Inheritance tax warning as families told they need to plan ‘now more than ever’

People at table looking at finances

The standard inheritance tax rate is currently 40 per cent and it's applied on the part of the estate above the threshold

Jessica Sheldon

By Jessica Sheldon

Published: 06/09/2023

- 14:12

Updated: 14/11/2023

- 16:14

Inheritance tax was meant to be a tax on the wealthiest, but more and more people are being affected by the tax following decades of inflation

Inheritance tax receipts hit £2.6billion between April and July this year, a rise of £237million or 10 per cent year-on-year.

Amid high levels of inflation and tax allowance freezes, households are being urged to plan now to reduce the risk of leaving loved ones with an unnecessarily high tax bill.

Ben Alcock, chartered financial planner at Continuum, said: “With inheritance tax receipts to HMRC set to reach new levels this financial year, now more than ever families need to be planning for their future accordingly.

“A financial adviser can help you navigate through the ins and outs of inheritance tax planning without the jargon, so you can ensure your loved ones receive more of what you leave behind.”

Couple looking at one another

The first step towards a successful inheritance plan is 'communication', the expert said


The national independent financial advice firm has suggested five “practical” strategies to “make the most of your assets”.

1. Get talking

Mr Alcock said: “The first step towards a successful inheritance plan for all families is communication.”

He suggested people talk to their loved ones, such as their spouse, children and stepchildren, to “understand their concerns, expectations, and spot the potential conflicts”.

The chartered financial planner pointed out items may have emotional as well as purely monetary significance for some family members.

He said: “You need to find out what items are significant to each family member, and you may need to find some compromises. They can’t all have your watch or your diamond ring.

“If you have children who no longer have much contact with you, you may still need to discuss your plans with them, even if it takes a special effort.

“One solution may be to allot each beneficiary the most appropriate sentimental item and divide up wealth equally.”

2. Take stock

After kicking off conversations with loved ones, it’s suggested a person creates an inventory of their financial assets – such as their home and other property as well as investments, savings and other valuable possessions.

Mr Alcock said: “If you have a surviving partner, they might be your first priority, but you need to look at what happens when they are gone.

“Your home may be the biggest challenge. It can be difficult to balance its value against other assets and giving it to one beneficiary may lead to resentment. Stipulating that it should be sold and the proceeds shared is one answer. A shared bequest that allows one beneficiary to buy out the shares of the others is an alternative.”

It’s also important to look at any liabilities or debts that may eat into the estate.

The chartered financial planner said: “Knowing what you have now can be the basis for devising a fair inheritance plan that takes into consideration the needs of everyone who survives you.

“Look at your life insurance as part of this review. It can help ensure equal inheritance for all parties. The payout from a life insurance policy can be divided among the beneficiaries, helping to balance any disparities in the value of your other assets.”

3. Watch out for the taxman

Planning ahead such as through giving gifts many years before death could reduce a potential inheritance tax bill, so it may be worth checking the rules and exemptions.

Mr Alcock said: “Inheritance tax could take a large proportion of your wealth – 40 per cent on everything above £325,000 -and stop your family members enjoying the results of your hard work.

“Avoiding or reducing inheritance tax is possible, if you have expert advice, and plan accordingly.”

4. Write that Will

A Will is “crucial” for all families, Mr Alcock said, warning: “A well-crafted Will is the linchpin of any inheritance plan.

“Work with an experienced solicitor to draft a will that clearly outlines your wishes and specify the exact percentage or value that each heir, whether biological or stepchild, will inherit. This ensures that your intentions are legally binding and minimises potential disputes later on.

“Review and update beneficiary designations on retirement plans, investment accounts, and insurance policies. Beneficiary designations override instructions in your will.

“Failing to update can lead to unintended consequences – money intended to go to a current partner still being earmarked for a previous spouse is not uncommon.”

5. Get professional help

The final stage is to seek the advice of a qualified professional.

Mr Alcock said: Seeking the guidance of a qualified financial adviser is vital for any family.

“A good independent financial adviser can provide tailored advice based on your unique situation and help you make informed decisions that prioritise fairness for all concerned.”

He said a professional can also help people regularly review and update their inheritance plans.

The expert added: “Perhaps most important of all, professionals can help you reduce the impact of inheritance tax – and ensure that all those you leave behind receive all the bequests you want them to have.”

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