Inheritance tax planning reminder

UK households are urged to plan years in advance to avoid a larger inheritance tax bill as thresholds and timing push more estates into IHT.

HMRC Tightens Inheritance Tax Reach for UK Households

HMRC has issued a reminder that inheritance tax planning must cover multiple years, not just the near term. Inheritance tax is charged at 40 percent on the portion of an estate that exceeds the tax-free threshold. For example, on an estate worth £500,000 with a £325,000 nil-rate band, the tax would be 40 percent of £175,000.

Last year HMRC reported a record £7.5 billion in inheritance tax receipts, a figure that is expected to rise as property values climb and more families fall within the tax bracket. Lorraine Wilson, principal associate in the private wealth team at Weightmans, warned that more people are being dragged into paying the tax without realising it. She noted that gifts made within seven years of death can still be taxed, emphasizing the need for early action to organise an estate and assess IHT liability. Experts point to structured options like trusts or family investment companies as ways to pass wealth down the generations while retaining flexibility.

The guidance arrives amid a broader context of rising property values and shifting wealth dynamics. The aim is to help households avoid surprise bills, yet it also signals a growing demand for professional estate planning and more nuanced use of financial instruments to manage IHT exposure.

The piece highlights a gap between public understanding and the reality of inheritance tax rules. For many households, planning for IHT is a long-term project that requires professional guidance, not a one-off conversation. The emphasis on gifts and seven-year timelines can complicate family decisions, especially when wealth is tied up in property or investments. This raises questions about access to clear, affordable advice and whether the system stays fair as values rise.

Looking ahead, the push for proactive planning could reshape how middle-class families manage wealth and how advisers price and deliver services. If more people engage with trusts or family investment strategies, the tax landscape may become more complex but potentially more efficient for those who navigate it well. The challenge is ensuring guidance is accessible and easy to understand for non-experts while keeping expectations realistic about what constitutes effective planning.

Highlights

Tax rules evolve, and so must the plans families make to protect their assets.