out of the parents’ estates but remain either within the control of the parents, or at the very least, not under the control of the child, Waller said.

Setting up as ‘family investment companies’ or trusts, can enable this kind of indirect gifting.

Waller said she has also recently met several couples eager to begin gifting to their children, but without first establishing how much is enough for them.

“Gifting too much, too soon, can create problems later on,” she said.

"Once you factor in the rising cost of care – which is already extremely high and tends to outpace general inflation by several percentage points – there’s a real risk of creating a shortfall in later life. In some cases, that can even turn into a financial burden on the very children the gifts were intended to help.”

We look at the 14 year IHT gifting rule in a separate article.

More families are using children’s pensions to pass wealth to younger generations and avoid them having to pay inheritance tax, new figures have shown.

Pension contributions for under-18s rose to £79.6m in the year to 5 April 2023, up from £75.9m the previous year, according to the latest data from HMRC.

The figures, obtained by Lubbock Fine Wealth Management, also show the number of young pension savers jumped to 45,000 from 42,000 over the same period.

The increases pointed to a growing transfer of wealth from parents and grandparents as they pay into their children’s and grandchildren’s pension pots.

Andrew Tricker, director at Lubbock Fine Wealth Management, said: “Pension contributions for minors are growing because parents increasingly see those pensions as an inheritance tax tool.

“More obviously it’s a good way of jump starting your own child’s pension fund. People often start their pension too late in life meaning they miss out on a lot of compounding.”

What is a Junior Sipp?

Parents or a child’s legal guardian can set up a Junior self-invested personal pension (Sipp) for them as a tax-efficient way for under 18s to save.

Then any adult can contribute £2,880 annually to the child’s pension, which, once 20% tax relief is factored in, brings the total yearly contribution to £3,600. The Sipp reverts to the young person’s control when they turn 18.

If the full amount was contributed to a Junior Sipp from birth, the child could have well over £80,000 by the time they are age 18, according to calculations by Hargreaves Lansdown. Combined with saving into a Junior ISA could make the child a millionaire before they are 40.

Gifting money to their children by transferring it to their pension pot is popular because it allows the money to grow tax-free. Also, by putting the money into a pension that can’t be accessed until they are at least 57, the cash is less likely to be used for general spending.

Gifts to children and grandchildren, including into Junior Sipps, should be exempt from inheritance tax after seven years.

Inheriting pensions

Changes announced in the 2024 Budget mean pensions will no longer be exempt from inheritance tax from April 6 2027. Experts have said this may accelerate the trend of parents and grandparents taking money out of their own pension to transfer into their children’s pension.

“With inheritance tax on the rise, families are looking for ways to reduce their IHT bills. Parents and grandparents see contributing to children’s pensions as an effective way to reduce the size of their estate – whilst also ensuring their heirs don’t spend their inheritance too early,” said Tricker.

“With decades of tax-free growth, even modest contributions for children today can compound into meaningful savings by the time they reach retirement age,” he added.

If the whole £2,880 per year was contributed from birth, even if the young person didn’t make another contribution to the Sipp after the age of 18, they could have around £420,000 by the time they hit age 60, according to calculations by Hargreaves Lansdown.

“If they continued to contribute throughout their working life, then the sky’s the limit,” said Helen Morrissey, retirement specialist at Hargreaves Lansdown.

Given their peers won’t even start their retirement savings for another four years through auto-enrolment at age 22 this is a real boost.

Tricker said: “Pensions are one of the last legitimate tax shelters for family wealth. Used correctly, pensions are a powerful estate planning and intergenerational wealth transfer strategy.”

“Families increasingly realise that – if they have the means and don’t contribute to their children’s pensions – large sums of family wealth will end up in HMRC’s coffers.”

Families hunting for ways to stave off inheritance tax bills are sending life insurance sales soaring – but lawyers are warning the payment strategy could be worthless unless structured the right way.

With more estates becoming liable for inheritance tax (IHT), the data suggested individuals have been increasingly turning to life insurance to shield their families from future inheritance tax bills – so-called ‘inheritance tax insurance’. The idea is the payout from the insurance policy will cover the cost of any future IHT bill after the policyholder dies.

The total value of life insurance sales jumped by 18% to £447m in the 12 months to 31 March 2025, up from £378m in 2023/24, according to Financial Conduct Authority (FCA) data.

The surge follows the widening in scope of assets subject to inheritance tax announced at the 2024 Budget that will see more estates owing IHT for the first time.

From April 2027, as a result of the changes, any unused pensions will be included in IHT calculations and so could potentially be taxed up to 40%. The value of these pensions will push many families above the £325,000 IHT nil-rate band.

Inheritance tax will also be due on agricultural property and business property – such as family-owned businesses and farms or AIM shares – from April 2026, taxed at a rate of up to 20%.

However TWM Solicitors, a private wealth and family law firm that obtained the FCA life insurance data via a Freedom of Information (FOI) request, warned life insurance policies must be held in trust to avoid costly tax and probate delays.

Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, said: “Holding life insurance in specific types of trusts can exempt it from IHT, making it a powerful estate-planning tool. Life insurance payouts are also free from income and capital gains tax.”

Writing a life insurance policy in trust

Most people don’t realise that if life insurance isn’t written into trust, it forms part of the estate – potentially triggering 40% inheritance tax and delays through probate.

With a life insurance policy written in trust, the proceeds of the policy can be paid directly to your intended beneficiaries, rather than to your legal estate. This means there is no IHT to pay on the payout.

Mitchell-Innes said: “Life insurance can be a powerful estate-planning tool, but only when structured correctly. If not held in trust, the policy may be taxed for IHT and tied up in probate, defeating its purpose.”

"With the recent changes to IHT, life insurance remains one of the few effective tools for families to protect their estates. However, it is crucial to structure these policies correctly to maximise their benefits."

Most providers have an online trust section on the application so it’s an easy process and secures the money going to the right person(s).

Should you take out life insurance to pay an IHT bill?

Financial advisers have told MoneyWeek they have seen a spike in enquiries about whole of life insurance – so-called ‘inheritance tax insurance’ – since Autumn Budget 2024, as a way to pay for an expected new wave of inheritance tax bills.

Whole of life insurance, also known as life assurance, is a type of life insurance policy that provides lifelong coverage. It pays out a lump sum to your beneficiaries whenever you die, as long as premiums are maintained – but these can be costly.

To take out a whole of life policy at age 60 to cover the cost of a £300,000 inheritance tax bill – the roughly projected average for London in the 2026/27 tax year – would cost a non-smoker around £1,000 a month, or £12,000 a year, according to CIExpert, an insurance specialist financial adviser.

Mitchell-Innes said: “Life insurance is one of the few routes left and we have seen an increased number of enquiries for advice in this area.”

“Other than gifting assets, there are fewer and fewer ways to reduce your family’s IHT bill.”

We look at gifting to avoid inheritance tax and other ways to reduce your inheritance tax bill in separate articles.

The House of Lords is set to scrutinise the government’s controversial inheritance tax overhauls.

Chancellor Rachel Reeves announced in her 2024 Autumn Budget that pensions would be included in an estate for inheritance tax (IHT) purposes from 2027 and there are also plans to scale-back agricultural and business reliefs.

The government is pressing ahead with the inheritance tax reforms, despite criticism.

Many of these changes are now going through Parliament in the draft Finance Bill amid warnings about complexity and confusion.

The House of Lords Finance Bill Sub-Committee has this week launched its own inquiry into the change.

