By the time inheritance tax planning becomes a question worth answering, most people have spent thirty or forty years building the wealth that prompts it. We help you approach it as part of a wider plan — not a tax question in isolation, but one piece of how an estate is built, drawn on, and passed on.
By the time inheritance tax planning becomes a question worth answering, most people have spent thirty or forty years building the wealth that prompts it. We help you approach it as part of a wider plan — not a tax question in isolation, but one piece of how an estate is built, drawn on, and passed on.
Illustration only — figures for the 2026/27 tax year.
At H&D we help people approach inheritance tax planning as part of a wider plan — not a tax question in isolation, but one piece of how an estate is built, drawn on, and passed on. Pensions from a long career, ISAs that have grown into something meaningful, a home that has appreciated more than anyone expected: the estate is real now, and the gap between having it and having a plan for it has started to feel like one that needs closing.
£6.70bn
IHT collected in 2022–23, up 12% on the year
13%
Average effective rate paid — against the 40% headline
£300,000
Average IHT bill for a taxpaying London estate
Source: HMRC, Inheritance Tax liabilities statistics commentary (2022–23 tax year; published 31 July 2025).
What it is
Inheritance tax is a tax on the value of someone’s estate when they die — broadly, the value of everything they owned, minus what they owed. The standard rate is 40%, applied only to the value above the £325,000 nil-rate band for the 2026/27 tax year. The estate pays the tax before beneficiaries inherit.
The estate is not a separate legal entity set up while you are alive; it is the legal term for everything you owned at the moment of death, less your debts. After death, a personal representative manages the estate through probate, settles the inheritance tax, pays other debts, and distributes what is left.
In practice, fewer than 10% of UK estates pay inheritance tax. The families most exposed are typically homeowners across the South East and London commuter belt whose property values have outgrown the threshold long before pensions and savings are added in. Source: gov.uk/inheritance-tax.
What’s in your estate
What’s excluded
Pensions are changing. Pensions sit outside the estate for most people today, but most unused pension funds and death benefits enter scope from 6 April 2027 — covered further down under what’s changing.
The thresholds
The inheritance tax nil-rate band (NRB) for 2026/27 is £325,000 — the slice of any estate that passes free of inheritance tax. A separate residence nil-rate band (RNRB) of up to £175,000 applies where a home is left to direct descendants.
Together they lift a single person’s combined threshold to £500,000, and a couple’s combined ceiling to £1 million. Both figures are per person, so most couples plan around the combined ceiling. Because the thresholds do not rise with inflation or property values, the freeze to 2031 means more estates fall into scope each year — fiscal drag, in HM Treasury’s preferred terminology.
Thresholds for 2026/27 — frozen until 5 April 2031
| Single person | Married / civil partners | |
|---|---|---|
| Nil-rate band | £325,000 | £650,000 |
| Residence nil-rate band (home left to direct descendants) | £175,000 | £350,000 |
| Combined ceiling | £500,000 | £1,000,000 |
Source: gov.uk — Inheritance Tax nil-rate band and residence nil-rate band thresholds from 6 April 2026.
Passing on a home
The residence nil-rate band only applies where the home is left to a direct descendant — a child (including step-, adopted, or fostered), grandchild, or great-grandchild. Where the home goes to anyone else, the £175,000 allowance is unavailable.
The RNRB also tapers above £2 million. For every £2 the estate is over £2m, the residence allowance reduces by £1 — meaning estates above £2.35m receive no residence allowance at all. This is the most common reason a wealthier estate ends up with thinner thresholds than the family expects.
Transfers between UK-domiciled spouses and civil partners are 100% exempt — no cap, no qualifying period, both in lifetime and on death. When the first spouse dies and leaves everything to the second, no IHT is payable, and the unused nil-rate band and residence nil-rate band transfer to the survivor. On the second death, the estate is assessed against both sets of allowances together.
