Inheritance Tax is no longer an issue affecting only the exceptionally wealthy.
Rising property prices, accumulated savings, investments and the value of privately owned businesses mean that many families may now have a potential exposure – sometimes without realising it.
From 6 April 2027, most unused pension funds and pension death benefits will also be brought within an individual’s estate for Inheritance Tax purposes. This makes reviewing your position increasingly important, even if you have previously undertaken estate planning.
How much could be payable?
The standard rate of Inheritance Tax is currently 40% on the taxable part of an estate.
Every individual potentially has a £325,000 nil-rate band. An additional residence nil-rate band may also be available where a qualifying home is left to direct descendants.
In some circumstances, a married couple or civil partners may have combined allowances of up to £1 million. However, this is not automatic.
The allowances available depend on factors including:
- the value and ownership of the estate;
- who inherits the family home;
- whether allowances from a deceased spouse or civil partner are available;
- lifetime gifts;
- trusts and previous estate-planning arrangements; and
- the overall size of the estate.
The residence nil-rate band can also be restricted for larger estates.
Business owners should not assume their company is automatically protected
A privately owned business can form a substantial part of an estate.
Although Business Relief may reduce the value of qualifying business interests for Inheritance Tax purposes, entitlement depends on the nature of the business, its activities, ownership history and the assets it holds.
Businesses undertaking substantial investment activities may not qualify. Surplus cash, investment properties and other assets not required for the trade can also complicate the position.
Changes to Business and Agricultural Property Relief applying from 6 April 2026 mean that business owners should review their position rather than rely on assumptions or advice received several years ago.
A supportable valuation of the business may also be needed before the potential exposure can be properly assessed.
Is making gifts the answer?
Lifetime gifting can form part of an effective estate plan, but the rules are frequently misunderstood.
The often-quoted “seven-year rule” does not mean that every gift automatically becomes exempt. The tax treatment can depend on the type and value of the gift, other gifts made during the relevant period and whether the person making the gift continues to benefit from the asset.
There are also exemptions for certain annual gifts and, potentially, gifts made as normal expenditure out of income. Good contemporaneous records are essential if an exemption may eventually need to be claimed.
Before making a significant gift, it is important to consider affordability, future care needs, control of the asset, Capital Gains Tax and the recipient’s personal circumstances – not only Inheritance Tax.
APH’s IHT Exposure and Planning Report
APH Accountants can prepare a personalised report to help you understand your current position and identify areas requiring attention.
Subject to the agreed scope, our review can include:
- an estimate of the current value of your estate;
- an illustrative calculation of your potential Inheritance Tax exposure;
- consideration of the available nil-rate bands and exemptions;
- a review of lifetime gifts and the records supporting them;
- consideration of business interests and potential Business Relief;
- the potential effect of pensions entering the estate from April 2027;
- practical planning opportunities for consideration;
- a prioritised action plan; and
- identification of matters requiring input from a solicitor, financial adviser, valuer or other specialist.
The report is intended to give you a clear, structured picture of your position. It can also help you have more informed discussions with your family and professional advisers.
When should you review your position?
An IHT review may be particularly valuable if you:
- own a business or investment company;
- have property, savings and investments exceeding the available thresholds;
- expect to have significant unused pension funds;
- have made, or are considering making, substantial gifts;
- have not reviewed your will or estate planning recently;
- have experienced a major change in family or financial circumstances; or
- are unsure whether previous planning remains effective.
Estate planning is generally more effective when considered early. A review does not commit you to making gifts, creating trusts or changing your will. Its purpose is to establish the facts, quantify the potential exposure and identify the options that may merit further consideration.
If you would like an initial, no-obligation discussion about an IHT Exposure and Planning Report, please contact the APH team. We will agree the scope and fee with you before any work begins.
This article provides general information only and does not constitute personalised tax, legal, investment, pension, insurance or financial advice.
Any report prepared by APH will be based on the information and estimated values supplied by the client unless separately agreed otherwise. Asset values, legal ownership and entitlement to reliefs will not be independently verified unless this is expressly included within the engagement.
Calculations are illustrative estimates based on the legislation, HMRC practice and assumptions applying at the date of the report. Tax legislation, personal circumstances and asset values may change. No particular tax treatment, tax saving or acceptance by HMRC can be guaranteed.
Legal documents, wills, trusts, investments, pensions, insurance arrangements and regulated financial products should be considered with appropriately qualified advisers. No action should be taken solely on the basis of this article or an APH report where additional specialist advice is required.
APH reports are prepared solely for the named client and agreed purpose. They may not be disclosed to or relied upon by any other person without APH’s prior written consent.