Peers from across the chamber are looking for views on plans to make unused pension funds part of a person’s estate for IHT and reforms to agricultural property relief and business property relief.

Rachel Vahey, head of public policy at AJ Bell, which is among the critics, expressed hope that the House of Lords can convince the government to change direction.

She said: “Hopefully the Lords will be able to see what effect this will have and ask the government to change direction.

"Bereaved families will face a huge administrative burden, with the government insisting they settle the IHT bill within six months. Many people have complex financial affairs, especially those who die unexpectedly, meaning settling the bill quickly may not be straightforward.”

Inheritance tax pension reforms

Under current plans, pensions would count towards the value of an estate for IHT from April 2027.

This creates plenty of financial planning challenges

But the inquiry is keen to know how challenging it would be for personal representatives to identify and report inheritance tax due on unused pension funds and death benefits and the impact on pension schemes administrators.

Peers are also questioning how much awareness there is of the changes and if more is needed.

Changes to agricultural property relief

Currently, an estate that contains farmland and assets will receive 100% IHT relief using agricultural property relief as long as it was actively farmed for more than two years.

The government intends to restrict the relief to the first £1 million after 6 April 2026.

This applies to combined agricultural and business property reliefs.

Above this amount, landowners will pay inheritance tax at a reduced rate of 20%, rather than the standard 40%.

This has prompted protests from farmers and the House of Lords is seeking views on the impact, complexity and awareness of the changes and how easy it will it be for those affected to report and make arrangements for funding the inheritance tax due within the statutory six-month period?

Lord Liddle, chair of the Finance Bill Sub-Committee, said:

“In its draft Finance Bill, the Government is proposing a measure to bring unused pension funds and death benefits into the scope of Inheritance Tax. It is also making significant changes to agricultural property and business property reliefs.

“The Finance Bill Sub-Committee's work does not look at the rates of tax proposed by the Government. Instead, it makes recommendations on how the government’s tax policy can best be implemented and administered.”

'Not too late to stop reforms'

The government has faced protest and criticism about the changes in its consultations.

In January the chief executives of AJ Bell, Hargreaves Lansdown, Interactive Investor and Quilter signed a joint letter to the chancellor’s office opposing the plans.

Vahey added that it’s not too late for the government to change its mind and AJ Bell has suggested alternatives.

One is applying income tax on withdrawals from inherited pension at the marginal rate of the beneficiary if the person dies before age 75.

Vahey said: “Ministers still have time to see that these proposals are not the best way to achieve their objectives. There are alternative solutions to taxing pensions on death that won’t cause the administrative frustration, delays in payment and concerns for bereaved families that the current set of proposals threaten to, while still raising the same amount for government coffers."

However meticulous and well-made your retirement and inheritance plans are, leaving your family out of the loop could land them with unexpected bills to pay, especially given upcoming changes that will see pensions included in inheritance tax (IHT) calculations.

Today (Monday 15 September) marks the start of Pensions Awareness week, and research shows that a worrying number of Brits are either unaware of upcoming pension reforms, or have yet to communicate their retirement and inheritance plans with their family.

Nearly half of UK adults (45%) don’t discuss their retirement plans with anyone, and that only one in three (35%) discuss it with their partner, research from the Investment Association shows.

“We want to see pensions and retirement planning become an everyday topic of conversation, with people also able to access the professional support and guidance they need,” said Imran Rasvi, senior policy adviser, pensions and institutional market at the Investment Association.

“People today face a more complex retirement provision landscape to navigate,” Razvi continued. “This includes considering how much they need to contribute into their pension pot over their working life, and how to use that accumulated pension wealth to provide an income into old age.

“Retirement isn’t a one-size-fits-all journey, but having those conversations with friends, family, and seeking support from pension providers and professional advisers, can help mitigate any bumps in the road.”

Schroders Personal Wealth: half of Brits are unprepared for retirement

One of the thorniest issues around pensions, that many families are in the dark about, is the upcoming reforms that mean pensions will be included in inheritance tax (IHT) calculations.

Schroders Personal Wealth’s (SPW) retirement report 2025 showed that more than half (51%) of Brits are unaware of the upcoming changes, which will take effect from 2027. The report found that, despite 29% planning to pass their pensions on to descendants, 85% of people do not fully understand the inheritance tax rules.

“Retirement planning doesn’t happen in isolation,” said Alex Gaita, financial planning director at Schroders Personal Wealth. “It’s shaped as much by shifting laws and government decisions as by personal goals.” Perhaps most alarmingly, almost half of people (43%) have no up to date financial plan in place for their retirement, and a quarter of people have no financial plan whatsoever. Six in ten have never spoken to a financial adviser about their retirement.

“With tax rules likely to evolve and fresh uncertainty around the upcoming Budget, too many are planning for the future based on assumptions, not facts,” said Gaita.

Does your family know your retirement and inheritance plan?

Research from Charles Stanley reveals a broader gap in the awareness of families around inheritance planning. Their analysis showed that 36% of gen X and 27% of millennials are unaware of their parents’ inheritance plans.

Worryingly, more than a fifth (21%) of baby boomers don’t have a will in place, the research found, leaving their loved ones in the dark over how best to manage their estate.

“What’s clear from our research is that not everyone is in the loop when it comes to inheritance planning,” said Lisa Caplan, director of CSD advice and guidance at Charles Stanley. “This leaves the door open to families finding themselves having to settle unnecessarily large or unexpected tax bills, or even jeopardising hopes to pass on wealth to their loved ones.”

Caplan also highlighted that frozen tax thresholds until 2030 will sharply increase the number of families that have to pay IHT on their loved ones’ estates, especially considering the upcoming inclusion of pensions in the calculation.

How to ensure your family are aware of your financial plans

Estate planning has to factor in the latest developments in tax policy, making the landscape more complex than it has ever been before.

Razvi recommends taking the following three steps in order to ensure that your family is fully informed about your retirement planning:

1. Discuss retirement planning regularly: It is important to make retirement planning a regular topic of conversation. Regular discussions can help ensure everyone is on the same page and aware of the plans.

2. Seek professional support and guidance: It is also important to access professional support and guidance to understand pensions and retirement planning better. This can include consulting with pension providers and professional advisers to navigate the complexities of retirement provision.

3. Understand contribution and income needs: It's crucial to consider how much needs to be contributed to the pension pot over the working life and how to use the accumulated pension wealth to provide an income into old age. This involves understanding your expected future financial requirements and making informed decisions to build future financial resilience.

Gaita, meanwhile, recommends that people remain up to date on pension changes through trusted sources, build flexibility into their financial planning in partnership with a financial adviser, and start conversations with family as early as possible.

“Money remains one of the last family taboos, but open discussion is one of the most powerful tools families have,” he says.

And on the subject of broaching taboo subjects, Caplan recommends open conversations with family members around IHT planning, too.

“Involve the next generation in developing your IHT plans. This can lead to better plans and lead to plans working as intended after your death,” she says. “Ask your family about their plans and views. You may be surprised. Try not to rush to judgement.”

Caplan adds that “it’s not just about death” and advocates an "open in the case of emergency" box containing key documents such as POAs and insurance policies, as well as a list of assets and your will.

“It’s critical that people understand the value of their estates, have plans in place for how they will pass wealth on, and, importantly, communicate this with their family,” said Caplan.

We look at how to prepare your estate for pension inheritance tax rule changes in separate article.

Pension savers concerned about inheritance tax (IHT) are on the look out for new ways to plan for retirement. The Enterprise Investment Scheme (EIS) is one attractive option, and EIS-focused investment managers are launching new products and services as demand increases.

