Introduction

Proactive estate planning and strategic mitigation of inheritance tax (IHT) are fundamental to safeguarding and preserving your family’s legacy. Without careful planning, a significant portion of your wealth—including property, investments, and treasured family heirlooms—may be subject to inheritance tax at rates as high as 40% upon your passing.

Moreover, from April 2027, unspent pension funds will also be included within your estate for IHT purposes, necessitating a reconsideration of conventional estate planning methods.

Thoughtful IHT planning ensures your wealth is distributed in accordance with your wishes, allowing your loved ones to benefit as fully as possible while minimising the tax burden. It is equally essential to maintain flexibility and retain control over the arrangements established, ensuring your estate continues to reflect your intentions for generations to come.

Tax rules, available reliefs, and the bases of taxation are subject to change at any time, and the benefit derived from any tax relief will depend upon your individual circumstances.

Will writing is arranged via a referral to a specialist service that is separate and distinct from those provided by our family office. Please note that wills, together with trusts, are not regulated by the Financial Conduct Authority.

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Key tax-efficient solutions

Trusts

A Trust serves as a sophisticated vehicle to ensure that your assets are transferred precisely to the intended beneficiaries at the most appropriate time, providing a level of flexibility, innovation, and control that often surpasses what a Will alone can offer.

While estate planning is often perceived as a posthumous exercise focused solely on asset distribution, its true breadth extends to the proactive management and organisation of your wealth during your lifetime. This approach not only safeguards your family’s future but also optimises tax efficiency and enhances the overall effectiveness of your financial strategy.

Please note that Trusts fall outside the regulatory scope of the Financial Conduct Authority.

Gifting Assets

If you have concerns about the potential impact of Inheritance Tax (IHT) on your estate and the wealth you wish to pass on, integrating a Gift Plan into your wealth management strategy may offer an effective solution. Our Gift Plan seamlessly combines an investment bond—available either onshore or offshore—with a trust structure, whether absolute or discretionary, that remains under your control and is designed to benefit the individuals you designate.

Assets held within a discretionary trust are generally excluded from the beneficiary’s estate for IHT purposes, provided they remain within the trust & meet trust vesting requirements. This versatile plan caters to a range of objectives, from optimising IHT exemptions to funding educational costs, offering tailored solutions aligned with your family's needs.

Please note that the value of any investment connected to our family office will fluctuate in line with the performance of the chosen funds, meaning the value can rise or fall, and you may receive back less than your original investment.

Tax legislation, including thresholds and reliefs, can evolve at any time, and the benefit of any tax relief depends on your individual circumstances.

Additionally, trusts fall outside the regulatory remit of the Financial Conduct Authority.

Life Cover/B2B Plan written into Trust

In addition to gifting sufficient assets to reduce your gross estate below the £2 million threshold, if you have surplus income during retirement, it may be prudent to consider establishing a life insurance policy written into trust as a means to address the potential Inheritance Tax (IHT) liability, which could reach up to £400,000 on an estate of this size.

It is essential that the life cover is held within a trust, and that the premiums are paid from excess income rather than from capital assets—otherwise, the premiums might be classified as a chargeable lifetime transfer (CLT), potentially impacting your estate planning objectives.

Please bear in mind that probate is required to release estate assets, and IHT must be settled before probate can be granted. By placing the life policy in trust, the sum assured is paid directly into the trust, thereby providing immediate liquidity to cover some or all of the IHT liability. This arrangement alleviates the need for executors to liquidate other estate assets, such as property or investments, to meet tax obligations—an approach particularly advantageous during periods of market volatility or downturns.

Tax rates, reliefs, and regulations can evolve over time, and the benefit of any tax relief depends on your specific circumstances.

Furthermore, trusts are not regulated by the Financial Conduct Authority.

Business Relief (BPR)

Within the bespoke wealth preservation strategies curated by our family office, it is paramount to understand the significant benefits and evolving nuances of Business Relief (BR) in the context of Inheritance Tax (IHT). Traditionally, trading businesses have enjoyed 100% Business Relief, enabling these vital enterprises to pass seamlessly to heirs free from IHT upon the proprietor’s passing—a powerful vehicle for sustaining family legacies and entrepreneurial heritage.

However, from 6 April 2026, this relief undergoes a strategic refinement: full 100% BR will apply solely to the first £1 million of combined qualifying business and agricultural assets. Any amount exceeding this threshold will attract a reduced relief rate of 50%, thereby introducing a considered balancing act within estate planning for substantial business owners.