A simple example — illustration only
A married couple have a home worth £700,000, pensions and investments together worth £600,000, and savings of £100,000 — a combined estate of £1.4 million, with the home destined for two adult children. The first spouse dies leaving everything to the second, with no IHT payable. When the surviving spouse later dies, the estate is assessed against the combined £1 million ceiling.
The £400,000 above the ceiling is taxed at 40%, generating a £160,000 IHT bill.
The rules for unmarried partners and cohabitees are different — there is no spousal exemption between them, and unused allowances do not transfer. The FAQ below covers the planning implications.
Rules on giving gifts
Lifetime gifts generally pass free of inheritance tax once the giver has lived seven years after making them — these are potentially exempt transfers (PETs). If the giver dies within seven years, the gift counts back into the estate and may be subject to IHT, with taper relief available on gifts made between three and seven years before death. Taper reduces the tax payable on a failed PET, not the value of the gift itself, and only matters where cumulative gifts in the seven years before death exceed the nil-rate band. For many estates, taper makes no difference.
These exempt gifts are an underused part of most estate plans. Used consistently over a number of years, the annual £3,000 and the normal expenditure exemption can move meaningful sums out of the estate without engaging the seven-year clock at all. Source: gov.uk — How Inheritance Tax works: rules on giving gifts.
Strategies and reliefs
The options people commonly consider fall into a small number of categories. None is universally the right answer; the right combination depends on the wider plan, the family, and the rest of the financial picture.
Gifts made today reduce the estate — but giving away assets you later need for retirement or care is one of the costlier mistakes in IHT planning.
Trusts hold assets outside the immediate estate and shape how wealth reaches beneficiaries. The IHT treatment is more involved than an outright gift — detail on the trusts page.
Reduce IHT on qualifying business and agricultural property. The rules changed on 6 April 2026 — see below.
Often overlooked. A whole-of-life policy written in trust pays out outside the estate, giving the family cash to settle the bill without selling property. Our protection planning service covers the detail.
From 6 April 2027, most unused pension funds and death benefits enter the estate. See our retirement and pensions planning page for the mechanics.
Living abroad or holding assets overseas
UK-domiciled and long-term-resident individuals are taxed on their worldwide assets, including overseas property and investments. Those outside the long-term-residence test are typically taxed on UK assets only.
The rules changed on 6 April 2025. The older domicile-based regime was replaced by a long-term-residence test — anyone who has been UK-resident for 10 of the previous 20 tax years is generally treated as long-term resident for inheritance tax. The change matters most for those with significant overseas assets, those returning to the UK after time abroad, and those planning to leave the UK in retirement.
For most clients across the South East, the practical question is simpler: does the estate include a holiday home in France, an investment property in Spain, an inherited account in another jurisdiction, or pension rights from years working overseas? Each carries its own treatment under UK rules and, in some cases, under the rules of the country where the asset sits. Double-tax treaties may relieve some duplication, but not all of it.
Source: gov.uk — Inheritance Tax: when someone living outside the UK dies.
What’s changing — a brief currency note
Inheritance tax rules are being reformed. Three changes matter for anyone working through their plan now.
Frozen until 5 April 2031
The nil-rate band and residence nil-rate band will not rise with inflation or property values, so more estates fall into scope each year.
From 6 April 2026
There is now a combined £2.5 million allowance for 100% relief, with 50% relief on qualifying assets above it — an effective IHT rate of 20% on the excess. Detail in our forthcoming post on the £2.5m cap.
From 6 April 2027
Most unused pension funds and death benefits enter the inheritance tax estate — a structural change covered in the changes coming for pensions and IHT in April 2027.
Figures correct as at 7 May 2026. Sources: gov.uk.
Because the estate is one part of a wider financial picture, our IHT work joins up with the planning around it.
The wider plan the estate sits inside — pensions, investments and income, joined up.
From April 2027 most unused pensions enter the estate; the mechanics live here.
Whole-of-life cover written in trust can give the family cash to settle an IHT bill.