The EIS, which has been running for more than 30 years, has often been regarded as a niche investment suitable only for the most sophisticated and wealthy investors. That is understandable – the scheme aims to help small and very early-stage businesses raise cash to fund growth, but such enterprises often fail, putting investors’ money at risk.

However, while the EIS was originally conceived as a scheme through which investors would put money into individual firms, several specialist managers now offer funds through which you can spread your money across a portfolio of qualifying businesses, helping to reduce the jeopardy. And the generous tax reliefs on offer provide a substantial cushion when individual investments do disappoint.

Change in the Enterprise Investment Scheme small print

One of those reliefs is particularly eye-catching in today’s environment. Under the current rules, investments in EIS-qualifying companies don’t count towards the value of your estate for IHT purposes once you’ve held them for two years or more. In April 2026, the small print will change slightly, limiting full IHT relief to the first £1 million of qualifying EIS assets, but only 50% of the value of your remaining EIS assets will be subject to IHT, reducing the tax rate on these assets from 40% to 20%.

For anyone worried about the changing rules on pension assets, this makes the EIS look interesting. Remember, from April 2027, any money remaining in your private pension plans at the time of your death will, for the first time, fall within the IHT net. For some families, that could lead to a sizeable tax bill – and boosts the attraction of alternative vehicles that are more IHT-efficient.

An EIS comes with other tax perks, too. You get up to 30% up-front tax relief on your investment – a little less than the 40% or 45% available to higher- and additional-rate taxpayers on pension contributions, but the annual investment limit on the EIS is very generous, at £1 million. There’s also no capital-gains tax (CGT) to pay on any profits you make, and you can offset losses against your income tax bill.

All in all, the EIS packs a powerful punch from a tax-efficiency perspective, especially in the context of the changing rules on private pensions. There’s potentially more tax relief available when you first save – at least in cash terms – and less liability to IHT at the other end. All of which comes with a hugely important caveat. The underlying assets in an EIS are much riskier than the investments that most savers hold in their pension funds. Investing through a professionally-run fund can help mitigate some of this risk – particularly compared with picking single qualifying companies yourself – but you’re still exposed to a volatile and illiquid set of assets.

The EIS is therefore best-suited to savers who have already amassed substantial pots of cash in conventional vehicles, including private pensions and individual savings accounts (ISAs). These are also likely to be the savers most at risk of leaving their heirs with an IHT liability.

It’s also sensible to take independent advice on EIS investments. Professionals expect demand for the EIS to rise fast in the months and years ahead. Roughly 20 firms are currently raising money for EIS ventures, with platforms such as Wealth Club offering access to the scheme.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

A growing number of retirees plan to cut back on gifting to children and grandchildren due to rising financial pressures.

The average retiree currently spends about £2,500 annually supporting younger family members – £1,323 in gifts and £1,175 towards education – according to the wealth manager Quilter.

Many give away a lot more though. Younger, higher income retirees, for example, gift an average of £4,836 to relatives and a further £5,280 towards education each year.

A survey of more than 5,000 retirees by Quilter found that 13% plan to reduce gifting, increasing to 16% among younger retirees with higher-than-average incomes, and 15% among their lower-income peers. This suggests that even those with relatively strong financial positions are cutting back.

“Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes,” says Shaun Moore, tax and financial planning expert at Quilter.

“If the Bank of Mum and Dad, or even the Bank of Gran and Grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy.”

Separate research by BRI Wealth Management reveals that people do want to be able to transfer wealth to loved ones when they retire.

In 2023, only 31% of pre-retirees ranked passing on wealth as a top three concern, but by 2025 this has risen to 52%, making it the number one priority.

The focus on gifting – even if some of today’s retirees are having to cut back due to money worries – comes amid speculation we could see inheritance tax reforms in the Autumn Budget, which will take place on 26 November.

Over the past month, there have been rumours that chancellor Rachel Reeves could introduce a cap on lifetime gifting to limit how much wealth can be given away free of inheritance tax (IHT) before someone dies.

Another potential target is the taper rate of inheritance tax that applies to gifts given away during your lifetime, known as the seven-year rule. It’s possible the time period could be increased beyond seven years.

Could inheritance tax gifting rules change in the Budget?

There are plenty of rumours about tax hikes in the upcoming Budget.

Moore notes: “The rumour mill is already in overdrive as we near the chancellor’s upcoming Budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for IHT purposes, and the potential for a further freeze on the nil-rate band all debated.

“While none have been confirmed, the government will clearly be trying to fill a hole in its finances.”

The government made changes to IHT in last year’s Autumn Budget, with a crackdown on pensions and AIM shares, as well as farms. So, it’s an area that could be revisited by a revenue-raising government, and it wouldn’t break its red lines of promising not to put up income tax, VAT and National Insurance.

Jon Hickman, a tax partner at the accountants BDO, reckons there’s a “medium” likelihood of IHT changes in the November Budget.

“Changes to the gift reliefs and rules would not raise vast amounts in themselves, but in combination with the changes to IHT business and agricultural reliefs due to take effect from April 2026 and pension funds from April 2027, the cumulative impact could produce a significant increase in future IHT revenues over time,” he comments.

“Such changes would not affect the majority of taxpayers, nor breach any manifesto commitments – but IHT policy has become a political football in recent years due to constant press coverage, so a clampdown could be risky for the government.”

It would be a brave government to cut the annual gifting allowance, especially as it has been frozen at that level for more than 40 years (and therefore should arguably be increased, not reduced).

If the £3,000 limit had kept pace with inflation, it would now sit at £12,000, according to Quilter.

The wealth manager is calling on the government to modernise the annual gifting allowance, which can help people reduce their inheritance tax liability.

“The gifting allowance is a relic of a different economic era. Even a modest increase to £9,000, for example, would better reflect modern financial realities, ensure it aligns with existing savings vehicles such as the junior ISA, and could allow families to support one another more freely and purposefully,” explains Moore.

What are wealth taxes?

Taxes that make you pay a levy based on your assets – typically your net wealth – rather than your income from work. Such taxes used to be far more common globally than they are now. Sweden charged an annual levy on net assets for the best part of a century, with a top marginal rate that peaked at 4% in 1984; it was abolished in 2007. France had a wealth tax (riddled with loopholes) that was scrapped in 2017. As late as 1990, 12 OECD nations (advanced economies) still had wealth taxes, though they raised a paltry 1.5% of all tax revenues, on average. Today, only three countries still levy a tax on net wealth, namely Switzerland, Norway and Spain. Several European countries – France, Italy, Belgium and the Netherlands – do still levy wealth taxes on selected assets, but not on an individual’s overall wealth.

What are typical rates?

In Switzerland, which first introduced a net wealth tax in 1840, the level varies by canton between about 0.3% and 1% of a taxpayer’s net worth above a threshold typically in the low six figures. In Norway, where the tax dates back to 1892, the government currently charges 1% on individuals’ wealth exceeding a threshold of NKr1.76 million (£130,500). So if you lived in Norway and you had £250,000 in investments and £500,000 equity in your house, you’d pay an extra £6,190 a year in taxes. Above NKr20.7 million, the rate ticks up fractionally to 1.1%.

Why did wealth taxes fall out of favour?

