UK Inheritance Planning Guide (Passing Wealth to Family)

Why Inheritance Planning Matters

Without a will, your estate is distributed according to the intestacy rules, which may not reflect your wishes. Under the intestacy rules in England and Wales (Scotland has different rules): if you are married with children, your spouse receives the first £322,000 of your estate plus all personal belongings and half of the remainder, while your children share the other half. Your spouse may not inherit everything — if your estate exceeds £322,000, your children receive a share, potentially creating financial difficulties for your surviving partner. If you are unmarried (including cohabiting partners), your partner receives nothing under the intestacy rules, regardless of how long you lived together. Unmarried partners have no automatic right to inherit. If you have no surviving spouse or children, the estate goes to parents, siblings, or more distant relatives. If no relatives can be found, the estate passes to the Crown. Tax planning is lost without a will — the intestacy rules may not maximise the use of IHT allowances like the residence nil-rate band. Disputes are common — contested estates are increasingly common in the UK. A clear, professionally drafted will reduces the risk of legal challenges. Control over who gets what — a will allows you to make specific gifts (a specific item of jewellery, a sum of money), name guardians for minor children, appoint executors you trust, and set up trusts for beneficiaries who cannot manage their own finances. Inheritance planning goes beyond a will — it includes lifetime gifting, trusts, pension nominations, and insurance policies written in trust, all designed to ensure your wealth goes where you want it, efficiently and without conflict. IHT allowances and rates →

Writing a Will

A will is the foundation of any inheritance plan. There are several types: Simple will — straightforward distribution of assets to named beneficiaries. Suitable for most people with uncomplicated family situations. Cost: £100–£300 from a solicitor or will-writing service. Mirror will — two identical wills for couples, where each leaves their estate to the other, then to the same beneficiaries (typically children). When the first partner dies, their estate passes to the survivor. When the survivor dies, the combined estate passes to the named beneficiaries. Living will (advance decision) — not strictly a will, but a document stating your wishes about medical treatment if you lose capacity. Important for anyone who wants to refuse specific treatments. Executor appointment — your executor is responsible for administering your estate, paying debts and tax, and distributing assets to beneficiaries. Choose someone trustworthy and organised, or appoint a professional (solicitor or bank) who will charge a fee. Guardians for minor children — if you have children under 18, appoint guardians who will raise them if both parents die. This is one of the most important decisions in will-making. Specific gifts and legacies — you can leave specific items (jewellery, art, a car) or specific sums of money to named individuals. Residue of estate — after specific gifts and legacies, the remainder (the residue) goes to your named beneficiaries. Witnesses (2 required) — for a will to be valid in England and Wales, it must be signed in the presence of two independent witnesses who are not beneficiaries or married to beneficiaries. Storage — keep the original will in a safe place. Options include storing with your solicitor, a will storage company (Certainty, the National Will Register), or at home in a fireproof safe. Tell your executors where the will is stored. Review your will after major life changes: marriage (marriage revokes a will unless made in contemplation of marriage), divorce, birth of children or grandchildren, purchase of a property, or significant changes in your financial circumstances. Lasting Power of Attorney →

Using Trusts

Trusts are legal arrangements where assets are held by trustees for the benefit of beneficiaries. They offer control, protection, and tax planning opportunities. Bare trust — the simplest form of trust. Assets are held in the trustee's name but belong absolutely to the beneficiary. The beneficiary has the right to take control at age 18. Commonly used for gifts to minors. Simple and low-cost, but the beneficiary gains control at 18. Interest in possession trust — the beneficiary receives the income from the trust assets but does not own the capital. For example, a surviving spouse receives income for life, after which the capital passes to the children. Useful for second marriages where you want to provide for your current spouse while ensuring the capital eventually goes to your children. Discretionary trust — trustees have discretion over how trust income and capital are distributed among a class of beneficiaries. This offers maximum flexibility and is commonly used for inheritance tax planning. Trustees can decide who gets what, when. All trusts must be registered with HMRC's Trust Registration Service (TRS), unless specifically exempt. Registration is required for most UK trusts, including those created by will. Trustees have ongoing administrative responsibilities, including filing annual tax returns for the trust. Trust tax rates apply to income and gains within trusts. Discretionary trusts pay income tax at the trust rate (45% for dividend income, 45% for other income) and capital gains tax at 20%. These rates are higher than personal tax rates, so trust-based planning requires careful consideration of the tax implications. Trusts are generally more expensive to set up and administer than direct gifts, so they are best suited for larger estates where the benefits of control and tax planning outweigh the costs. Professional advice is strongly recommended when setting up a trust. IHT and trusts →

Lifetime Gifting

Lifetime gifting is one of the most effective ways to reduce your estate for IHT purposes while helping your loved ones during your lifetime. There are several important allowances and exemptions: Annual exemption £3,000 — you can give away £3,000 worth of gifts each tax year free of IHT. This can be carried forward one year if unused (so you can give £6,000 in one year if you did not use the exemption the previous year). Small gifts £250 per person — you can give as many gifts of up to £250 per person per tax year to different individuals, free of IHT. This is in addition to the £3,000 annual exemption. Wedding gifts — £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else. Must be given on or shortly before the wedding. Regular gifts from surplus income — gifts made from your regular income (not capital) that do not reduce your standard of living are potentially exempt. This is the single most valuable IHT exemption for wealthy individuals. You must have a surplus of income over expenditure and the gifts must be part of a pattern of regular giving (e.g., paying a grandchild's school fees, regular monthly contributions). Documentation is essential — keep records of these gifts to present to HMRC after your death. Potentially exempt transfers (PETs) — any gift to an individual that exceeds your available exemptions is a PET. If you survive 7 years after making the gift, it falls entirely outside your estate for IHT purposes. If you die within 7 years, the gift is added back to your estate and IHT may be due on a sliding scale (taper relief applies after 3 years). PETs are one of the most powerful IHT planning tools — giving assets away early removes them from your estate, and the 7-year survival rule provides significant tax savings. Document all gifts for your executors — keep a record of all gifts, the date given, the value, and the recipient. This is essential for the executors to calculate any IHT due on gifts made within 7 years of death. IHT taper relief explained →

