It’s a question I keep getting asked by my clients, especially those with larger estates… “ will I pay inheritance tax? ”.

After all, you work hard. You create assets and own your home and have money in savings and investments. You’ve already paid tax on it and to have to pay tax again when you pass away seems very unfair.

But recently, I’m getting even more inquiries than usual – all because of the changes to the budget that happened back in October 2024.

So in terms of inheritance tax, let me tell you a bit about what they’re proposing to change so you know whether this is something that is likely to affect you or not (and how much you need to worry about it!).

Firstly, let’s look at inheritance tax, exactly what it is and who pays it.

Inheritance tax is paid by the estate – the family, if you like – of somebody who’s passed away if their assets (the total value of their stuff) goes over a certain threshold.

Currently, that threshold is set for an individual person at £325,000.

This basically means that you can pass up to £325,000 of your stuff – whether that’s money, items, property or whatever – to any person you choose, and there is no inheritance tax to pay.

Of course, £325,000 is not a small amount of money. But over the last few years, where property prices have gone up and people have become more conscious about saving for the future, it’s likely that your estate may well go over this threshold, especially if you live in London or South East England.

So does this mean you’ll have to pay inheritance tax?

Well, no, not necessarily.

If you’re leaving the property that you live in to your children or grandchildren, you get an additional allowance of £175,000. So this now means, as a single person with children, you can leave up to £500,000 to your kids with no inheritance tax due, which covers a lot of people in the UK.

In some ways it gets better than that, because if you leave all your assets to your spouse (whether you’re married or in a civil partnership), they are able to also inherit your nil rate bands.

This means that if your total household estate for a married couple with children is under £1,000,000, there is no inheritance tax to pay. BUT before you get too excited, this is where the budget changes come in!  

(Small side point here – there are budget changes to the way that you inherit farms and agricultural land and property, but I’m not going to cover those in this blog. If this affects you, make sure you check with your tax advisor what the implications of these changes will mean for you).

As we sit here today, in 2025, the value of any money in your pension does not count towards this total allowance for inheritance tax. But with the proposed changes that are coming in, money in your pension WILL be counted towards the threshold.

Obviously nothing is certain until it’s certain – but if you have a sizeable pension pot that you’ve worked hard to stash away, you might now find that chunk of your estate is liable to inheritance tax at 40%. Not good.

So what can you do?

There are three options when it comes to dealing with inheritance tax:

#1. Spend your money before you pass away…

…or at least bring it down to under the value of the threshold.

This might feel a bit weird to some people but ultimately, the reason you’ve got this pot of money is because you’ve been saving for a rainy day. You can’t accumulate assets forever.

You know what they say… shrouds don’t have pockets.

I’m not saying that you can’t or shouldn’t have money set aside for the future, but do you have more put away than you actually need?

Maybe that rainy day has come! How about you use some of this money to take that incredible holiday you dream of? To campervan around New Zealand, jet off to the Maldives or take the whole family on an extended trip to Disney? Or maybe buy that new car? Or just do MORE of the things that will make your life feel amazing?

#2. Gift your assets NOW to reduce your estate

The second option is to start reducing the overall size of your estate now. By giving the money away rather than spending it, you can reduce the inheritance tax bill, providing you live for at least another seven years.

Of course, once you give property or money or investments or anything else away, they no longer belong to you. I know that’s stating the obvious but it’s worth making the point!

Although your kids might say now that they’ll look after you in your old age, if you have a falling out, they might not. And because the assets you give them now then make up part of their estate further down the line, if they become bankrupt or go through a divorce, the money could all disappear.

All that said, it’s still a popular option for many families.

#3. Just accept the tax!

After all, £1,000,000 without tax is still £1,000,000.

Anything over that… well hey, 60% of something is better than 100% of nothing.

You might just need to make sure that some of your assets are available in cash for your beneficiaries to be able to pay the inheritance tax. It’s awkward because inheritance tax has to be paid BEFORE they get a grant of probate, which will then enable them to sell any property.

If it’s going to be a sizable bill, how are you going to come up with the money? Or how are they going to come up with the money?

Well, there is one other option, which is something I’ve explored for quite a few clients now. It’s a way of making sure that your beneficiaries end up with more money – but it is something that is going to cost you money now.

You can set up an insurance policy in trust, that pays out to the trust when you pass away. The trust can then use that money to pay the inheritance tax bill.

It’s not something that’s too commonly done because this type of insurance is a whole of life insurance, rather than a fixed term plan like you’d get for a mortgage. This means the plan doesn’t run for 10 years or 25 years, or until retirement. It runs until you pass away, at which point it pays out.

It will pay out a guaranteed payout – but because of that, it makes it much more expensive than a plan that runs for a fixed term (with a fixed term plan of say 25 years, you won’t be paid any money if you claim after the term has run out. The insurer is betting on the fact that you will live longer than the 25 years of the plan that you have bought, hence whole of life cover being more expensive!). 

Inheritance tax planning is something that I do with lots of my clients. As an award-winning UK registered Financial Adviser, I’ve been helping my clients reduce or eliminate their inheritance tax bills for more than 15 years. It’s remarkably satisfying!

The truth is the solution that’s right for you will be different to the solution that’s right for anybody else and for that reason, it’s crucial to make sure you get the right advice and support.

If you want to know more about inheritance tax and the options that you have, you can grab my 2025 Guide To Inheritance Tax here by clicking this link.

Or if you’d like to find out more about all the ways I can help, just click here to send me a quick message and we can chat it all through!

Until next time,

Claire