In part, because wealth taxes are hard to introduce and administer, and are inevitably accompanied by a thriving cottage industry to help the truly wealthy avoid them. The only time a UK government was elected promising to introduce one was Labour in 1974. But over the course of his five years as chancellor, wrote a rueful Denis Healey in his memoirs: “I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” The value of some assets is fairly easy to record, but for others – property equity, say – valuations are expensive, subjective and wide open to legal challenges. HMRC does not currently have an overview of the wealth of every citizen, and no way of doing so without a big investment of time and resources, and political will. All that makes wealth taxes a giant headache.

Why else are wealth taxes unpopular?

Bluntly, because wealth taxes don’t work. Calls for wealth taxes are readily understandable: governments everywhere – not least in the UK – are facing vast fiscal challenges in an era of low-growth and ageing populations. Meanwhile, in recent decades, the very wealthy have got much wealthier. In 2010, the combined wealth of the top 100 people on The Sunday Times Rich List was £172 billion. Last year, it was £594 billion. At the same time, the rich have remained as canny as ever about mitigating their tax liabilities (ie, paying as little as possible). The problem, though – even for fans of big government who think it’s fine for the state to tuck into individuals’ private assets – is that wealth taxes end up raising less than hoped and do so much collateral damage to the economy that they are self-defeating in fiscal terms. If that was true in Healey’s day, it’s even more so now.

Why’s that?

Because wealth, and the wealthy, are far more mobile. Dan Neidle, the Labour-supporting tax lawyer turned campaigner, recently published a 16,000-word essay “explaining why a wealth tax is a really stupid idea”, says Robert Colville in The Times. Executive summary: if you tax something, you get less of it, and wealth is no different. Neidle examines a model backed by campaigners and some Labour backbenchers, which posits that a 2% wealth tax on those with assets of more than £10 million would raise at least £24 billion a year. But he calculates that, under this system, 80% of the revenue would come from just 5,000 people and 15% from just 10. “So the entire thing could be scuppered if a dozen people got on a private jet.” Neidle favours, instead, a wholesale reform that scraps several existing taxes – including stamp duty, council tax and business rates – with a land value tax.

What are other arguments against wealth taxes?

Not only do wealth taxes not work, but they also distort the economy. Since debt is tax-deductible, wealth taxes tend to encourage the rich to avoid the tax by borrowing to invest in exempted asset classes (farmland or woodland, say), thus shrinking the tax base and distorting incentives. Alternatively, they might simply leave the country for a lower-tax jurisdiction, as did thousands of wealthy French citizens who set up in Belgium, or the thousands of the richest Norwegians who live abroad. Opponents argue that a wealth tax would only work if it were adopted globally – in practice, that means never. Another argument against wealth taxes is that rather than diminish billionaires’ political power, they would increase it by encouraging them to spend their money on nefarious political causes.

But we will get them anyway?

It’s unlikely, given that Rachel Reeves has ruled it out. But she may well be looking at more stealthy ways of taxing assets. Indeed, this summer has seen almost constant Treasury kite-flying in the press, with tales of various different property and inheritance taxes the government is said to be mulling over. There’s certainly significant wealth there, and it would be possible to tax it, says Neil Unmack on Breakingviews. Some £7 trillion of value is stored in British housing, making the full capital gains tax exemption for primary residences look tempting to target. Inheritance tax exemptions mean the average taxed estate pays 13%, not the 40% headline figure. The risk is that any such raids would add “affluent middle-class voters to the ranks of Reeves-haters". "Yet targeting them would make it politically easier for her to cut welfare spending. Especially if she does so with a degree of stealth.”

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Farmers and local councillors in a community where 90% of land is agricultural have urged chancellor Rachel Reeves to rethink her inheritance tax plans. In a letter to the chancellor, they’ve proposed a series of alternatives that they argue would protect family farms.

Cotswold District Council has warned the government its inheritance tax (IHT) policy – which includes tightening the rules around agricultural property relief – risks being catastrophic for farms in the region, and urged it to adopt “pragmatic, farmer-backed alternatives”.

Agricultural property relief (APR) is a type of inheritance tax relief. It reduces the inheritance tax bill farmers and landowners must pay when farmland is passed to the next generation.

In the 2024 Budget, Reeves announced that from 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property. Above this amount, landowners must pay inheritance tax at an effective rate up to 20%, which can be paid in instalments over 10 years interest free.

Cotswold councillor Jeremy Theyer, who is a working farmer, said the reforms could be particularly catastrophic for family farms. “It’s heartbreaking for farmers who have worked their land for generations to think their children might be forced to sell parts of it just to pay a tax bill,” he said.

‘This change will squeeze the typical family farm’

One farming family who could potentially be affected by the rule change are the Ackrills. Steph Ackrill is a fourth-generation farmer at Boyd Farm in Whittington. Steph’s family have been farming the land for more than a century, and she took over the farm from her father Ian Boyd.

Steph’s husband Fred Ackrill was part of the Cotswold District Council’s consultation. He said while he wasn’t unsympathetic to the concept of the tax, he believed it risked targeting the wrong farmers.

“As a small working farm, it's really difficult to make things pay,” he said.

“We've had to go into non-farming diversifications – an education centre, cabins for visitors to stay overnight, and even a fashion brand. We're really working hard just to make a living and make this a financially viable option for us.”

He said land prices were artificially high compared to the return that a farm can make, and he feared the taxes would negatively impact small working farms and push them into larger conglomerates.

“I really worry that this change will squeeze the typical family farm, and will prevent land being taken care of in the way that it always has been,” he added. “It'll force farms to be split up or to or to be sold.

“What I'd like to see is for the government to have another look at their figures. The inheritance tax limits are now so low that they attack small working family farms rather than just going after these tax loopholes, these larger wealthier individuals or corporations choosing to avoid tax.”

What are some potential alternatives to Rachel Reeves’ IHT policy?

In a letter, Cotswold District Council leader Mike Evemy told the chancellor he understood and supported the government’s intention to ensure a fair and effective tax system. But he said the council was concerned about “unintended consequences” the proposals could have on rural communities.

He said the proposals could cause “ruin” for farmers rather than reform, and called for a rethink.

The letter outlined alternatives designed to “protect family farms, support sustainable land management, and maintain the economic and environmental vitality of farms in Cotswolds and across the UK”.

The council’s proposed alternatives to the existing policy include:

1. waiving inheritance tax land held in continuous ownership for at least seven years
2. a “pay if you sell” capital gains model instead of taxing on death
3. raising inheritance tax thresholds in high-value rural areas like the Cotswolds
4. exemptions for farmers whose primary income is from farming or who are on recognised sustainability transition pathways, while maintaining the full 40% of IHT on landowners who are not farmers
5. 100% inheritance tax exemptions for land leased to young tenant farmers to support generational renewal

Councillor Theyer said: “These alternative proposals – especially the idea of exempting farmers who are actively working the land or transitioning to sustainable practices – are the kind of policies that support farming families, along with the future of British agriculture.”

MoneyWeek has contacted the Treasury for comment.

A lesser-known inheritance tax loophole is allowing families to save significantly on their IHT bills – and financial advisers say they are using it with more clients than ever since chancellor Rachel Reeves’s inheritance tax crackdown.

Financial advisers have reported a surge in queries about estate planning amid concerns of possible further changes to the inheritance tax (IHT) regime in the forthcoming Budget – where reports suggest Reeves is looking at tightening the rules on lifetime gifting.

A recent Freedom of Information request by wealth manager Rathbones revealed nearly one in 10 estates liable for inheritance tax paid over £500,000 in the most recent year (2021/22) for which data is available.

If the trend seen over the three years to April 2022 continues, Rathbones estimates 3,524 estates will face IHT bills of more than £500,000 by the end of the 2025/26 tax year, based on an average annual increase in tax take of 8.74%.

