Estate Planning

Wills

A will is the foundation of any estate plan. Without a valid will, your estate is distributed under the intestacy rules, which may not reflect your wishes — unmarried partners, close friends, and charities receive nothing under intestacy. A will allows you to: appoint executors who will administer your estate, name guardians for minor children, specify who inherits your assets, include legacies to charity (which can also reduce IHT to 36%), and set up trusts within the will (will trusts) for minors or vulnerable beneficiaries. For married couples and civil partners, a common approach is to leave everything to the survivor (the "spouse exemption" means no IHT is due on transfers between spouses), but this may not be tax-efficient on second death. A more sophisticated approach uses a nil-rate band discretionary trust will (also called a "care will" or "family trust will") which shelters up to £325,000 in trust on first death, giving the survivor access to the income and even capital while keeping the trust assets outside their estate. Wills should be professionally drafted by a solicitor or qualified will writer. DIY will kits are often unsuitable for anyone with a taxable estate, as incorrectly executed wills (missing signatures, improper witnessing) are invalid. A will should be reviewed after any major life event — marriage, divorce, birth of children, house purchase, or change in tax law.

Lasting Power of Attorney

A Lasting Power of Attorney (LPA) allows you to appoint someone you trust to manage your affairs if you lose mental capacity. In England and Wales, there are two types: a Property and Financial Affairs LPA (covers bank accounts, bills, property, investments) and a Health and Welfare LPA (covers medical decisions, care, living arrangements). You can set up an LPA while you have capacity, and it only becomes effective once registered with the Office of the Public Guardian (or the relevant authority in Scotland). Without an LPA in place, if you lose capacity, your family must apply to the Court of Protection to be appointed as your deputy — a costly and time-consuming process. An LPA is an essential part of estate planning, particularly as you age or if you have significant assets. The Health and Welfare LPA cannot be used until you lack capacity, while the Property and Financial Affairs LPA can be used from registration with your consent. The cost of registering each LPA is currently £82, but the ability to plan ahead far outweighs this expense. Many solicitors now recommend setting up both types of LPA as part of a comprehensive estate planning package. Scotland and Northern Ireland have separate systems (Power of Attorney in Scotland, and Enduring Power of Attorney in Northern Ireland).

Lifetime Giving Strategies

Lifetime giving is one of the most effective ways to reduce IHT. By making gifts during your lifetime and surviving seven years, you remove the gifted value from your estate entirely. Key allowances include: the £3,000 annual exemption (carry-forward one year), normal expenditure from income (regular gifts from surplus income with no upper limit), small gifts of £250 per person, and wedding gifts of up to £5,000 per child. A systematic giving programme can remove significant value from your estate over time. For example, a couple each using their £3,000 annual exemption gives away £6,000 per year. Over 10 years, that is £60,000 outside their estate. Combined with regular gifts from surplus income — such as paying grandchildren's school fees, contributing to their ISAs, or making monthly gifts — the total can be substantial. For larger gifts, the seven-year rule applies. Consider establishing a pattern of giving early and maintaining it consistently. Keep records of all gifts, as your executors will need to report them if you die within seven years. Be aware of the gifts with reservation of benefit rules — you cannot give away assets while continuing to enjoy them. If you need to continue living in a property you have given away, you must pay market rent to the new owners.

Pension Death Benefits

Pensions are one of the most tax-efficient assets for inheritance. Currently (2026/27), unused pension funds and death benefits are not included in your estate for IHT purposes, provided you die before age 75 and have not yet drawn any benefits. If you die after 75, beneficiaries pay income tax at their marginal rate on any withdrawals, but there is no IHT. From 6 April 2027, this changes: unused pension funds and death benefits will be included in your estate for IHT. This is a significant shift that will make pensions less attractive as an inheritance planning tool. However, the pension remains valuable for lifetime planning because you can withdraw funds tax-efficiently and gift the proceeds, using your lifetime allowances. Pension nomination forms are critical — they tell the scheme administrator who you want to receive your pension benefits on death. Nominations are not binding but are typically followed. Consider nominating beneficiaries directly rather than leaving pension funds to your estate (which could incur the new IHT charge and delay distribution). Review your pension nominations regularly, especially after divorce, remarriage, or a child's birth. Pensions are outside your will for distribution purposes, so the nomination form is the primary document that determines who inherits your pension.

Life Insurance in Trust

Life insurance payouts typically form part of your estate for IHT purposes, potentially triggering a 40% tax charge on the proceeds your loved ones are meant to receive. The solution is to write your life insurance policy in trust. This removes the payout from your estate, so beneficiaries receive the full sum assured tax-free. Most life insurance providers allow you to write a policy in trust at inception or convert it later. The trust document names the trustees who will hold the policy and the beneficiaries who will receive the payout. Common trust types for life insurance include absolute trusts (beneficiaries are fixed and cannot be changed) and discretionary trusts (trustees decide who benefits, providing flexibility). Writing a policy in trust also speeds up the payout because the trustees can release funds without waiting for probate. This is particularly valuable for families who need immediate cash after a death. A simple term life insurance policy written in trust can be set up at no additional cost — you just tick a box on the application form. For existing policies, you can execute a deed of assignment to transfer ownership to trustees. Life insurance placed in trust is also protected from the policyholder's creditors in the event of bankruptcy, making it an important tool for business owners. See our separate guide on the new rules for pension death benefits from 2027.

Business and Agricultural Property Relief

Business Property Relief (BPR) and Agricultural Property Relief (APR) can reduce or eliminate IHT on qualifying business and agricultural assets. BPR provides 100% relief on most qualifying business assets (unincorporated businesses, shares in unlisted companies) and 50% relief on controlling holdings in listed companies. APR provides 100% relief on the agricultural value of farmland and farm buildings. Both reliefs require a minimum ownership period — generally two years for BPR and two years for APR (seven years for let agricultural land in some cases). The Finance Act 2026 introduced significant changes: from April 2026, both BPR and APR are capped at £1 million per person for 100% relief, with 50% relief available on value above that cap. This is a major change for owners of businesses and farms worth over £1 million. Planning strategies include spreading ownership across family members (each person gets their own £1 million cap), using trusts, and combining BPR/APR with other reliefs. For business owners, ensuring your business qualifies for BPR and maintaining the minimum holding period is essential. Companies whose main activity is investing in land, buildings, or shares are excluded. See our detailed guides on BPR and APR for full information.

FAQs

How often should I review my estate plan?

At least every three to five years, or whenever you experience a major life event: marriage, divorce, birth of a child or grandchild, house purchase, starting or selling a business, or significant changes in tax law (such as the Finance Act 2026 changes to BPR/APR).

What happens if I die without a will?

Your estate is distributed under the intestacy rules. In England and Wales, a spouse inherits the first £322,000 plus personal possessions and half of the remainder, with children receiving the other half. Unmarried partners, stepchildren, and close friends receive nothing. Intestacy causes delays, additional costs, and may not reflect your wishes.

Can I reduce IHT by giving away my home while I am still alive?

Not easily. If you give away your home but continue to live there, the gift with reservation of benefit rules apply, meaning the property stays in your estate. You could downsize and gift the surplus proceeds, pay market rent to the new owners, or use equity release to extract value from the property and gift the cash.