There’s a silent threat creeping into the estates of more UK families than ever before – the looming 40% Inheritance Tax (IHT). It’s not an immediate pressure, which is why it’s often overlooked by many people who don’t prioritize planning ahead.
The reality is that 40% is nearly half of your net estate after deducting your allowances. You’ve worked hard to build up your wealth, your assets and your income, only to see it land in the hands of HMRC rather than your loved ones. And whilst Inheritance Tax (IHT) is often described as a “wealth tax”, the truth of the matter is that it’s a time tax. The longer you delay planning, the harder it hits. In fact, doing nothing until later in life could cost your beneficiaries hundreds of thousands of pounds.
The Inheritance Tax (IHT) net is expanding
In the 2024–25 tax year, HMRC collected over £8 billion in IHT, which marked a record high. And with IHT nets only expanding, this number will by extension, increase. That’s because UK Inheritance Tax is currently charged at 40% on the value of an estate above the £325,000 nil-rate band (the portion of an estate that is tax-free before IHT applies). While married couples can combine allowances and potentially claim a residence nil-rate band for passing on the family home, many estates still face a significant liability.
And here’s the issue: tax thresholds are frozen until at least 2028, while asset values – especially property – continue to climb. That means more families are drifting into the IHT net without even realising it.
Why Inheritance Tax (IHT) is a timing issue
Understandably, many people don’t want to face the reality of eventually leaving loved ones behind. That’s why “I’ll deal with it later” is a common financial planning mistake many people make. However, procrastinating until retirement, or worse, on your deathbed, could cost your family a lot of money. Unlike Income Tax or Capital Gains Tax, IHT penalises the unprepared.
Here’s why timing matters:
- Gifting takes time: Most gifts take seven years to fall outside your estate for IHT purposes.
- Trust planning works better earlier: Younger, healthier individuals can make more effective use of trusts and other structures.
- Life insurance gets more expensive with age – and harder to secure.
- Relief eligibility can change: Holding assets that currently qualify for relief (like shares in a business) may not help if you sell them too close to death.
Case study: Two families, two outcomes
Let’s imagine two similar clients:
- Sarah, 58, owns a London property worth £2.1m and a share portfolio of £750k. She starts IHT planning now.
- Mark, 65, has the same assets, but delays planning until he’s 75.
Sarah’s outcome:
She gifts £650k to her children using a combination of allowances and a structured trust. Seven years later, the gift is completely outside her estate. She takes out a life policy in trust to cover expected IHT on the remaining estate. Result? A small amount or no Inheritance Tax payable.
Mark’s outcome:
He waits. By the time he acts, property and share values have risen, and gifting would now trigger Capital Gains Tax. He dies four years later. His children inherit the money but face a hefty tax bill of £680,000.
Delaying planning comes with a cost
Let’s put this into perspective for a £2,850,000 estate and a 5% growth rate.
What this example shows as that even modest delays can drastically increase tax exposure.
Act now with smart moves
Proactive planning doesn’t mean giving everything away today. It means shaping your estate now while you have full control and access to more tools. Here are some effective strategies to consider early:
1. Use your annual exemptions
- Gift £3,000 per year without triggering IHT.
- Make regular gifts out of surplus income – these can be exempt if they are proven to come out of surplus income without affecting your standard of living.
2. Make use of the 7-year rule
- Larger gifts fall outside your estate if you survive seven years.
- This clock won’t start ticking unless you act.
- They may qualify for taper relief on gifts that exceed your nil rate bands. You will start to get some relief from IHT between three to seven years after making the gift.
3. Set up trusts for the next generation
- Certain trusts (like discretionary or discounted gift trusts) can help pass down wealth while retaining control.
- Some trusts can be most effective when established before retirement and as part of a retirement plan.
4. Use life insurance in trust
- A whole-of-life policy can cover the expected IHT bill – especially useful for assets you can’t easily gift, like property.
- Premiums are cheaper and easier to arrange at a younger age.
- Insurance policies can be used to cover a specific term such as ten years. This can be useful to buy some time before making larger gifts.
5. Consider a Family Investment Company (FIC)
- FICs allow you to gift future growth while retaining control of investment income and capital.
- Popular among business owners and high-net-worth families with investment portfolios.
Common “reasons” for waiting
“I don’t know what I’ll need.”
Planning doesn’t mean giving up access. Structures like trusts can offer flexibility and control.
“It’s too early to think about it.”
Every year you wait reduces your options. Starting at 55 is much more powerful than starting at 75.
“It’s too complicated.”
That’s exactly why advice exists. The right adviser will simplify the process, not complicate it.
Remember: time is your most valuable planning asset
If you want to protect your legacy, Inheritance Tax (IHT) isn’t just about how much you leave, it’s about leaving enough money to plan. Every year you delay reduces your options, tightens the window, and potentially hands HMRC a bigger slice of your estate. The earlier you act, the more control you have – and the less tax your family will pay.
At Lumin, we help clients protect their legacy and design IHT plans that match their lifestyle, values, and family goals. If you’re thinking, “I’ll deal with this later”, now is exactly the right time to get in touch. To learn more call 03300 564 446, or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
