You’ve written your Will, an important step that provides clarity and peace of mind. But when it comes to ensuring your loved ones receive as much of your wealth as possible, a Will is just one part of the picture. Many people assume everything is fully in order once they’ve made a Will, but without a dedicated inheritance tax strategy, your family could end up with less than you intended. And, while a Will ensures your wishes are followed, it doesn’t control how much actually gets passed on.
A quick summary
- A Will is essential but doesn’t reduce your Inheritance Tax bill.
- Estates that are worth more than the nil-rate band of £325,000 (£500,000 if leaving property to children/grandchildren) may face a 40% tax on the excess.
- Common blind spots include rising property values, pensions, and overseas assets.
- Without IHT planning, your loved ones could lose more than necessary to tax.
- Seeking financial advice can help protect more of your wealth and avoid future complications.
A Will is essential, but it doesn’t minimise tax
Many people are unaware that Inheritance Tax (IHT) applies separately to the instructions in your Will. Right now, estates valued above £325,000 face a 40% tax on everything above that threshold. If you’re leaving your home to direct descendants, the threshold can rise to £500,000 in line with official HMRC guidance.
However, this threshold has been frozen since 2009. In that time, house prices have risen substantially. Added to this, pensions are set to be added to an estate’s value from April 2027. This means more estates are becoming liable for IHT, even where the overall wealth appears modest on the surface.
According to the Office for Budget Responsibility, Inheritance Tax receipts are forecast to reach £8.4 billion in 2024–25, an 11.6% increase on the previous year By 2029–30, receipts are expected to hit £14.3 billion as even more estates fall within the scope of IHT.
Having a Will doesn’t reduce this tax. It doesn’t use your allowances effectively or make use of strategies that could preserve more of your wealth for your beneficiaries. That’s where IHT advice comes in.
Why Inheritance Tax planning is a separate strategy
IHT planning isn’t about changing your Will, it’s about structuring your assets to make the most of nil-rate bands, reliefs, and more, to reduce the tax bill your loved ones may face. And it’s just as important than the Will itself. Key assets included in a Will that could affect IHT include:
Property
While the UK average house price is £265,497, many homes – particularly in the South East and London – far exceed the standard £325,000 inheritance tax threshold. If you’re leaving your main residence to children or grandchildren, the threshold can increase to £500,000. But with rising property values it’s still easy for estates to exceed this limit and become liable for Inheritance Tax.
Pensions
From April 2027, unused defined contribution pension funds and death benefits could be included in the value of your estate for IHT purposes, according to the government’s Autumn 2024 consultation.
Overseas assets
From 6th April 2025, long-term UK residents (those living in the UK for at least 10 out of the previous 20 years) will be subject to inheritance tax on worldwide assets, not just UK-held ones.
What your Will cannot do
Even a carefully drafted Will has its limits when it comes to tax efficiency. It cannot:
- Use your tax-free gifting allowances during your lifetime.
- Set up trusts or other structures to remove assets from your estate.
- Optimise the use of your spouse’s or civil partner’s allowances.
- Account for changing tax rules or inflation of asset values.
- Ensure overseas assets are structured tax-efficiently.
Only a comprehensive IHT plan, ideally developed with expert financial advice, can address these limitations and help protect your estate from unnecessary tax.
What can you do now?
If you already have a Will, that’s an excellent first step, but it shouldn’t be the last. To make sure your wealth is passed on efficiently, consider the following:
Review your estate’s value
Don’t forget to include everything: property, savings, pensions, business interests, and overseas holdings.
Check your exposure to IHT
If your estate exceeds any of the nil-rate thresholds, some planning may be essential. An IHT calculator can help you work out what may be payable.
Revisit your Will regularly
It should be updated whenever your financial circumstances or family situation changes.
Use available allowances
Take advantage of annual gift exemptions and charitable donations where appropriate.
Get personalised advice
An Independent Financial Adviser can help you structure your estate for maximum efficiency without relying on outdated assumptions. Even a short conversation could identify opportunities to reduce your future IHT bill.
Speak to a Flying Colours adviser to explore your iInheritance tTax options and ensure your estate plan does exactly what you intended, fully and efficiently.
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or Will writing.