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Wealth management

Protecting Your Legacy – Planning Inheritance Tax for Later Life

03 July 2024

In a world where financial stability and security are paramount, inheritance tax (IHT) planning is essential. For most, especially those aged 60+ and considering their legacy, the implications of IHT can significantly impact the wealth passed down to future generations. Yet, it’s crucial to be well-informed about the nuances and importance of early planning to … Continued

Wealth management

In a world where financial stability and security are paramount, inheritance tax (IHT) planning is essential. For most, especially those aged 60+ and considering their legacy, the implications of IHT can significantly impact the wealth passed down to future generations. Yet, it’s crucial to be well-informed about the nuances and importance of early planning to be fully prepared.

Recent data from HM Revenue and Customs (HMRC) reveals a staggering statistic: a record £7.5 billion in IHT was paid to the Treasury during the tax year 2023/24. This figure represents a 5.6% increase from the previous year’s all-time high of £7.1 billion. The last increase in the IHT threshold (nil rate band) was in 2009, setting it at the current £325,000. The average house price has more than doubled since and, in spite of a further IHT relief being introduced in 2017 (the Residence Nil Rate Band), this disparity is one of several reasons why more estates are now falling within the taxable range.

The 2021 budget announced a freeze on the current IHT thresholds until 2028[1] which leaves many more people and their estates vulnerable to higher IHT liabilities in the future, a potential financial burden that should not be underestimated.

When it comes to IHT, the adage ‘failing to plan is planning to fail’ couldn’t be more true. However, with early planning, you can take control of your financial future and potentially reduce your IHT liability. Early planning offers a host of benefits, including a more measured and strategic approach to mitigating IHT liabilities. Here are a few of these options:

  • Regular Gifting: Utilising annual allowances to gift money or assets can significantly reduce the taxable value of your estate. Currently, each individual can gift up to £3,000 per year without it being added to the value of their estate.
  • Pension Contributions: Pensions are a powerful tool in IHT planning as they fall outside your estate for IHT purposes. Maximising pension contributions can reduce your estate and can even be paid in retirement up to age 75. Planning to preserve and ‘not touch’ your pension is also an effective way to manage IHT.
  • Trusts: While often complex, trust planning offers substantial flexibility and benefits. Trusts can be tailored to meet specific needs, helping to protect and manage assets for future generations while minimising tax liabilities. Life insurance policies can also be written into trust to plan for IHT mitigation.

Below are a couple of example case studies that illustrate the power of IHT planning and the importance of early and strategic planning in IHT management.

Example 1: Using Life Insurance in IHT Planning

Mary Johnson, aged 70, has an estate worth £1.5 million. Without planning, her estate could face a £400,000 inheritance tax (IHT) bill.

Solution: Life Insurance

Mary is advised to take out a whole of life insurance policy to cover the potential IHT liability. She sets up the policy in trust to ensure the payout does not form part of her estate.

Upon Mary’s death, the life insurance policy would pay directly into the trust and the amount, £400,000 covers the IHT liability.

The trust ensures quick payout and avoids probate delays, and the premiums for the life insurance policy were easier to manage for Mary than other planning methods.

By using a life insurance policy written into trust, Mary effectively ensures her IHT liability is covered, preserving more of her estate for her children.

Example 2: Trust Planning for IHT Relief

John Smith, aged 65, has an estate worth £2 million. Without planning, his estate could face a £600,000 inheritance tax (IHT) bill, reducing what his children, Emma and David, will inherit.

Solution: Setting Up a Discretionary Trust

John transfers £300,000 into a discretionary trust to reduce his IHT liability.

Impact on Death:

  1. If John survives 7 years, the £300,000 is outside his estate for IHT.
  2. His new estate value: £1.7 million.
  3. Taxable estate after applying nil-rate bands: £1.2 million.
  4. IHT payable: £1.2 million x 40% = £480,000.


John has been able to reduce his IHT liability from £600,000 to £480,000, saving £120,000 whilst also retaining control of the distribution of his assets via the discretionary trust. The trust assets are also protected from creditors and beneficiaries’ divorces.

Proactive IHT planning does not necessarily require complex arrangements. Don’t write HMRC into your will; instead, engage with a financial adviser and receive personalised advice from Bartlett Wealth Management.

Risk Warnings

  • The value of investments and income from them can go down. You may not get back the original amount invested.
  • The above information refers to current tax legislation which can depend on individual circumstances and may be subject to change in the future
  • The examples provided are for illustrative purposes only and should not be considered personal advice or taken as specific recommendations.
  • Bartlett is a trading style of Bartlett Wealth Management Limited which is authorised and regulated by the Financial Conduct Authority.



[1] Subject to change pending the 2024 general election.