You’ve worked hard for your wealth. You’ve made sacrifices, built businesses, invested wisely, and accumulated assets that represent a lifetime of achievement. But have you considered how much of that wealth might reach your loved ones when the time comes?
Without careful planning, a large portion of your estate could be lost to Inheritance Tax (IHT) — reducing what your beneficiaries inherit and potentially creating unnecessary financial stress at an already difficult time.
At Blacktower Financial Management, we specialise in helping individuals and families structure their wealth for the future. In this guide, we explain how IHT works, the recent changes you need to be aware of, and the strategies that may help you protect more of what you’ve built.
Understanding Inheritance Tax (IHT)
IHT is a tax payable on the value of your estate when you die. Your estate includes property, savings, investments, and other assets.
- The standard IHT rate is 40%, applied to the value of your estate above the available allowances.
- For married couples or civil partners, assets left to a surviving spouse are usually exempt on the first death, with IHT only assessed on the second death.
- The nil-rate band — the amount you can pass on tax-free — currently stands at £325,000. The residence nil-rate band (RNRB) can provide an additional allowance where the family home passes to direct descendants.
However, both allowances are frozen until April 2030, meaning that rising asset values are steadily pulling more families into the IHT net.
Recent Changes: Why More Families Will Be Affected
The UK government announced in the 2023 Autumn Statement that from April 2027, unspent pension pots will fall within the scope of IHT. Previously, many pensions could be passed down free of inheritance tax, making them one of the most efficient ways to transfer wealth.
This shift — combined with frozen allowances and increasing property values — is expected to significantly increase the number of estates facing IHT bills of up to 40%.
The Growing Importance of Estate Planning
Estate planning isn’t just for the ultra-wealthy. Increasingly, ordinary families are finding themselves exposed to IHT. In fact, HMRC has reported record receipts in recent years, highlighting how many estates are now affected.
This is also happening at a time when the UK is experiencing the largest intergenerational wealth transfer in history, with trillions set to pass from the baby boomer generation to their children and grandchildren. Without proactive planning, much of this wealth could end up in the hands of the tax authorities rather than family members.
What Can You Do to Reduce IHT?
There are several legitimate strategies available. Which are suitable will depend on your personal circumstances, and we always recommend seeking professional financial advice before making decisions. We work closely with tax professionals and can introduce you to the right expert if needed.
1. Use Your Gifting Allowances
Each tax year, you can give away up to £3,000 per person free of IHT — known as your annual exemption. If unused, it can be carried forward for one year, allowing a couple to gift up to £12,000 without immediate tax consequences.
Regular small gifts, such as birthday or Christmas presents, may also be exempt if they are considered normal expenditure.
2. Make Larger Gifts
You can make gifts of any size, but under the “seven-year rule”, gifts may be subject to IHT if you die within seven years of making them. The tax liability reduces on a sliding scale after three years — known as “taper relief.”
For those wishing to make substantial transfers, it is wise to document gifts carefully and consider life insurance to cover potential liabilities.
3. Gifting Out of Surplus Income
If you have surplus income beyond your normal living costs, you can make regular gifts from income without them forming part of your estate. These must be documented and demonstrably affordable, as this could be a powerful way to reduce IHT while supporting family members during your lifetime.
4. Leave a Charitable Legacy
Gifts to charities are exempt from IHT. Moreover, if you leave 10% or more of your estate to charity, the IHT rate on the remainder of your estate may fall from 40% to 36%. This allows you to support causes close to your heart while also reducing the tax burden on your estate.
5. Use Trusts to Ring-Fence Wealth
Trusts can be used to pass assets to beneficiaries while removing them from your estate for IHT purposes (typically after seven years).
For example, a discretionary trust allows trustees to decide how and when beneficiaries receive funds, providing both control and protection.
It is important to note that:
- Gifts into trust above the nil-rate band may incur a 20% entry charge.
- Trusts are subject to ongoing reporting and compliance requirements.
Despite their complexity, trusts remain one of the most effective estate planning tools when used appropriately.
6. Whole-of-Life Insurance Policies
For individuals who know their estate will face IHT, a whole-of-life insurance policy written in trust can help provide funds to cover the liability.
- Premiums are payable for life, so affordability is key.
- Writing the policy in trust can mean the payout falls outside your estate and can be used to settle the tax bill promptly.
This approach doesn’t reduce your IHT liability but can help your beneficiaries avoid needing to sell assets — such as the family home — to meet the tax demand.
7. Review Your Will
Your Will is the foundation of any estate plan. Regular reviews ensure that:
- Assets are distributed according to your wishes.
- Available allowances (including spousal exemptions) are fully used.
- Any changes in law or personal circumstances are accounted for.
The Role of Financial Advice
Inheritance tax is a complex area, and mistakes can be costly. Rules around gifts, trusts, pensions, and allowances can change, and what works for one family may not be suitable for another.
At Blacktower, our advisers work closely with clients to:
- Assess current IHT exposure under todays and future rules.
- Explore strategies such as gifting, trusts, and insurance.
- Balance estate planning with personal financial security.
- Coordinate with tax advisers and solicitors to ensure a holistic plan.
Our goal is simple: to keep more of your wealth where it belongs — in your family.
Contact us
Inheritance tax may feel like a distant concern, but the earlier you act, the more options you may have available. Whether it’s setting up a trust, making regular gifts, or reviewing your pension and insurance arrangements, proactive planning can make a significant difference.
👉 Contact Blacktower today to arrange a confidential discussion about your estate planning needs.
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Important Information & Disclaimer
This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, tax advice, investment advice, investment recommendations or investment research. Investing involves risk. The value of investments can go down as well as up, and you may not get back the amount originally invested. Past performance is not a reliable indicator of future results. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
A survey by Old Mutual Wealth has found that 38% of international financial asset management professionals would like a review of the new QROPS pension transfer scheme rules. Only 20% said they were happy with the new rules, while 40% described themselves as “unsure”.
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