“Nothing is certain but death and taxes,” the American statesman Benjamin Franklin once wrote. With government debts at exceptionally high levels in much of the world, including the UK, that idiom seems more timely than ever.
Why? Because in times of high public debt, governments tend to increase taxes to try to balance the nation’s books. And inheritance tax (IHT), which could be described as a tax on death, is a tempting way to do so.
Indeed, the UK government has already effectively raised IHT by curbing allowances in areas such as pensions, family farms and family businesses in its 2024 Autumn Budget. Even before this, the IHT take reached a record £6.7bn in 2022-2023, as the number of estates paying it rose 13% to 31,500.1
This spotlight on IHT arguably makes estate planning more important than ever. For high-net-worth individuals (HNWIs) and families, deciding your goals for passing on wealth, making plans and then regularly updating them, can yield significant benefits in terms of giving your family financial security and mitigating tax.
Many of the tools for IHT planning have been put in place by successive UK governments. Effectively, a range of exemptions, allowances and tools provide a framework for planning. Just as governments put these tools in place, however, they can take them away and it’s wise to consider this when making your plans.
The Fundamentals of Estate Planning
Passing on your wealth is about helping to ensure it goes to the right people and places in the right ways - whether that’s your family members or charitable causes. Careful planning, can assist you in passing on your wealth in ways that work for you in your lifetime and beyond. You can also minimise IHT, so that more of your wealth is passed on to those you care about.
Putting the fundamentals in place, though, means answering some tough personal questions. Are you concerned what your family members might do with newfound wealth? Are they likely to face problems with marriage or divorce? Are their lives working out as planned in other ways?
Depending on the answers to questions like these, you can decide how to pass on your wealth. A personal estate plan can be tailored to everyone’s particular circumstances.
Structuring Your Estate Plan to ensure tax efficiency
If there’s one golden rule of estate planning, it’s that starting early pays off. Structuring and implementing an estate plan is an ongoing process that takes place over many years, with adjustments over time as circumstances and legislation change.
Wealth transfers during life, for instance, passing assets that have gone up in value over time to a spouse removes any capital gains tax liability (at the time of writing).
A carefully considered Will should be the cornerstone of your estate planning. Not only does it set out who your beneficiaries are, but it’s also an opportunity for doing so in a tax-efficient manner.
When deciding how to structure your estate, the first step is calculating its value, so that you can work out how much IHT might be due. Then you can take steps to reduce the bill.
If you live permanently in the UK, your estate comprises everything you own everywhere in the world. That could include property, land, savings, investments, business interests and personal possessions like jewellery. In a sign of how quickly things can change, it is proposed that your pension will also be included in this list from April 2027, although this was not the case until the 2024 Autumn Budget.
Not all of your estate is taxed on death. Everyone in the UK has a so-called nil rate band of £325,000,2 which is the amount that can be passed to your beneficiaries without IHT. There’s also a residence nil-rate band for the value of your main residence up to £175,000 that may apply if you leave your home to direct descendants. The residence nil-rate band gets reduced for estate over £2,000,000.
Beyond this level, tax of 40% applies on your assets. However, you can structure your estate with a range of tools, exemptions and other solutions to mitigate tax.
Trusts, Gifts, and Other Tax-Efficient Strategies in Estate Planning
There are many different ways to pass on your wealth to those you care about. They range from relatively simple tools such as gifts and other tax-efficient strategies to more complex ones such as Trusts.
Various gifts are free from IHT. Most significantly, if you were only to make outright gifts, you can gift an unlimited amount of money without IHT under the ‘seven-year rule’. If you live for seven years, the person who received the gift doesn’t have to pay IHT. If you die before then, there may be some tax to pay, although the gift would use the first part of your nil rate band, and the tax rate charged on anything above it would taper between three and seven years. It is important to get advice on the order of gifting, as there are situations where an outright gift made up to 14 years before death can impact the IHT on the estate.
Additionally, everyone has an annual gifting exemption of up to £3,000. You can also make as many small gifts as you like of up to £250, although not to the same person. Larger gifts can be made at the time of a wedding or civil partnership. For instance, you can give up to £5,000 to a child free of IHT. You can also give away surplus income without IHT implications.
For some, tax-efficient investing may be especially interesting. Certain investments such as shares in unlisted companies qualify for partial or complete relief from IHT under Business Relief rules. Once these investments have been held for two years, the value for IHT is zero. However, they may be higher risk and not for everyone.
Finally, life assurance is often overlooked. It doesn’t reduce the potential IHT liability but written under Trust it can provide your beneficiaries with the money to pay the bill.
Understanding the role of Trusts in Wealth Transfer
Beyond gifts, Trusts are useful for giving large sums of money or where families are complex - for example involving divorce, remarriage, children and stepchildren. Trusts help you pass wealth to future generations in a careful and considered way.
For instance, a Trust can hold money and assets for a member of your family until he or she reaches whatever age you think suitable. When it comes to estate planning, a Trust allows you to restrict how your estate is allocated to your beneficiaries.
Trusts have practical applications. For example, grandparents often use Bare Trusts to give money to grandchildren for school or university fees. As long as the Trust has not been funded by parents, the money and investments inside are treated as belonging to the children for tax purposes. Effectively, the child’s income tax personal allowance and Capital Gains Tax exemption apply, often leading to a lower tax bill on income such as dividends.
But setting up a Trust may require legal advice and there are usually initial and ongoing costs. Assets in a Trust are subject to tax and it’s important to understand fully how the Trust works as these are long-term planning vehicles.
An alternative is a family investment company, a vehicle that has been topical for many years now, but only in very considered circumstances. This allows you to store wealth and involve your wider family. You can issue various share classes that allow you to keep control over assets, while attributing future growth to your next generations. However, these companies are for larger estates as they can be complex and expensive to set up and maintain.
Strategic Planning for Long-Term Estate Goals
Ultimately, estate planning should be a long-term strategic exercise designed to fulfil your family and financial goals. It’s about working towards your objectives, whether that be, maintaining access, controlling access for beneficiaries or looking for long term investment growth. Effective estate planning can help you leave your legacy, by putting in place some protections around divorce, or poor financial decisions.
When it comes to family assets, skilful estate planning can ensure the smooth transfer of a business, property portfolio or investment portfolio.
Considered use of lifetime gifting, Trusts and other vehicles can provide IHT planning while maintaining some control. What’s more, gifting can support your family’s needs at key stages of life, such as through education, buying a house and retirement.
Estate and tax planning can make a significant difference to the lives of your children and other beneficiaries. With the UK government under pressure to reduce the debt burden, potentially by increase taxes, it’s especially important for high-net-worth families to think strategically. It’s a long-term exercise and never too early to start.
Get in touch with a Brown Shipley Client Advisor to learn more, or download our 'Your Essential Guide to Passing On Wealth'.
1 UK inheritance tax captures record £6.7bn in 2022-23. FT.com. July 31, 2025. https://www.ft.com/content/6ae3cd28-b56b-4cd2-b4da-4c889e223f28
2 All allowances are correct as at the time of writing, August 2025.
Important Information
Information correct as of 25 November 2025.
- Investing puts your capital at risk.
- The value of your investments or any income from them can go down as well as up, and you could lose some or all of the money.
- The information provided is general in nature and does not constitute tax or financial advice.
- We recommend that you seek professional tax advice to understand your personal tax liabilities.
- This will depend on personal circumstances and the prevailing tax rules, which are subject to change.
- Tax planning is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.