Inheritance Tax and Estate Planning

Passing your wealth on to future generations

Inheritance Tax planning can be complicated, but with the help of a financial adviser, you can begin to understand some of the best ways in which you can maximise the wealth you transfer to future generations.

Our financial advisers will help you by using a combination of effective strategies to minimise the future inheritance burden for your family, creating peace of mind for the future and for your loved ones.

Why is it important to start planning Inheritance Tax early?

By planning ahead, you can significantly mitigate your Inheritance Tax liability, while also ensuring you have enough money to live and enjoy life now.

Our expert financial advisers can help create a succession plan to pass on your assets most effectively, and work with you to reduce or manage your future Inheritance Tax liability.

Reducing your Inheritance Tax liability 

Inheritance Tax is typically charged at 40% on most assets that exceed your nil-rate band ((NRB) allowance. In 2024/25 the NRB is £325,000, or it can be combined if you're married or in a civil partnership, meaning it is £650,000.

You may also qualify for further reliefs that could increase the amount you’re allowed to have in your estate before IHT is charged to £1 million. Other ways you might be able to reduce your estate’s exposure to the tax include:

• Using Trusts

Trusts come in different forms and can be used to protect your assets and minimise tax efficiently, while allowing you to influence how they’re managed and who will benefit from them. Life insurance can also be set up in a trust, so that the money can be accessed immediately to pay an Inheritance Tax bill.

Our independent financial advisers can advise you on the benefits of trusts and help you decide which are the right fit for you based on your goals and objectives.

• Making financial gifts to family and friends

Everybody in the UK has an annual allowance for making monetary gifts to family and friends. However, Inheritance Tax gifting is a complex area due to strict rules set by HM Revenue & Customs. Understanding how to make gifts that won’t create additional Inheritance Tax implications is essential. There are a number of ways you can give financial gifts, including a gift for a wedding, civil partnership or Birthday or even a regular payment from your income.

Our financial experts can help you estimate your future finances and find the best strategy to maximise your annual gifting allowances.

• Investing in BPR-qualifying companies

In 2024/25, shares in a qualifying company that’s quoted on the Alternative Investment Market (AIM) may attract business relief (BR). This means they could potentially be passed to beneficiaries 100% IHT-free as long as certain stipulations are met and you have owned them for at least two years.

During the 2024 Autumn Budget, the Chancellor announced that as from April 2026, this type of asset will only qualify for a 50% discount, providing an effective IHT tax rate of 20%.

Please remember that investing in AIM companies naturally carry higher levels of risk, meaning your money may be more exposed to potential losses. At AFH, we can guide you through the options and help determine which, if any, are appropriate for you.

• Writing a will

A will is important as it not only ensures your estate is passed on according to your wishes, but it can also influence your estate and Inheritance Tax position. For example, in 2024/25, if you leave more than 10% of the assets that are liable to IHT to charity, the tax is charged at 36% instead of the usual 40%. If you leave all your assets to charity, there will not normally be an IHT tax charge.*

We know that estate planning is a vital part of your financial planning journey. That’s why all of our advisers are qualified to offer you specialist advice and support on wills, trusts and your estate as part of AFH Trusts and Estate Planning.

The rules around IHT and pensions are changing

Historically, pensions were seen as a source of retirement income and a powerful tool that could be used to reduce an Inheritance Tax (IHT) liability. While this may still be the case in 2024/25, from April 2027 the unused element of your pensions will fall into your estate for IHT purposes.

As this means your pension pot will be exposed to the tax after this date, it’s unlikely to be effective in helping you to reduce your estate's exposure to IHT. With this in mind, using your pension as part of your intergenerational wealth plan may no longer be appropriate.

There is good news though, as our team of experts can help you to understand your options around IHT mitigation and provide a succession plan that works for you and your loved ones.

*Will writing is not regulated by the Financial Conduct Authority.