Inheritance Tax (IHT) is a reality for many UK estates, and recent changes mean it’s more important than ever to review your financial arrangements.
At George Square, we believe that a well-planned strategy can help preserve your wealth for future generations while minimising tax liabilities. In this blog, our team of independent financial advisers share some practical steps you can take to protect your assets from IHT.
Review your IHT liability
The standard IHT threshold stands at £325,000, which may increase to £500,000 when passing on your family home to direct descendants. However, recent budget updates mean that previously exempt assets – such as pensions (from 2027) and certain AIM investments – may now count towards your taxable estate. Keeping track of these changes is essential for any successful estate plan.
Please note that these updates are still subject to legislative approval and could evolve. Read our recent blog for more tips on how to prepare for the 2027 pension changes.
Update your will and estate plan
A comprehensive, up-to-date will is the foundation of an effective estate planning strategy. With a tailored will, you can ensure that your assets are distributed according to your wishes while making the most of available allowances and exemptions.
Techniques such as drafting a deed of variation may offer flexibility, allowing your beneficiaries to redirect assets in a way that reduces overall tax liability.
Optimise allowances and reliefs
There are a number of allowances and reliefs available that you should try to maximise to reduce IHT. These include:
- Nil-rate band and residence nil-rate band: Every individual enjoys a tax-free allowance of £325,000, which can be increased when leaving your main home to direct descendants.
- Business and agricultural relief: Recent caps mean that while the first £1 million of qualifying assets may enjoy full relief, amounts above this only receive partial relief. It is crucial to align your asset structure with these thresholds. However, please note reliefs can have complex rules and thresholds that may vary depending on individual circumstances and subsequent regulatory changes.
- Additional exemptions: Annual gift allowances and exemptions for gifts to spouses, civil partners, and charities can all play a part in reducing your taxable estate.
Consider gifting and trusts
Gifting is a powerful way to reduce the size of your estate. Potentially exempt transfers (PETs) mean that, if you survive for seven years after making a gift, it falls out of your IHT calculations entirely. In parallel, setting up trusts can allow you to maintain control over your assets while removing them from your taxable estate.
However, care must be taken to avoid certain pitfalls; for example, gifting with reservation of benefit, which is where you continue to enjoy the asset after the gift is made. For more information about this, please speak to our team.
Use life insurance to cover liabilities
Life insurance written in trust is another effective tool. By ensuring the payout does not form part of your estate, you can provide a tax-free lump sum to cover any IHT bill. This means your beneficiaries receive the full benefit of your legacy without the need to liquidate assets.
Invest tax-efficiently
Investments that qualify for business relief or fall under SEIS/EIS schemes can offer significant tax advantages. While new rules affect certain AIM-listed investments, a well-diversified, tax-efficient portfolio remains an essential part of a robust estate plan.
Working with a knowledgeable financial adviser can help you navigate these complexities and identify the best options for your circumstances. Please get in touch for advice tailored to your situation.
Seek independent advice
Regular reviews of your estate plan ensure that you remain compliant with the latest IHT regulations while making the most of every available opportunity to reduce your tax bill.
As always, individual circumstances vary, so consulting a qualified financial adviser remains the best course of action when it comes to estate and IHT planning. At George Square, our independent advisers offer tailored consultations to help you design a strategy that aligns with your goals and protects your wealth.
For personalised advice on managing your estate efficiently, please call 0115 947 5545 or contact us online here.