Inheritance Tax Planning
Protecting Your Wealth for Future Generations
Proper IHT planning ensures more of your wealth is preserved for your beneficiaries.
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Maintain Control Over Your Legacy
Without a well-considered IHT planning strategy, your estate may be significantly reduced by the 40% tax charged on amounts exceeding the nil-rate band (£325,000 per person). With property prices climbing and the nil-rate band frozen until 2030, even families who don't consider themselves wealthy can find themselves facing a substantial IHT bill.
Without proactive planning, your beneficiaries may be forced to cover tax liabilities before they receive any inheritance—potentially by selling cherished assets such as property, family businesses, or investments. Advance estate planning using trusts, structured lifetime gifting, or whole of life insurance ensures these difficult decisions can be avoided.
Who is Affected by IHT?
IHT affects a growing number of people, particularly those who:
- Own high-value property or multiple homes
- Hold significant savings, ISAs, shares, or pensions
- Have business interests or are company directors, contractors, or freelancers
- Are UK domiciled, meaning their worldwide assets are subject to IHT
- Inherit from an estate exceeding the inheritance tax threshold
This includes self-employed professionals, landlords, entrepreneurs, and individuals with buy-to-let properties or family investment companies.
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What is Inheritance Tax & Why Consider IHT Planning?
What is Inheritance Tax?
Inheritance Tax (IHT) is levied on the estate (property, money, and possessions) of someone who has died. The current nil-rate band is £325,000 per person. Amounts over this are taxed at 40%, unless certain reliefs or exemptions apply.
Your estate includes:
- Residential and investment property
- Savings, pensions, ISAs, and investment portfolios
- Business shares and agricultural assets
- Luxury goods (art, vehicles, jewellery)
IHT Examples
Spousal Exemption + Nil-Rate Band Transfer
A married couple can effectively pass on £650,000 tax-free by combining allowances. Additional Residence Nil-Rate Band (RNRB) may apply if passing the family home to children.
IHT Liability Without Planning
Unmarried individuals or those without proper protection could leave heirs facing tax bills in the tens of thousands. A Whole of Life Insurance policy written in trust can fund this liability and preserve the estate.
Why Consider IHT Planning?
Protect Your Family’s Future
Inheritance Tax can claim up to 40% of your estate above the nil-rate band. Strategic planning ensures more of your wealth is passed on to children, grandchildren, or chosen beneficiaries.
Avoid Financial Stress
IHT must be paid before your estate is released. Without adequate planning or insurance, your family might need to sell assets quickly—potentially at below market value—to meet tax obligations.
Stay in Control
Tools such as Trusts, Family Investment Companies (FICs), and lifetime gifts allow you to specify how and when assets are used, safeguarding your legacy.
Key Strategies for Reducing IHT
Effective estate planning can significantly reduce your IHT bill. Some of the most commonly used and legally compliant strategies include:
Gifting assets
Gifts made seven years prior to death can fall outside your estate for IHT purposes (known as potentially exempt transfers).
Trusts
Transferring assets into discretionary trusts, bare trusts, or loan trusts can help keep them outside your estate.
Business Relief
Business owners and shareholders may qualify for up to 100% Inheritance Tax Relief on qualifying assets.
Whole of Life Insurance
A flexible solution that provides the funds to cover IHT without touching the estate.
Whole of Life Insurance as an IHT Solution
Whole of Life (WOL) insurance is a valuable estate planning tool that guarantees a cash sum when you die—often used to offset inheritance tax. It is especially useful for estates that are asset-rich but cash-poor.
Key Benefits:
- Provides immediate liquidity to pay IHT
- Avoids the forced sale of property or business assets
- Typically more cost-effective than losing 40% of your estate to tax
Considerations:
- To be effective, the policy must be written in trust, so it does not add to your taxable estate.
- Premiums vary depending on age, health, and structure (e.g. guaranteed vs. reviewable premiums).
- Ideal for individuals with illiquid assets, such as property portfolios, art collections, or private company shares.