New inheritance tax rules on pensions – where unused retirement pots are included in inheritance tax calculations – are due to impact families from April 2027, as the chancellor strives to raise more money for essential public services.

Against this backdrop, while traditional strategies such as lifetime gifting to avoid inheritance tax and the use of trusts remain common, there is growing interest in lesser-known opportunities to reduce inheritance tax bills. One of these is the ‘deed of variation’.

What is a deed of variation?

A deed of variation allows beneficiaries to redirect some or all of an inheritance within two years of death so it passes to others (for example, children or into a trust), potentially reducing the estate’s IHT liability.

Simon Bashorun, head of advice at Rathbones Private Office, said: “We are seeing rising interest in how a deed of variation can be used to redirect an expected inheritance.

“The driver is often to ensure assets are passed on in a way that aligns with the family’s long term financial goals including potential IHT efficiencies – for example, by skipping a generation or placing the inheritance into a trust.

“This not only provides protection from IHT and greater control over the assets but can also give flexibility for the original beneficiary to access the funds if required.”

How does a deed of variation work?

A deed of variation allows beneficiaries to alter the terms of a will and how an estate is distributed, provided it’s done within two years of the deceased’s death. HMRC treats any redirected gift as if it came directly from the deceased, which could help mitigate inheritance tax liabilities.

Rebecca Williams, divisional lead of financial planning at Rathbones, gave an example: “Say a child inherits more than they need. They might use a deed of variation to pass assets directly to their own children. This skips a generation and can reduce future IHT bills.”

Changing a beneficiary from a child to a grandchild doesn’t result in immediate inheritance tax savings, but it can potentially save 40% on the child’s eventual death by skipping a generation – meaning IHT is paid once, just by the grandchild, rather than twice.

Another option is to leave money to charity, which not only lowers the taxable value of the estate but can also reduce the IHT rate from 40% to 36%, provided at least 10% of the estate is donated.

A deed of variation can also be used to place assets into a trust. “This is particularly useful when children or grandchildren are too young to inherit, or when a beneficiary wishes to keep assets outside their personal estate for tax planning or asset protection purposes,” said Williams.

It can also be used to include a child or grandchild who was not named in the will – perhaps because they were born after it was written – or to benefit a stepchild.

Crucially, however, all affected beneficiaries must agree to the changes under the deed of variation. “The key point is that unanimous agreement is required, which can be challenging when money is involved,” said Williams, who cautioned professional advice is essential to ensure the process is carried out correctly.

As a result, a deed of variation cannot be used if any beneficiary is under 18, as they are not legally able to consent to the variation. However, if all beneficiaries are adults and in agreement, a deed of variation can be a powerful tool to skip a generation or to include individuals not named in the original will.

How much inheritance tax can I save using a deed of variation?

Scott Gallacher, director at financial advice firm Rowley Turton, said he is now discussing deeds of variation “with almost every client we see, as the government’s new IHT raid on pensions is dramatically increasing the number of families facing inheritance tax on their estates”.

"In many cases, this approach is creating six-figure IHT savings, as well as providing valuable protection against divorce settlements and long-term care fees for future generations,” he said.

He called on families to begin discussing deeds of variation straight away. But he said it's no easy task, with some parents having threatened to disinherit children who raise the idea.

"In reality, these conversations can be challenging,” he said.

Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, echoed the same message.

He said: "These deeds have been under utilised, even before the IHT changes, but the proposed super tax is bound to get people to consider things they currently hadn’t.

"Financial planners bang on about compound interest and pound cost averaging but IHT payable generation on generations is compound interest in reverse and pound cost savaging.”

Think you only have to worry about the seven year rule to avoid inheritance tax when making gifts? Think again – a little known quirk in the system can trigger an HMRC probe going back as far as 14 years to claw back tax.

Fresh inheritance tax (IHT) concerns have been raised amid reports chancellor Rachel Reeves is planning on tightening the rules on gifting during an individual’s lifetime. One of the most common strategies to avoid inheritance tax is to make gifts.

The proposals reportedly under consideration are limiting the value of lifetime gifts that can be passed on IHT free, as well as looking at the taper relief rules that currently reduce the amount of inheritance tax due from 40% down to zero after seven years.

Under the so-called ‘seven year rule’, if you give away something and survive seven years, it’s outside your estate for IHT purposes, meaning whoever you gave it to doesn’t have to pay inheritance tax on it after you die.

But in reality, if you gift to a trust, which is an increasingly typical financial planning strategy, the taxman could end up investigating gifts you made as long as 14 years ago – and demanding inheritance tax be paid on those.

Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, said: “The inheritance tax treatment of making a gift is widely misunderstood, and more complex than most people realise.

“Many people believe that once seven years has elapsed from the time a gift is made then they can be ignored. That is true for outright gifts to individuals, but gifts made to trusts up to 14 years before a person’s death can affect the overall amount of tax payable.”

In separate articles we look at other ways to reduce your IHT bill and also common IHT myths.

What is the 14 year IHT rule and how does it work?

There’s no separate ‘14-year law’ in the tax code. The phrase comes from how the existing seven year rule on gifts can, in certain cases, make HMRC look back up to 14 years when calculating inheritance tax, if someone dies within seven years of making a gift.

Jude Dawute, managing director of wealth manager Benjamin House, explained: “Under the seven year rule, if you give away something and survive seven years, it’s outside your estate for inheritance tax purposes.

“If you die within seven years, the gift is counted back in, and tax of up to 40% can be due.”

In this case, the gift will firstly reduce the inheritance tax-free allowance – also known as the nil rate band, which could potentially be up to £1 million if the last surviving parent is passing assets to their children – available to the executors of the estate who are sorting out who owes what in terms of IHT.

Once the tax-free threshold has been completely used up – meaning the nil rate band has been reduced to zero – the recipient of the gift becomes liable for the inheritance tax owed on their gift. However, the rate which would apply to the gift reduces over time due to an allowance called ‘taper relief’.

Where the 14 years rule comes in is if, before that gift, you had made an earlier chargeable lifetime transfer (CLT) – typically a gift into a discretionary trust.

“Gifts to trust are treated slightly differently,” said Dyall.

“Firstly there may be a liability to inheritance tax at 20% at the time the gifts to the trust are made, if their value exceeds the nil rate band when added to any other gifts to trust within the previous seven years.

“Again, if the donor survives for seven years after the transfer to the trust, there will be no further liability for the trustees of the trust.

“However, the gifts don’t disappear. Their value will be taken into account when calculating the liability on any gifts made in the final seven years of the donor’s life.”

Consequently, if a gift to a trust (a CLT) was made in the seven years before your later gift to an individual – known as a potentially exempt transfer (PET) – and you die within seven years of the PET, HMRC adds the earlier CLT into the calculation.

“That means they’re effectively looking at gifts made up to 14 years before your death when working out the tax,” said Dawute.

For example:

• In 2015, you put £300,000 into a trust (CLT)
• In 2021, you give £200,000 to your daughter (PET)
• You die in 2025, four years after the PET

Because you died within seven years of the PET, HMRC looks at the 2015 trust gift too, since it was within seven years before the PET. That earlier trust gift may have already used up your tax-free allowance (nil-rate band), meaning more of the later gift can be taxed.

How to avoid the 14 year inheritance tax rule

The best way to avoid the effect of this 14 year inheritance tax rule is to separate large gifts to trust by seven years and a day from large gifts to an individual.

