Passing on wealth is about more than deciding who receives which assets. For many people, succession planning also means understanding the tax implications of their plans and putting the right arrangements in place ahead of time.
Inheritance Tax (IHT) forms an important part of this process. Careful planning allows people to understand their potential liability and consider the options available to reduce it.
Understanding Inheritance Tax when passing on wealth
IHT can apply to the value of an individual’s estate when they die.
An estate can include property, money, investments and other assets. The amount of tax due will depend on several factors.
For individuals with significant wealth, understanding the potential IHT position early can be an important part of succession planning.
How your assets are owned, when gifts are made and who you choose as beneficiaries can all affect the eventual tax position. Gifts to a spouse or civil partner are generally exempt, as are gifts to qualifying charities.
IHT is usually due on the part of an estate worth more than £325,000, known as the nil-rate band.
An additional residence nil-rate band of £175,000 may apply if you leave your main home to your children or grandchildren, increasing the threshold to £500,000. This additional band is gradually withdrawn for estates worth more than £2 million.
Any unused nil-rate band and residence nil-rate band can be transferred to a surviving spouse or civil partner, meaning a married couple or civil partners could pass on up to £1 million before IHT is due. Both thresholds are currently frozen until April 2031.
IHT is then charged at 40 per cent on the value of the estate above the available thresholds. A reduced rate of 36 per cent may apply if at least 10 per cent of the net estate is left to charity.
It is also important to consider business and agricultural assets, as Business Relief or Agricultural Property Relief may apply.
Since 6 April 2026, full relief has been limited to the first £2.5 million of qualifying assets, with 50 per cent relief available above this. Any unused allowance can be transferred between spouses and civil partners.
Pensions are also changing. From April 2027, most unused pension funds and death benefits will be brought into the scope of IHT.
These rules can be complex and may change over time, which is why taking professional advice can help you understand how they apply to your individual circumstances.
How can planning protect your legacy?
Effective succession planning gives you the opportunity to consider your options before a transfer of wealth takes place.
Rather than leaving decisions until later in life, early planning can help you understand what you want to achieve and identify potential tax implications.
Depending on your circumstances, this could involve considering lifetime gifts, trusts, the ownership of assets or the use of available reliefs and exemptions.
For example, a gift to an individual will usually fall outside your estate for IHT purposes if you survive for seven years after making it.
Good planning also means regularly reviewing your plans to reflect changes in your personal circumstances and in tax legislation.
The aim isn’t simply to minimise tax. Good succession planning should help ensure that your wealth is passed on in a way that reflects your wishes, while giving you a clearer understanding of the financial implications for those who will eventually receive it.
How can we help?
Succession planning involves significant tax considerations and getting them right helps ensure your estate passes effectively to the people you love.
Our team can help you understand your IHT position, working alongside your solicitors to ensure your succession plan is considered as a whole.
We are here to help you plan for your future.
For support with Inheritance Tax planning, get in touch with our team.