When It’s Most Suitable:
- For business owners, landlords, and freelancers whose wealth is tied up in assets
- As a joint life second death policy for couples
- When establishing family succession plans or generational wealth transfers
Reducing IHT as a Contractor, Freelancer or Business Owner
Many professionals mistakenly believe IHT only affects the very wealthy. In reality, contractors, consultants, and small business owners are often at greater risk due to:
- Business equity not covered by reliefs
- Personal savings held outside tax shelters
- Lack of trusts or succession plans
Strategies include:
- Using Business Relief on qualifying shares
- Structuring wealth through limited companies
- Placing life insurance in trust
- Forming family investment companies
Get Ahead With IHT Planning
Start with our easy-to-use IHT Calculator above to understand your exposure and explore the most relevant solutions for your circumstances.
Whether you’re a property owner, limited company director, freelancer, or planning to transfer generational wealth, now is the time to take action. From lifetime gifts to whole of life cover, there are proven ways to shield your estate from unnecessary tax.
Secure your legacy. Protect your wealth. Provide peace of mind for your family.
Resources for Freelancers, Contractors & Professionals
Explore more insights to help you decide:
- Ever wondered what the difference is between Life Insurance and Whole-of-Life Insurance? Read our blog here that explains the differences between these types of policies.
- Learn more about how to Protect your Family and Estate with Whole of Life insurance.
- Read our blog on recent changes to Inheritance Tax rules and what these changes mean for you.
- Download your FREE Broadbench Guide To Tax Savings
- Download: Broadbench - Tax and Financial Risks
Get the facts
Download our guide to Inheritance Tax and see how planning ahead safeguards your legacy. Plus, we’ve included an A-Z of IHT Terminology and useful FAQs.
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FAQs
Who pays UK Inheritance Tax?
Inheritance Tax (IHT) applies to all UK domiciles, regardless of whether they live in the UK or abroad, subject to the nil-rate band. There is no IHT due on estates valued under £325,000.
What Is a UK Domicile?
Your domicile is typically determined by your father’s domicile at birth (or mother’s, in some cases). This means that even if you were born outside the UK or live abroad, your domicile is linked to your father’s domicile. Living abroad does not automatically change your UK domicile status.
Which assets are subject to Inheritance Tax?
IHT applies to worldwide assets, including property, savings, investments, and other valuables. Some reliefs may apply, such as business relief and agricultural land relief, which can reduce the amount of tax owed.
Do expats pay IHT?
Yes, if you are a UK domiciled individual, you are required to pay IHT regardless of where you live. You may also face local inheritance taxes in your new country of residence. To avoid being taxed twice, it’s advisable to check for double tax treaties between the UK and your new country.
How do spousal exemptions work?
Spouses or civil partners can transfer assets tax-free between each other, with no limit on the value of assets. However, the recipient must be UK domiciled to benefit from this exemption.
Is IHT avoidable?
IHT is often referred to as a “voluntary tax” because there are legal ways to reduce it. Strategies include gifting, using trusts, claiming exemptions, and planning with tax-efficient financial instruments. A professional adviser can help guide you through these strategies.
How to value an estate for Inheritance Tax
To determine if IHT applies, you must first estimate the total value of your estate. If it exceeds £325,000, a more detailed valuation is needed.
The estate value includes:
- Assets you own, such as property, savings, investments, and cash.
- Assets held in trust (relevant property) where you are the beneficiary.
- Lifetime gifts made in the last seven years.
- Foreign assets held abroad.
Once you have the total value, subtract any debts (mortgages, loans) to arrive at the estate’s net value. If it exceeds the threshold, IHT will be due.
Use our IHT calculator above as a guide.
What should I consider before making lifetime gifts?
Lifetime gifts can be a strategy to reduce IHT, but there are several considerations:
- Ensure compliance with the rules.
- Be cautious about gifting if it leaves you financially vulnerable later in life (e.g., for care costs).
- Consider whether you want to retain control over how and when beneficiaries receive gifts. For example, using trusts can allow you to specify when beneficiaries can access the assets.