How investments are selected and overseen within the wider whole-picture plan.
Inheritance tax planning at H&D sits inside a wider plan. The estate is one part of a financial picture that includes pensions, investments, retirement income, and protection. The most expensive mistakes come from optimising one piece in isolation — gifting away assets later needed for care, holding a life policy that is never written in trust, or ignoring how pensions interact with the estate from 2027 onwards.
Understand the full estate and the wider plan.
The estate today — the property, pensions, investments, savings, business interests, gifts already made, the spouse’s position, the likelihood of care costs, and the wider plan. Nothing is recommended until the picture is clear.
Put the integrated recommendations into action.
Integrated recommendations across pensions, investments, exempt gifts and PETs, trusts, and life insurance written in trust where the estate sits above the threshold. Wills and the legal side sit alongside the financial advice; H&D does not give legal advice, but we work with the family’s solicitor or recommend one.
Keep the plan on track as rules and circumstances change.
Sitting down formally, typically once a year, to walk through the plan as rules change, gifts pass the seven-year mark, property values move, and family circumstances shift.
Behind that process sits a firm with unusual continuity. The H&D name traces back to Harris & Dixon, a City of London house whose roots reach toward 1797 — a name that has moved through different trades and several centuries. What endured was never the ledger but the instinct behind it: knowing your client, holding their interests above the transaction. The advice business that carries the name today has looked after individuals and families since 1987. Read more about our heritage, or meet the team behind H&D.
H&D Financial Planning is independent. We are not tied or restricted to any product provider, and our recommendations are based on a comprehensive and fair review of the market, made in your best interests. To implement investment advice we use a carefully selected range of investment managers and platforms, kept under regular review. You can check the firm’s status on the Financial Services Register.
We take pride in the honesty and transparency of our offering. Our fees are agreed with you in writing before any work begins — nothing is charged that you have not seen first. Cost depends on the complexity of your situation, and we discuss it openly. Our financial planning service and wealth management service describe the wider context this work fits into.
A restricted adviser chooses from a single provider or an agreed panel; we consider every suitable option and recommend what fits you.
Fees are set out and agreed with you up front — nothing is charged that you have not seen and approved first.
We are part of the Loyal North Group; where a group firm is among the options we consider, we say so clearly, and any recommendation is made on its merits.
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My job is to help you make the decisions that still make sense years from now.”
Inheritance tax applies in the same way regardless of marital status, but the spousal exemption that lifts a married couple's combined ceiling to £1 million does not apply to cohabitees, however long the relationship has lasted. Unmarried partners cannot transfer unused nil-rate bands between them. Planning for cohabiting couples typically relies more heavily on trusts, life insurance written in trust, and lifetime gifting.
Generally not — at least, not without leaving it in the inheritance tax estate anyway. HMRC's gift-with-reservation-of-benefit rules treat a home as remaining in the estate where the donor continues to benefit from it. The home is still counted at the date of death, regardless of when title was transferred. Paying full market rent to the children may take it outside the rule, but the arrangement is detailed and rarely the most tax-efficient route.
Yes — under the spousal exemption, the value of an ISA passes to a UK-domiciled spouse or civil partner free of inheritance tax. The ISA wrapper itself does not survive death; the underlying assets transfer outside the wrapper. However, an Additional Permitted Subscription allows the surviving spouse to inherit the deceased's ISA allowance and re-shelter the assets in their own name, preserving the tax-efficient treatment.
Inheritance tax is payable before probate releases the estate's assets, which can create a practical squeeze for families whose wealth is held in property or pensions. HMRC's Direct Payment Scheme allows the tax to be paid directly from a bank account in the estate's name. IHT on property and certain business assets can be paid in interest-free instalments over ten years. Life insurance written in trust can also provide the cash to settle the bill on time.
If you’d like to talk through your estate as a whole picture — pensions, investments, property, gifts, the lot — get in touch. The first conversation is on us, with no obligation to proceed.
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