Inheritance Tax Planning

Inheritance tax (IHT) is charged at 40% on the value of your estate above the available nil-rate bands. For 2026/27, the key allowances are: Nil-rate band (NRB) £325,000 — the first £325,000 of your estate is tax-free. This has been frozen at £325,000 since 2009 and is scheduled to remain frozen until at least 2030. Residence nil-rate band (RNRB) £175,000 — an additional allowance if you leave your main home to direct descendants (children or grandchildren). The RNRB is tapered by £1 for every £2 of estate value above £2 million, disappearing entirely for estates over £2.7 million. Gifts to charity — if you leave at least 10% of your net estate to charity, the IHT rate on the taxable portion reduces from 40% to 36%. This can be a powerful way to support charitable causes while reducing your family's tax bill. Business relief (BPR) 50–100% — shares in qualifying unlisted companies (including AIM shares) held for at least 2 years can qualify for 100% business relief, meaning they are exempt from IHT. This is a popular strategy for reducing IHT on investment portfolios, but it involves higher risk as AIM shares are more volatile than mainstream stocks. Agricultural relief 50–100% — farmland and agricultural property qualify for relief similar to business relief, provided certain conditions are met. Life insurance in trust — a life insurance policy written in trust pays out to your beneficiaries outside your estate, free of IHT. The proceeds can be used to pay any IHT due on your estate, ensuring your beneficiaries receive the full value of your legacy. Pension usually outside estate — defined contribution pensions are typically not counted as part of your estate for IHT purposes, making them one of the most tax-efficient ways to pass wealth. Your beneficiaries can draw income from an inherited pension tax-free (if you die before age 75) or pay income tax on withdrawals (if you die after 75). Detailed IHT guide →

Passing Property and Pensions

Two of the most significant assets for inheritance planning are property and pensions. Property ownership: how you own your home affects inheritance. Joint tenants — both own the whole property jointly. On death, the property automatically passes to the surviving joint owner, regardless of your will. This is the default for married couples. Tenants in common — each owns a specific share (e.g., 50/50 or 60/40). On death, your share passes according to your will, not automatically to the survivor. This structure allows you to leave your share to your children while your partner continues living in the property (via a life interest trust or right of occupation). The residence nil-rate band (RNRB) applies when you leave your main home to direct descendants. The RNRB is £175,000 per person (2026/27), so a married couple with children could pass up to £1 million (£325k NRB x 2 + £175k RNRB x 2) free of IHT, provided they leave their home to children or grandchildren. Pensions: defined contribution pensions are generally outside your estate for IHT purposes. You can nominate beneficiaries via an expression of wish form with your pension provider. The trustees (or scheme administrator) decide who receives the benefits, but they typically follow your wishes. If you die before age 75, beneficiaries can draw the pension entirely tax-free (provided benefits are accessed within 2 years). If you die after age 75, beneficiaries pay income tax at their marginal rate on withdrawals. This makes pensions an extremely tax-efficient inheritance vehicle. ISAs: when you die, your ISA loses its tax wrapper. However, your spouse or civil partner can inherit your ISA as an additional permitted subscription — a one-off allowance equal to the value of your ISA at death, in addition to their own £20,000 annual ISA allowance. This preserves the tax-free status of the inherited savings. IHT on property and pensions →

FAQs

Do I need a will if I don't have much money?

Yes. Even a modest estate benefits from a will because it ensures your belongings go to the people you choose. Without a will, the intestacy rules apply, which may not reflect your wishes. If you have children, a will is essential to appoint guardians and ensure they are cared for by people you trust.

Can I write my own will without a solicitor?

Yes, DIY will kits are available and can be valid. However, the risk of mistakes is high — poorly drafted wills are a common cause of litigation. If your estate is straightforward and small, a will kit may suffice. For anything involving trusts, tax planning, or complex family structures, professional advice is strongly recommended.

How much can I give away before I die without paying IHT?

You can give away £3,000 per year under the annual exemption, plus £250 per person in small gifts, plus wedding gifts, plus regular gifts from surplus income. Any gifts above these exemptions are potentially exempt transfers (PETs) — if you survive 7 years after making them, they fall outside your estate entirely.

What happens to my pension when I die?

Defined contribution pensions are typically paid to your nominated beneficiaries, free of IHT. If you die before age 75, beneficiaries can access the pension tax-free. If you die after 75, they pay income tax at their marginal rate. Pensions are one of the most tax-efficient ways to pass wealth to the next generation.

What is the 7-year rule for gifts?

Gifts you make (beyond your annual exemptions) are potentially exempt transfers (PETs). If you survive 7 years after making the gift, it falls entirely outside your estate for IHT. If you die within 7 years, the gift is added back to your estate and IHT may be due (with taper relief after 3 years).