Additionally, Dawute recommends making maximum use of your inheritance tax gift allowances:

• £3,000 per year (plus one year’s carry-over) and the £250 small-gifts allowance per person are free of IHT
• Wedding gifts: up to £5,000 to a child, £2,500 to a grandchild/great-grandchild, and £1,000 to anyone else, given in connection with their marriage or civil partnership, are exempt
• Gift out of surplus income: regular gifts from surplus income are exempt if they don’t reduce your standard of living

You could also consider life cover. A ‘gift-inter-vivos’ life policy, written in trust, can insure the reducing tax risk during the seven years after a large gift.

Furthermore, it could be worth considering making outright gifts, which disappear after seven years, rather than gifts to trusts, which don’t.

Dyall said: “Trusts provide a very useful way of protecting money which has been gifted and retaining some control over it, but in many cases that control is unnecessary and restricts your ability to mitigate inheritance tax.

“The biggest barrier to minimising your inheritance tax liability is trying to maintain control over the assets you have. This leads to people leaving planning too late and limiting the amount they give during their lifetime.

“It’s important to ask yourself the question, ‘do you need all the assets you own and is retaining control or protecting those assets strictly necessary’, as that control could end up costing you more in inheritance tax.”

A trio of wealthy London neighbourhoods face an average inheritance tax bill of more than £1 million per estate, new figures reveal.

Kensington tops the list of UK areas with the biggest inheritance tax (IHT) bills, with estates that pay the tax hit with an average bill of £1,375,000.

Chelsea and Fulham comes second (£1,114,583 average IHT bill), followed by the cities of London and Westminster (£1,075,949).

The analysis of HMRC data by law firm Irwin Mitchell shows that the capital dominates the top 10 list – however, two areas outside of London do make an appearance.

Estates that pay IHT in Torridge and West Devon face an average bill of £534,247, placing it eighth in the list. Meanwhile, beneficiaries of estates in Altrincham and Sale West in Greater Manchester are hit with a £451,220 levy, putting it in the tenth spot.

Andrea Jones, national head of Irwin Mitchell’s private client advisory team, comments: “Our analysis underscores the importance of proactive estate planning, particularly in areas with high-value estates. As property values and asset portfolios continue to rise, so too does the complexity of managing inheritance tax exposure.”

The firm forecasts that the number of estates liable for IHT will rise from 4% to 7% by 2028, with Greater London’s annual IHT bill expected to grow by 54% from £1.7 billion to £2.6 billion.

Separate analysis by the insurer NFU Mutual reveals that London and the south-east both pay more inheritance tax than Scotland, Wales and Northern Ireland combined.

Estates in London and the south-east paid £2.98 billion of the £6.7 billion raised by inheritance tax in the UK in 2022-2023.

The average inheritance tax-paying estate in London was charged £300,000, according to NFU Mutual.

The figures come as the government prepares to tax pension pots as part of an inheritance tax crackdown from April 2027, while IHT reforms to agricultural property and business property reliefs will kick in next April.

Sean McCann, chartered financial planner at NFU Mutual, comments: “Inheritance tax is impacting a growing number of families, as the main £325,000 tax-free allowance and £175,000 allowance that allows you to pass a share of the family home to children or grandchildren remain frozen until 2030.

‘’The proposal to bring pensions into the inheritance tax net from April 2027 will only accelerate the number of families impacted.’’

Top 10 areas with highest average IHT bill per estate

Here are the top 10 locations for average IHT paid per estate in 2022-23:

Source: HMRC inheritance tax returns July 2025, analysed by Irwin Mitchell. Note that the figures are an average of estates in that area that paid IHT; they exclude estates that did not have an IHT liability

Region by region: inheritance tax liabilities compared

Source: NFU Mutual, using HMRC inheritance tax liabilities statistics. Estimated numbers of estates liable to IHT in the 2022-23 tax year.

The analysis by NFU Mutual shows that almost 12,000 families in London and the south-east paid IHT in 2022-23. This compares to just 334 in Northern Ireland and 555 in the north-east.

London paid almost three times more inheritance tax than Scotland, Wales and Northern Ireland combined in the same tax year.

Overall, annual inheritance tax receipts have increased from £3.3 billion in 2005-2006 to £8.2 billion in 2024-2025, according to HMRC.

Increase in people seeking IHT advice

Wealth managers and financial advisers are reporting a rise in the number of people seeking IHT advice.

McCann at NFU Mutual observes: ‘’We are seeing a sharp increase in calls from those seeking inheritance tax advice, particularly in light of proposed changes to agricultural property relief and business property relief from April next year, which will have a huge impact on farming and business communities.”

Rathbones, RBC Brewin Dolphin and St. James’s Place have also told MoneyWeek that they’ve seen an increase in pension savers worried about the upcoming IHT changes.

Some retirees are now withdrawing more money from their pension pots in an attempt to reduce the size of their estate and therefore any potential IHT bill.

Wealth managers warn that there could be significant unintended consequences though, such as running out of money during retirement and being hit with income tax on the withdrawals.

Irwin Mitchell is also concerned about the practical implications of the government’s inheritance tax reforms.

The firm warns that the changes could turn estate administration into a “legal and emotional minefield, especially when pension beneficiaries differ from estate beneficiaries. Executors may be forced to use estate assets – potentially including the family home – to pay tax bills, then seek reimbursement from pension recipients who are under no legal obligation to cooperate”.

We debunk six inheritance tax myths and look at nine ways to reduce an inheritance tax bill in separate guides.

Inheritance tax (IHT) reforms may not be as bad as first thought for family farms, with new analysis suggesting most farming estates will be able to cover the cost of any inheritance tax bill without having to sell off parts of the farm.

Campaigners say inheritance tax changes to agricultural property and business property reliefs – due to come in next April and that will see inheritance tax due at 20% on the assets of rural estates worth more than £1 million – will destroy farming communities.

Yet as many as eight in 10 farm estates will be able to raise the money they need for any potential IHT bill by selling off non-farm assets only, according to a study by the Centre for the Analysis of Taxation (CenTax), which produces independent academic research on tax policy.

Dr Andy Summers, director of CenTax and associate professor at London School of Economics & Political Science (LSE), said: “Our analysis shows the government’s reform largely protects family farms whilst limiting claims by the wealthiest estates.”

We look at ways to reduce your IHT bill and common IHT myths in separate articles.

Inheritance tax reforms’ impact

Using detailed HMRC inheritance tax data, the report estimates that around 86% of impacted farm estates could pay their entire IHT bill out of non-farm assets.

This leaves around 70 farm estates per year that could not. Of these, around 40 farm estates would face a residual bill greater than 20% of the farm’s income (after tax and depreciation), if paid in ten-year annual instalments, according to the study.

Overall the report estimates 30% of farm estates – between 480 and 600 – would be impacted by the inheritance tax reforms every year. Of these, around 200 estates per year potentially comprise family farms valued at less than £5 million.

Larger farming estates will shoulder most of the tax burden, the study found. Most (80%) of the inheritance tax receipts as a result of the government’s reforms will come from the one third (34%) of impacted estates worth over £5 million.

Less than 1% of additional tax is projected to come from the one in 10 (11%) impacted farm estates valued at less than £2 million, the report found.

Almost half (49%) of all impacted farm estates would see a tax increase of less than five percentage points (pp). All of the 25 farm estates per year facing an increase larger than 15pp are valued at over £7.5 million.

The analysis focuses on farm estates. A farm estate is not the same as a farm. It means the total net wealth of an individual who died owning some farmland or other farm assets on which they claimed relief.

