Building awareness early doesn’t just prepare you for what you may receive; it also shapes how you think about your own long-term financial plans and the legacy you may leave one day. Against a backdrop of rising IHT receipts, frozen thresholds and evolving rules, more families are being affected, often without realising until it’s too late to act.
This isn’t about mastering every technical detail. It’s about having a clear starting point: understanding the basics, knowing the right questions to ask and recognising where professional guidance can make a meaningful difference.
Why should I pay attention to Inheritance Tax now?
IHT has traditionally been seen as a concern only for the very wealthy, but rising property values, frozen thresholds and changes to how pensions are treated mean that assumption no longer holds.
If families don’t improve their understanding – whether that’s you, your parents or grandparents – IHT can have a much greater financial impact than expected.
Ask yourself:
- Could property or pensions push an estate over the IHT threshold?
- Would your family know what steps to take if something happened tomorrow?
- Are conversations about inheritance happening early enough?
What exactly is IHT?
IHT is charged on the value of someone’s estate when they die. An estate includes:
- Property
- Savings and investments
- Personal possessions
- Other assets held in their name.
Currently, estates valued above £325,000 may be subject to IHT on the amount above that threshold, usually at 40%. This rate can reduce to 36% if at least 10% of the estate is left to charity.
What role does property play?
There is an additional allowance, the main residence nil-rate band, which applies when a home is passed to direct descendants, such as children, stepchildren or grandchildren. This allowance currently stands at £175,000 per person.
When combined with the standard threshold, this means:
- Individuals can potentially pass on £500,000 tax-free
- Married couples or civil partners may pass on up to £1m.
However, this additional allowance is tapered for estates worth over £2m and removed entirely above £2.35m, which can catch families by surprise.
Who pays the tax?
IHT is usually paid by the executor or administrator of the estate before assets are passed on to beneficiaries. In some circumstances, particularly where lifetime gifts are involved, the recipient of a gift may become liable if certain conditions aren’t met.
This can place unexpected pressure on families at an already difficult time.
Are there ways to reduce the IHT burden?
Yes — and this is where planning really matters. Options may include:
- Making lifetime gifts using annual exemptions
- Planning larger gifts that may fall outside the estate after seven years
- Making regular gifts from surplus income, where appropriate
- Using spousal exemptions and transferable allowances
- Considering trusts to move assets out of an estate while retaining some control
- Using life insurance written in trust to help beneficiaries meet any IHT bill
- Leaving gifts to charity to reduce the overall IHT rate
- Exploring reliefs for certain business or agricultural assets.
Each option has rules and implications, and not all are suitable for every family.
What’s changing and why does it matter?
From 6 April 2027, most unused pension funds and death benefits will be included within the value of an individual’s estate for IHT purposes.
This means pensions, which have previously been a powerful IHT planning tool, will increasingly need to be considered alongside other assets. Personal representatives will be responsible for reporting and paying any IHT due on these funds.
This change makes early awareness and joined-up planning even more important.
What should I be thinking about now?
At this stage of life, IHT planning isn’t just about your own estate. It’s about understanding what you may inherit and how prepared older generations are.
Useful starting questions include:
- Have my parents or grandparents taken advice on IHT?
- Do they understand how their assets and pensions will be treated?
- Are beneficiary nominations and Wills up to date?
As more families are drawn into IHT through rising asset values and rule changes, intergenerational financial planning is becoming increasingly important.
Your Finli planner can help guide these conversations sensitively, align intentions across generations and ensure plans remain appropriate as circumstances evolve. With complexity and change at the heart of IHT, tailored advice can provide clarity, confidence and reassurance – for you and your family.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.