IHT planning: practical steps to protect your family’s future

Many of the areas around our offices in London, Middlesex and Surrey are highly sought-after places to live. While this is wonderful for homeowners, rising property values mean more families are unexpectedly finding their estates affected by inheritance tax (IHT).

With the IHT nil-rate band remaining frozen at £325,000 since 2009, estates that may once have fallen comfortably below the threshold are now increasingly drawn into the IHT net. The reassuring news is that, with early advice and careful planning, there are often practical steps available to help reduce the burden on those you leave behind.

Understanding your IHT position

IHT is generally charged at 40% on the value of an estate above the available tax-free allowances. Because these allowances are frozen until at least April 2031, many estates become liable for IHT simply due to rising asset values rather than any significant change in personal wealth.

Understanding your position is the first and most important step in planning effectively.

1. The Nil-Rate Band

Every individual has a tax-free allowance known as the nil-rate band (NRB) of £325,000; which is the amount that can be passed on free of IHT. Any estate valued above this threshold, after deducting liabilities and exempt transfers, is taxed at 40%.

What this means in practice:
For many homeowners in Surrey and London, property values alone may exceed the nil-rate band. When savings, investments or other assets are added, families can face an unexpected tax liability, particularly where assets are held in one name or the owner is unmarried.

2. The Residence Nil-Rate Band

In addition to the standard nil-rate band, an additional allowance - the Residence Nil-Rate Band (RNRB) - of up to £175,000 may apply when you leave your main home to direct descendants, such as children, stepchildren or grandchildren.

For qualifying estates, this can increase the total tax-free threshold to £500,000 per person.

However, this allowance reduces for estates exceeding £2 million and disappears entirely at £2.35 million.

What this means in practice:
If you plan to leave your home to your children or grandchildren, the RNRB could meaningfully reduce the IHT your estate faces, but it cannot simply be assumed. It needs to be factored into your planning, and the way your estate is structured matters.

3. Married couples and civil partners

Assets passing between spouses or civil partners are usually exempt from IHT. In addition, any unused nil-rate band or residence nil-rate band can transfer to the surviving partner, on top of their own allowances.

This means couples may be able to pass up to £1 million free of IHT, combining two NRBs (£650,000) and two RNRBs (£350,000), provided the qualifying conditions are met.

What this means in practice:
Unmarried couples do not benefit from these exemptions, regardless of how long they have lived together. If you and your partner are not married or in a civil partnership, it is particularly important to take estate planning advice sooner rather than later. Cohabitation is one of the most common and costly areas of IHT exposure we see.

Practical steps to reduce IHT exposure

Once you understand your position, there are several well-established planning options that may help reduce the IHT payable by your estate.

1. Making use of annual gifting allowances

Each individual can give away up to £3,000 every tax year without the gift forming part of their estate for IHT purposes. Any unused allowance from the previous year may also be carried forward once. You may also make smaller gifts of up to £250 per person each year to multiple individuals.

What this means in practice:
Gifting little and often (starting early) is one of the simplest IHT planning tools available. Used consistently over several years, these allowances can move meaningful sums outside your estate without requiring any complicated structures.

2. Potentially exempt transfers and the seven-year rule

Larger lifetime gifts, known as Potentially Exempt Transfers (PETs), fall outside your estate if you survive seven years after making them, meaning no IHT is due. If death occurs within seven years, IHT may still apply, although the liability can reduce after three years through taper relief.

What this means in practice:
PETs can be a powerful planning tool, but timing and good health matter. It is worth speaking to a solicitor before making significant lifetime gifts to understand the implications and ensure appropriate documentation is in place.

3. Charitable giving

Leaving at least 10% of your net estate to charity can reduce the IHT rate on the remaining estate from 40% to 36%. For some families, this creates a genuine opportunity to support a cause that matters to them while simultaneously reducing the overall tax bill.

What this means in practice:
A carefully drafted Will can incorporate charitable giving in a tax-efficient way. If you have a cause you care about, it is well worth exploring whether a structured bequest could benefit both your chosen charity and your family.

4. Making and reviewing your Will

All of the above planning is only as effective as the Will that puts it into practice. Dying without a Will (intestate) means the rules of intestacy determine how your estate is distributed, and those rules are unlikely to reflect your wishes or make best use of available IHT reliefs.

What this means in practice:
A well-drafted Will is the foundation of any estate plan and should evolve alongside your life. Marriage, divorce, grandchildren, property purchases or changes in wealth are all good reasons to review existing arrangements. Regular reviews are a simple but powerful way to protect your family’s future.

Why acting early matters

IHT planning is no longer relevant only to the very wealthy. Across London, Middlesex and Surrey, rising property values mean many ordinary homeowners now need to consider how their estate will be passed on.

Starting the conversation early gives you more flexibility, more planning options and greater peace of mind. Thoughtful preparation today can help ensure that more of what you have worked hard to build goes to the people and causes that matter most.

Our Wills and Estate Administration team regularly helps our clients structure their estates to protect their family's financial future and keep as much of their legacy as possible in the hands of the people they care about.

To discuss your circumstances in confidence, call Owen White Catlin on 0208 890 2836 or contact your nearest Owen White Catlin office.