Inheritance Tax Planning
At This is Money we know that Inheritance Tax (IHT) is a concern for many of our readers. So we've partnered with expert financial planners, Flying Colours to help you understand how you can reduce your chance of being caught in its net.
The Autumn Budget of 2025 (30 October) introduced new IHT rules around pensions which could affect you.
From 6 April 2027, unused pension funds and death benefits payable from pensions will be included in a person’s estate for IHT purposes.
The government estimates this measure will affect around 8% of estates each year.
The reality is that Inheritance Tax (IHT) doesn’t just affect the very wealthy. We’re living and working for longer, which means we’re accumulating more assets. Homes have gone up in value, which could push your estate (the money and other assets you leave behind) into IHT territory. And now that pensions will form part of your estate, the risk of being pulled into the IHT net is even higher.
There are several ways to reduce, or even eliminate, the amount of Inheritance Tax that must be paid when you die. However, few are completely straightforward, and usually, a combination of various tools is more beneficial than any single solution. This is called estate planning.
When does IHT apply?
When you pass away, your family could pay 40% IHT on the portion of your estate that exceeds a threshold known as the “nil-rate band”. In the 2024/25 financial year, the nil-rate band is £325,000. You may also benefit from an additional “residence nil-rate band” of £175,000 when passing your main home to a direct descendant such as a child or grandchild. So, if your estate exceeds £500,000, your loved ones may have to pay IHT.
However, you can pass your entire estate to your spouse or civil partner without IHT, and they inherit your unused nil-rate bands. This means that you can pass on as much as £1 million between you and your spouse, without incurring an IHT bill.
Be aware: If your estate is worth over £2 million, the residence nil-rate band will be tapered. For every £2 your estate is over £2 million (after deducting liabilities but before reliefs and exemptions), the residence nil-rate band will decrease by £1. That means that at £2,350,000 your residence nil-rate band will be zero.
Find out if your loved ones will have to pay IHT
Our easy-to-use calculator can help you work out if IHT will be payable and how much.
Don’t let your loved ones get caught in the IHT net!
According to data from HMRC, published in July 2024:
4.39%
of deaths in 2021-22 resulted in an IHT charge
27,800
of estates paid IHT in 2021-22
IHT receipts were
£5.99b
in 2021-22 compared to
£5.76b
in 2020-21
How can you avoid an IHT bill?
If you think your joint estate will exceed £1million, there are various ways to reduce the risk of your loved ones being landed with an IHT bill, which could include:
- Giving it away – there are various rules around the amounts of money you can give to your family during your lifetime.
- Setting up trusts – there are many different types of trust which may be used for IHT planning, but they can be very complex and require careful planning.
- Insurance – the idea is that the insurance pay-out covers the potential IHT bill. In essence, IHT is still payable, but can be met without having to worry about selling property or waiting for probate to be completed.
- Business Property Relief – certain investments, held for over two years, qualify for IHT relief, but they are classed as ‘high risk’ products by the Financial Conduct Authority (FCA). Therefore, you should take professional advice on this form of investing.
Please note, from 6 April 2027, pensions will no longer fall outside of your estate for IHT purposes.
How much does estate planning cost?
Like most financial advisers, our advice fees are based on a percentage of the assets that we advise you on. This is broken down into an initial fee and then, for most clients, an ongoing annual fee.
We can’t provide a price list, because everyone’s finances are different – the cost depends on how complicated your requirements are, and the work involved in helping you.
What Flying Colours can promise is that the initial fee is agreed with you from the outset – and we won’t charge you anything until you’ve agreed on the work you’d like us to do.
Find out how you could benefit from estate planning
To book a free, no-obligation consultation with an independent financial adviser, book a call with our Client Relationship team.
Chris has provided peace of mind enabling us to now retire early. He has taken the time to get to know and understand us, helping us to develop and adapt our strategy. We have an open and transparent relationship with him which builds trust. He is personable and tailors solutions to our needs.
I’ve been absolutely delighted with the advice and support I’ve received from Maxine Clarke. She took the time to understand my goals, explained my options clearly, and helped structure my retirement plans. I now feel fully informed, supported, and confident about my financial future.
Luca encouraged me to take a step back and look at the bigger picture – how much risk am I prepared to take, how much income do I really need for my day‑to‑day expenditures, what are my plans for retirement. Luca worked through all the steps of the process at my pace, patiently explaining all the jargon as we progressed.
Chris took the time to understand our goals, provided clear explanations of approaches and a thoughtful, well-structured follow up note. Chris' approachable nature and attention to detail was first class. Following our interactions we now have a much clearer understanding of the relevant aspects to our estate planning.
Liv patiently understood our circumstances and conducted the due diligence required to provide very transparent and exceptionally professional advice. He struck a great balance on long‑term investments, pensions, insurance and retirement. I found Liv very knowledgeable, confident, and personable.
Tom expertly guided me through the complex and time-consuming process associated with consolidating several company pensions. Tom has also provided advice on a number of other financial benefits I was previously unaware of.
Ross gave me a lot of very useful information. He explains everything in a clear and concise way and doesn’t fill your head with jargon you may not understand. He keeps it plain and simple. Ross helped me understand how I could claim back overpaid tax and money I had been paying for a service with a previous pension adviser that shouldn’t have been charged.
From the initial meeting, George was able to understand my concerns and present options for how I could move forward. At no point did I feel any pressure, and I felt from the outset that I wanted to establish a long‑term relationship with George.
Russ guided me through the process of assessing current and future demands on my finances and the selection of appropriate pension investments. Throughout the process Russ has been very patient and explained clearly different options with their risk/benefit profiles. I have found his manner very supportive.
I had several meetings with Freddie to discuss my medium‑ to long‑term goals, my appetite for risk, the kind of retirement I would like and at what age. We then walked through my current finances in detail, and Freddie presented the gap between where I am now and where I would like to be, and proposed some changes that could help me achieve my goals in future.
Liviu has provided us with invaluable help regarding our pensions and how to best plan for our retirement. He has always made time to explain our options and fully answer any concerns we had. He has always gone the extra mile to ensure we were comfortable with the decisions we made and was endlessly patient.
I cannot tell you how much it has meant to have Russell Bruce’s advice. I no longer worry that I’m not doing enough to feel financially secure and confident about the future, and that has made a huge difference for me. I find him very easy to talk to; he has a lovely professional, friendly manner. I’ve already recommended him to a family member.
I’ve been a client of FC for almost 10 years and it’s proved to be one of the best financial decisions I’ve made. The advice, care and detail given to me has always been fantastic both from my advisor Billy and the whole FC team. I have recommended their services multiple times before and wouldn’t hesitate again! A brilliant company!
I asked Billy outright, if Flying Colours would make us that fee back in the first 12 months of managing our pensions. He told me it would and I’m happy to say he was right. We’ve got to know him really well and we completely trust the advice he gives us; advice which, over the years, has covered way more than just our pension.
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This information page is operated by Flying Colours, which is a trading style of Flying Colours Advice Limited who are authorised and regulated by the Financial Conduct Authority (FCA). Our FCA firm registration number is 672022. You can read more on the financial services register at https://register.fca.org.uk
Flying Colours Advice Limited is registered in England & Wales no. 09075635. Registered Office Address: 2nd Floor, Greenwood House, London Road, Bracknell, Berkshire, RG12 1AX.