Furthermore, shares quoted on the Alternative Investment Market (AIM), which previously benefited from the full Business Relief, will be reclassified to qualify for only 50% relief under the new rules. This adjustment necessitates a thoughtful review of AIM investments within your estate to optimise tax efficiency and ensure alignment with your overarching legacy ambitions.

As ever, tax legislation and reliefs remain subject to change, and the value of any relief depends on your individual circumstances. Our family office remains dedicated to navigating these complexities with you, blending strategic foresight and personalized stewardship to preserve and enhance your family’s wealth across generations.

Overview Of Inheritance Tax (IHT)

Within the bespoke services provided by our family office, meticulous planning around inheritance tax (IHT) is integral to preserving your family’s wealth for future generations. A significant portion of your estate may be subject to IHT if its value surpasses the prevailing standard nil-rate band, currently set at £325,000. Should your spouse predecease you without utilising their full nil-rate band, our family office will ensure that any unused allowance is claimed within the required two-year timeframe, thereby optimising your estate’s tax efficiency.

Recognising that the family home often represents a cornerstone of your legacy, the government has introduced an additional ‘residence nil-rate band’, presently offering up to £175,000 of further relief. This means that when your primary residence is passed to direct descendants—including children, whether adopted, fostered, or stepchildren—or grandchildren, up to £500,000 of your estate (£325,000 nil-rate band plus £175,000 residence nil-rate band) can be shielded from IHT.

For couples in matrimony or civil partnership, our family office helps to consolidate both nil-rate bands, enabling up to £1 million of combined assets, including your principal residence, to be transferred free of inheritance tax.

Assets exceeding these nil-rate thresholds may attract IHT at rates of up to 40%, payable by the estate. It is also critical to note that where an estate surpasses £2 million in value, the residence nil-rate band reduces progressively by £1 for every £2 above this limit, necessitating nuanced valuation strategies at each life event.

Through the expertise and tailored stewardship provided by our family office, we aim to navigate the complexities of inheritance tax laws, keeping in mind that tax rates, reliefs, and regulatory frameworks may evolve. Our approach is always customised to your unique circumstances, ensuring that your wealth is preserved and passed on according to your precise wishes.

KIRKBRIDE PRIVATE WEALTH - FAMILY ESTATE MANAGEMENT

An example Inheritance Tax Calculation

Example IHT Calculation

A wife passes away in 2025. Her estate includes a property valued at £1.5 million and other assets such as savings and investments worth £1 million, giving a gross estate value of £2.5 million. The husband passed away five years earlier, leaving all assets to his wife, and no lifetime gifts were made by either spouse.

Step 1: Gross Estate Value

Total assets: £1,500,000 (property) + £1,000,000 (other assets) = £2,500,000

Step 2: Nil-Rate Band (NRB)

Current standard NRB: £325,000
Transferable NRB from deceased husband: £325,000
Total NRB available: £650,000

Step 3: Residence Nil-Rate Band (RNRB)

Current maximum RNRB: £175,000 per person
Transferable RNRB from husband: £175,000
Total maximum RNRB: £350,000

However, because the estate is valued above £2 million, the RNRB tapers down by £1 for every £2 over this limit.

Excess over £2,000,000 = £2,500,000 - £2,000,000 = £500,000
RNRB reduction = £500,000 / 2 = £250,000
Adjusted combined RNRB = £350,000 - £250,000 = £100,000

Step 4: Total Tax-Free Allowance

Combined NRB: £650,000
Adjusted combined RNRB: £100,000
Total allowance: £750,000

Step 5: Calculate Taxable Estate

Gross estate: £2,500,000
Less total allowance: -£750,000
Taxable estate: £1,750,000

Step 6: Calculate IHT Due

IHT rate: 40%
40% of £1,750,000 = £700,000

Impact of Gift Planning

If the couple had reduced their gross estate by gifting sufficient assets more than seven years before the wife's death, lowering the estate value to £2 million or below, the full RNRB would be restored:

Gross estate: £2,000,000
Less combined NRB: £650,000
Less full combined RNRB: £350,000
Taxable estate: £1,000,000
IHT at 40%: £400,000

Additional Notes:

Gifts made within seven years that exceed exemptions could be subject to IHT if death occurs within the period, with taper relief reducing the tax payable after three years (20% reduction per full year).
The levels, bases, and available reliefs in taxation may change.
The value of any tax relief depends on individual circumstances.