The inheritance tax threshold is currently £325,000 and allowances and the ability to increase the standard threshold mean many may not end up being affected by the levy.
However, there are mistakes which people could easily make, and it could lead to a significant inheritance tax bill.
Hugh Johnson, financial planner at Old Mill, told GB News that “one of the most common mistakes people make” when it comes to inheritance tax is “simply not talking about it”.
He said: “Managing IHT usually involves a long-term strategy with planning deployed over a number of years.
Inheritance tax mistakes could potentially lead to a big bill
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“Many families avoid uncomfortable conversations until they are triggered by illness, death and other life events, by which time it is usually too late.”
Inheritance tax planning without help from qualified professionals can also be a way in which mistakes are made.
Mr Johnson said: “Inheritance rules can be complex, with many legal and legislative trip wires to navigate.
“I have seen examples of families trying to save on professional fees by making their own arrangements, only to end up worsening the situation.
“One such example is parents signing the family home over to their children while they are living in it. They get caught by the rules of beneficial interest and end up paying the tax with unnecessary legal fees on top!”
Failing to get the Will right could also be a “really costly” error in terms of inheritance tax.
Mr Johnson said: “A carefully constructed Will should act as the cornerstone to good estate planning; not investing in a good one could mean betting the house (literally).
“One example of this is a single mother who wanted to help her son get on the property ladder.
“They always wanted to keep the family home, so she loaned him the money and wrote a Will dividing her estate between her son and a charity with the intention that on her death the loan would be paid/written off, he would inherit the family home and her savings would go to the charity.
“However, when she died prematurely, the charity inherited the loan plus an entitlement to interest, which they promptly called in. The son did not have the funds to cover it, so had to sell the home, repay the loan and pay a hefty IHT bill to boot.”
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Giving gifts could reduce inheritance tax liabilities
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Inheritance tax and gifts
There are various ways people can reduce inheritance tax liabilities, such as making us of allowances or giving gifts – such as out of regular income.
Mr Johnson said: “Gifting is a great way to mitigate IHT on the estate, and while you do not need to register gifts out of regular income as they are made, it is wise to keep clear records as part of a financial plan so that everything is easy to manage when the time comes.
“One tip is to use HMRC's Inheritance Tax Account form (IHT400), which includes a gift section that can be used to make annual records.
“This means the detail will be available in a format that is easy for the executors to process.
“Having a comprehensive, professionally constructed financial plan will also back this up.”