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Inheritance Tax
Why more families are losing wealth
to Inheritance Tax and how to avoid it
Data shows families are paying unnecessary tax without planning ahead
Overlooking regular income exemptions
Some individuals do not realise that gifts from surplus
income can be exempt from Inheritance Tax, provided
they form part of a regular pattern and do not affect
their standard of living.
This exemption is often underused, despite being
one of the most effective ways to transfer wealth
gradually over time without triggering tax liabilities.
Keeping assets in inefficient structures
Another common mistake is holding wealth in the
wrong type of account or structure. Assets held
in taxable estates can increase the overall IHT
liability, particularly when investments have grown
significantly in value.
Without regular reviews, portfolios may become
inefficient for estate planning, leaving beneficiaries
with a reduced inheritance.
Failing to plan early enough
Perhaps the most costly mistake is leaving planning until
too late. Inheritance Tax is not just a concern for the very
wealthy; rising property values and frozen thresholds
Planning for your death is unlikely to be a cheery task to tick off your
to-do list, but as the rules keep changing and tax thresholds remain frozen,
tackling it is more important than ever. Families paid a record £8.5 billion in
Inheritance Tax (IHT) in the 2025/26 tax year, 3.6% higher than the £8.2 billion
paid the previous year, according to HM Revenue & Customs.
T
he Office for Budget Responsibility
Not using the residence allowance correctly
estimates that the government
The residence nil-rate band can increase the
will raise £14.5 billion a year by the
tax-free allowance when a main home is passed
2030s, suggesting that more estates
to direct descendants. However, it is often
are being brought into the tax net. Against this
backdrop, even simple planning errors can prove
misunderstood or overlooked.
If an estate is worth more than £2 million,
costly. Many families unknowingly reduce the
this allowance may be tapered or lost entirely.
wealth passed on to loved ones by overlooking
Without careful planning, families may miss out on
key exemptions, misunderstanding gifting rules or
significant tax relief that could otherwise reduce
failing to plan early enough.
their overall liability.
Ignoring the nil-rate band allowance
Poorly planned lifetime gifting
One of the most common mistakes is failing to
Gifting assets during your lifetime can be an effective
make full use of the current 2026/27 £325,000
way to reduce the size of your estate, but timing and
nil-rate band, which allows an individual to pass on
structure are crucial. Gifts made more than seven
assets free of Inheritance Tax up to that threshold.
years before death are generally exempt from IHT, but
Anything above it may be taxed at 40%.
those made within this period may still be taxed.
Where property is involved, the residence
There is also the annual £3,000 gifting allowance,
nil-rate band can also apply, but only in specific
which many people overlook. Over time, unused
circumstances. Failing to structure your estate
allowances represent a missed opportunity to reduce
correctly can result in unnecessary tax.
future tax bills.
mean that more families are affected each year.
Early planning allows more time to use exemptions,
restructure assets and reduce potential tax exposure
in a controlled and effective manner. t
Taking action
before it’s too late
With Inheritance Tax receipts continuing to rise
and more estates coming within scope each
year, avoiding common planning mistakes has
never been more important. Small adjustments
made today could significantly affect the
wealth passed on to future generations.
If you would like to understand how Inheritance Tax rules may affect your estate or to
explore ways to reduce any potential liability,
please contact us for further information or to
arrange a tailored financial planning review.
This article is for informational purposes only and
does not constitute tax, legal or financial advice. Tax
treatment depends on individual circumstances and
may change in the future. Inheritance tax, estate
planning and trusts are not regulated by the Financial
Conduct Authority.
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