This definition includes working farmers (including tenant farmers), but also investors in farmland. A farm could be split across multiple farm estates, or a farm estate could own multiple farms.

Alternative inheritance tax reforms

Landowners are less likely to be impacted by the reform than working farmers, according to the study, representing 64% of all farm estates but 42% of impacted farm estates. Owner-farmers represent 17% of all farm estates but 37% of impacted farm estates.

For better targeting the inheritance tax reform whilst still raising at least as much revenue overall, the report’s authors suggested a ‘minimum share rule’.

This would remove relief for passive investors in farmland and other business assets, funding an extension of 100% relief for farmers and other business owners to £5 million per estate.

Alternatively, there could be an ‘upper limit on relief’ that would cap relief at the first £10 million of claim, funding an increase in the allowance for 100% relief to £2 million per estate.

“The relief could be better targeted to reduce its use for tax planning and further extend protection for businesses, including farms,” Summers said.

A government spokesperson said: “We designed these upcoming reforms so they address stark unfairness in the distribution of reliefs, whilst ensuring that the few estates facing higher bills can pay them in a manageable way. This report supports that.

“We’re also investing billions of pounds in sustainable food production and nature’s recovery, slashing costs for food producers to export to the EU and have appointed former NFU president Baroness Minette Batters to advise on reforms to boost farmers profits.”

Retirees are being warned to think carefully about withdrawing more cash from their pension pots purely to reduce the size of their estate for inheritance tax (IHT) purposes – because there could be significant unintended consequences.

Under changes announced in the Autumn Budget, pensions will be brought into the inheritance tax net from April 2027.

Some savers are now looking at ways to deplete their pension pots quicker than planned, in an effort to reduce the risk of leaving their loved ones with an inheritance tax bill.

The wealth manager RBC Brewin Dolphin says it has seen a rise in the number of people looking to take more income from their retirement funds, while Rathbones, another wealth manager, tells MoneyWeek it has seen a “surge in the number of client queries relating to estate planning” since the chancellor’s Autumn Budget announcement.

RBC Brewin Dolphin says it is receiving enquiries from clients looking to withdraw more “taxable income” from their retirement pots, in many cases taking them up to the higher rate threshold of £50,271 in England, Wales and Northern Ireland, and £42,663 in Scotland.

In extreme cases, savers are deciding to take money out of their pensions up to the additional-tax rate threshold of £125,140 – paying 40% tax on income above £50,271 – and gifting large sums to family members.

The wealth manager says they are doing this in the hope that it will begin the seven-year countdown for being exempt from inheritance tax and the money can grow with the new owners without having to worry about an IHT liability.

Daniel Hough, wealth manager at RBC Brewin Dolphin, comments: “Ultimately, a lot of people would rather pay 20% – or 21% in Scotland – [in income tax] rather than 40% [inheritance tax] when they pass away. But there is a fine line between passing down wealth as efficiently as possible and enjoying a comfortable retirement.”

According to Claire Trott, head of advice at St. James’s Place, there’s a danger that people trigger income tax bills that are even higher than the inheritance tax they are trying to avoid.

“For example, a 45% income tax charge today versus a 40% inheritance tax charge later. You also lose the tax-free growth within the pension wrapper. Big withdrawals could push someone into the 60% effective tax band or mean they lose other valuable benefits linked to adjusted net income,” she tells MoneyWeek.

Recent figures from HMRC show that in the first three months of 2025, £5 billion of taxable payments was withdrawn from pensions flexibly by 672,000 savers – a 24% increase in the value of payments withdrawn compared to the same quarter in 2024, and a 13% rise in the number of individuals withdrawing.

Earlier this year, a survey of wealthy pensioners by RBC Brewin Dolphin found that 56% of respondents plan to spend more of their pension following the government’s decision to include them in estates for IHT.

As well as being hit with more income tax – and potentially higher rates of income tax if you move up a tax band – retirees are also at risk of running out of money if they increase the amount they withdraw from their nest eggs.

According to Hough, pension savers tempted to make drastic changes to their retirement plans in a bid to avoid inheritance tax must think carefully about the sustainability of their pension pot. She added: “That may require scaling back ambitions – or you may find that you have to live with the consequences of your pension running out in your 80s or 90s.”

A 66-year-old woman has an average life expectancy of 88 years. However, she also has a one-in-four chance of living to 94 and a one-in-ten chance of living to 98. For a 66-year-old man, the average life expectancy is 85 years.

Richard Cook, senior financial planner at Rathbones, comments: “Upping the amount you withdraw from your pension pot might seem tempting. [But] larger withdrawals risk pushing you into a higher income tax bracket, meaning more of your hard-earned savings could end up with the taxman rather than in your pocket.

“On top of that, taking out too much too soon can deplete your pension quicker than anticipated, leaving you financially exposed later in life when you may need the money most.”

The risks of increasing your pension withdrawal rate

The average single person needs £43,100 a year after tax to fund a “comfortable” retirement, while the average couple needs £59,000 a year after tax, according to calculations by the trade body Pensions UK. This would cover all your basic needs as well as some luxuries, such as a fortnight on a four-star Mediterranean holiday, and replacing your car every five years.

RBC Brewin Dolphin’s analysis shows that if someone retired aged 66 with a £500,000 pension and started withdrawing net income of £43,100 a year (£50,887 before tax), their pot could run out by age 77. This assumes the fund grows at an annual rate of 5% after fees and the income increases annually with inflation (assumed at 2%) and does not factor in the state pension. Starting with a £750,000 pension, the pot could last until the age of 84.

The full new state pension could boost their income by about £11,973 a year, perhaps enabling them to withdraw a lower amount from their personal pensions. If, for example, they started withdrawing net income of £31,127 a year (£38,914 before tax) from a £500,000 pension, their pot could last around four years longer to age 81. For a £750,000 pension, they could still have money left in their pot at age 93.

However, this all depends on the pension portfolio returning 5% every year. If it doesn’t, the pension fund could run out faster. And if more money is withdrawn – for example, to try and avoid the taxman taking a 40% cut on any remaining pension when you die – the number of years that your pension pot lasts will decline even quicker.

Some retirees use the 4% pension rule to work out a safe withdrawal amount: you take out 4% of your pension pot in the first year, increase the amount by inflation each following year, and your pot should last at least 30 years.

If this is increased, to say 5%, it could have a detrimental impact. “If you’re considering withdrawing significant amounts of additional money from your pension pot, speak to a financial adviser about the long-term effect this may have on your retirement plans,” notes Hough.

“Even a single percentage point can make a big difference over 20 or 30 years, potentially leaving you short when you may need financial support most.”

Ways to manage inheritance tax being applied to your pension

There are ways to manage the inheritance tax (IHT) grab that will affect pensions from April 2027.

Gifting to family

Making gifts to loved ones now can remove the money from your estate and reduce the risk of them being hit with an IHT bill when you die.

However, in order to avoid income tax shocks or running out of money in retirement, “good IHT planning often starts with knowing what you can afford to give away”, according to Cook at Rathbones.

Do a cashflow plan – or a detailed budget – to understand what capital and income you can part with. A financial adviser can help with this.

Trott at St. James’s Place comments: “Giving money away is a one-way street – once it’s gone, it’s gone, so careful planning is vital to understand all the consequences.”

In terms of the inheritance tax gifting rules, spouses and civil partners can gift unlimited assets between them. However, when it comes to passing wealth to the next generation, every individual has a gifting allowance of £3,000 a year free of IHT. If part or all of this exemption is not used in a tax year, it can be carried forward for one tax year.

