Inheritance Tax & Estate Planning

INHERITANCE TAX & ESTATE PLANNING

Inheritance tax is charged at 40% on the value of an estate above the available nil-rate bands. The nil-rate band is £325,000; the residence nil-rate band adds up to £175,000 where a home passes to direct descendants, tapering away for estates over £2m. Unused bands transfer between spouses and civil partners, so a married couple can often pass up to £1m before a penny of IHT is due — and a great many families quietly exceed that on the strength of a house alone.

Two structural changes are reshaping the planning landscape. From April 2026, 100% business property relief and agricultural property relief are capped at £1m of combined qualifying property per person, with relief above the cap falling to 50% — an effective 20% charge on the excess. From April 2027, most unused pension funds and pension death benefits come into the estate for IHT. Plans built on the old assumptions need revisiting now, not on death.

The problems we solve for you

Most IHT is paid not because families were wealthy, but because nobody looked at it in time.

• Unused reliefs and bands. Residence nil-rate band lost through a badly drafted will; transferable bands never claimed.
• Business relief assumed, not tested. Trading status, excepted assets and the new £1m cap all bite.
• Gifts with strings attached. Reservation-of-benefit and pre-owned asset rules undoing well-meant transfers.
• Pensions left out of the plan. From April 2027 they are inside the estate for most people.

Why families choose TaxDigit

We look at the estate, the business and the income tax and capital gains position as one problem, because that is how it behaves.

• A written IHT position. What the liability is today, and what it becomes under each option.
• Business owners understood. We already prepare the company accounts — so we know whether BPR really applies.
• Cross-border capability. Domicile, deemed domicile and the residence-based regime for internationally mobile families.
• Compliance handled. IHT400 and estate and trust returns prepared alongside the advice.

Where the planning actually happens

• Lifetime giving. Potentially exempt transfers and the seven-year rule, the £3,000 annual exemption, small gifts, wedding gifts, and regular gifts out of surplus income — the most underused exemption in the code.
• Business and agricultural property relief. Testing trading status, stripping excepted assets, and structuring ownership across spouses to make the fullest use of the new £1m per-person allowance.
• The family home. Protecting the residence nil-rate band through the will, and the tapering trap above £2m.
• Trusts. Relevant property regime, ten-year charges and exit charges — used where they earn their keep, and not where they do not.
• Pensions. Reviewing death-benefit nominations and drawdown strategy ahead of the April 2027 change.
• Life cover in trust. Funding the liability you cannot plan away, outside the estate.
• Charitable giving. The reduced 36% rate where 10% or more of the net estate passes to charity.

Compliance, when the time comes

We prepare IHT accounts (IHT400 and schedules), estate income tax and capital gains returns, and trust returns, and we work alongside your solicitor on probate and the will. Where the estate includes a trading company, we can value it — our business valuation team does this work routinely — so the figure in the IHT account is one you can defend.

Rates, bands and the April 2026 relief cap as at July 2026. IHT is highly fact-sensitive and interacts with wills and trust law; we work with your solicitor and, where investments or life cover are involved, an FCA-authorised adviser.

Frequently asked questions

How much can I pass on before inheritance tax is due?

The nil-rate band is £325,000 per person, plus a residence nil-rate band of up to £175,000 where the family home passes to children or grandchildren. Unused bands pass to a surviving spouse or civil partner, so a married couple can often pass up to £1m tax free. Above that, IHT is charged at 40%.

What is changing for business property relief in April 2026?

From April 2026, 100% business property relief and agricultural property relief are limited to £1m of combined qualifying property per person. Value above that cap attracts relief at 50%, giving an effective 20% inheritance tax charge. Ownership structuring between spouses matters far more as a result.

Are pensions really going to be taxed on death?

From 6 April 2027, most unused pension funds and pension death benefits are expected to be included in the estate for inheritance tax purposes, other than amounts passing to a spouse, civil partner or charity. Defined benefit scheme pensions are not affected in the same way. Nominations and drawdown strategy should be reviewed now.

Does giving assets away avoid inheritance tax?

It can. Most lifetime gifts fall out of the estate after seven years, with taper relief on the tax between years three and seven. But if you keep a benefit in the asset — for example, giving the house away and continuing to live in it rent free — the reservation-of-benefit rules pull it straight back in.

What is the gifts out of surplus income exemption?

Regular gifts made from income (not capital), which leave you able to maintain your normal standard of living, are immediately exempt with no seven-year wait and no limit. It is powerful and badly underused — but it depends on keeping proper records, which we set up for you.

Do I need a trust?

Sometimes. Trusts control who gets what and when, and can be effective, but they carry their own ten-year and exit charges and a real administrative burden. We only recommend one where the benefit clearly outweighs the cost.

Can you deal with the estate after a death?

Yes. We prepare the IHT400 and supporting schedules, estate income tax and capital gains returns, and any trust returns, and we work alongside the family solicitor handling probate.