Hough adds: “There are also additional one-off exemptions to consider, such as wedding or civil ceremony gifts of up to £1,000 per person, increasing to £2,500 for gifts to a grandchild or £5,000 for a child. If you give these to any family members, keep a record of it.”

If you gift more than these allowances, the money becomes IHT-free seven years after you gift it. There’s a sliding scale with a reduced IHT rate if you die earlier. For example, if you die four and a half years after you give money to a loved one, 24% IHT is due.

Note that there is speculation that chancellor Rachel Reeves could introduce a lifetime cap on how much wealth can be given away free of IHT, or change the seven-year rule on gifts, in the next Autumn Budget. So, keep an eye out for any tax announcements later this year.

Use trusts

A trust is a legal arrangement for managing a set of assets on behalf of people. According to HMRC, there were 733,000 registered up to 31 March 2024 and, broadly speaking, there are two main types of trusts: absolute and discretionary.

Absolute trusts allow trustees to decide how the assets are given to beneficiaries – as income, lump sums, or when they reach a certain age, for example – while discretionary trusts introduce different classes of beneficiaries, rather than naming individuals.

Hough comments: “For individuals who want to maintain a degree of control, trusts may be a suitable option. These arrangements allow the person to nominate beneficiaries and pay out through income or capital growth at their discretion.

“Trusts can be very powerful tools in that, if the next generation have money problems or split from their partners, the trust’s assets won’t be lost during the bankruptcy or divorce processes. However, they can be expensive to set up, manage and unwind.”

Take out insurance

Taking out a life insurance policy can be another option. While it does not necessarily reduce or remove a potential IHT bill, you can take out protection for a sum that would cover a future liability – particularly important for estates with illiquid assets that may be difficult to sell in just six months. There are three types of life insurance policy that may be worth considering: term, whole of life and Gift Inter Vivos.

Hough explains: “If your partner has already passed away and you know what the IHT liability is likely to be for your loved ones, you can put protection in place to cover it. It’s a useful option where you want to keep money for retirement or care costs and, while the IHT bill will still be there, the liability will be covered by the lump sum paid out by the policy.”

For example, if you calculate that passing down your estate is going to leave an IHT bill of £250,000, you can buy life insurance to cover that amount. If and when this pays out, the proceeds can be put into a trust with named beneficiaries, bypassing the deceased’s estate.

“There are important factors to consider with each type of policy. With a term policy, you are only covered for a set amount of time – say 10 or 20 years. Whole of life cover will, in almost all cases, be the most expensive because they are subject to intense underwriting and will largely be driven by health and age. Meanwhile, Gift Inter Vivos policies are generally the cheapest option, but provide just seven years of cover,” says Hough.

Make sure you have the life insurance policy written in trust. Nearly 7,500 families paid inheritance tax on life insurance policies in 2022/23, according to HMRC – but many would have escaped a bill if their policy was written into trust.

Consider using an annuity to gift surplus income

The IHT gifting rules allow for people to give away surplus income – and there’s no limit on how much they give, plus the seven-year clock does not apply.

If you have enough income from other sources to maintain your usual standard of living, and a pension pot you don’t need, you could convert the pot into an annuity and give the payments away as “surplus income”.

Cook comments: “If an annuity provides ‘surplus income’ then it may be possible to make regular gifts from this surplus income to your loved ones, that are immediately outside of your estate for IHT purposes.

“However, your gifted income would have to be truly surplus to your requirements and well documented, otherwise your gifting may be subject to the seven-year rule.”

Trott echoes this: “Annuities are getting more attention, particularly where surplus income can be gifted or used to fund a life policy to provide a legacy for loved ones.

“Done correctly, they can play a role but the risk is if they increase the estate, they could make the IHT problem worse. It’s all about structuring them carefully.”

We look at whether now is a good time to buy an annuity in a separate piece.

Moderately well-off couples who live together but aren’t married run the risk of an £82,000 inheritance tax bill from 2027, according to new analysis.

The partner of a working-age homeowner in England with an average-priced property (£290,395) and a moderate pension pot (£415,000) could face an inheritance tax (IHT) bill of £82,158 if their loved one dies after two years’ time – even if this is before reaching pension age, calculations from wealth manager Quilter found. Under changes announced in the Autumn Budget, pensions will be brought into the inheritance tax net from April 2027.

In many cohabiting households, the property is jointly owned (joint tenants), meaning only half its value is included in the estate. Even then, a typical family in England would still struggle to avoid an IHT bill of £24,079, purely because of the pension inclusion. Where the property is solely owned by the deceased, the bill is more than three times higher.

Jon Greer, head of retirement policy at Quilter, said: “Charging inheritance tax on a pension someone could not access and will never be able to use due to passing away before the minimum pension age is even more unjust for cohabiting families who have no spousal relief or ability to transfer tax allowances.

“Married couples are protected by exemptions and allowances; cohabitees aren’t. Policymakers should consider carve-outs or transitional reliefs for working-age deaths, particularly when young children are involved.”

Without change, the soon-to-be enacted policy of inherited pensions being subject to IHT, even before the minimum pension age, “risks compounding the emotional toll of bereavement with a financial hit that can destabilise a family’s future despite raking in very little in additional revenue”, Greer added.

Myth of the common law marriage

Cohabiting couples represent around a fifth of those living together in the UK, and the number is rising. The number of cohabiting couple families in 2024 was 3.5 million (17.7% of all families), an increase from 3.1 million (16.4%) in 2014, according to the Office for National Statistics (ONS).

Whereas married couples and civil partners have certain legal rights and responsibilities upon divorce or death, cohabitants receive, in general, less protection. Upon death, cohabitants do not automatically inherit from their partner, but if they do, they do not benefit from the spousal exemption – where assets are passed on inheritance tax-free – or a transferable nil-rate band.

Many people believe in the so-called ‘common law marriage myth’, which is the false belief that after a certain amount of time of living together, the law treats cohabitants as if they were married, when this is not the case.

Changes to the inheritance tax rules around pensions are set to leave cohabiting couples even worse off than their married peers.

Until now, unspent pensions were typically passed on tax-free if the saver died before age 75, and especially before they could access them. HMRC has now confirmed that from April 2027, pension savings will count towards a person’s estate for IHT purposes regardless of age at death, unless covered by existing exemptions.

This means cohabiting families with young children who can’t take advantage of the tax breaks afforded to married couples will be far more exposed to potential IHT bills.

Inheritance tax and rising property prices

Rising house prices and frozen inheritance tax thresholds are already increasing families’ IHT bills. Inheritance tax income to the Treasury totalled £2.22 billion through the first quarter (April to June) of the 2025/26 financial year, according to the latest data from HMRC. The figure represents an increase in inheritance tax receipts of £134 million, or 6%, compared to the same period in 2024/25.

Quilter’s analysis showed how that could play out around the country for cohabiting couples now the rules around inheritance tax on pensions have been confirmed.

For example, in London, sole ownership of an average-priced home (£565,637) plus a £415,000 pension creates an IHT bill of £192,254 in 2027. If the home is jointly owned, that falls to £129,127 – still a severe hit for a grieving family without the protections available to married couples.

Across Wales, Scotland and Northern Ireland, where lower house prices meant there was typically no liability for families with similar pensions in the past, bills in joint-ownership cases will still be £23,891, £21,392 and £20,007 respectively.

According to property website Rightmove, asking prices are expected to rise by 4% in 2025 alone, meaning these liabilities are likely to grow even before the rules take effect.