Estate Planning and IHT guide

This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.

The Financial Conduct Authority does not regulate inheritance tax planning, trust advice and will writing.

All too often, people put off estate planning. Understandably — it requires you to think about what happens when you’re no longer here, which few of us rush to do.

But estate planning has a way of suddenly becoming all-important. Accidents and sudden illnesses happen. When that moment arrives, it’s much better to have a plan in place.

This guide will help you prepare effective plans, so you’re in control of what happens to your estate — and your family is protected.

Please note that all examples included in this guide are fictitious.

Why do I need a Will?

Without a will, your estate falls under the rules of intestacy. These defaults can produce some surprising — and unwelcome — outcomes.

Your will also needs to be kept up to date. Something prepared a decade ago may no longer reflect your circumstances, your family’s situation or the current tax legislation. Remember: under current law, marriage will normally result in the automatic revocation of an existing will (except in Scotland). Divorce doesn’t have the same effect, but your former spouse is treated as having died before the will becomes operative. A typical will covers three main elements:

• Appointments and funeral wishes
• Distribution
• Executor/trustee powers

A Will can be a few lines or many pages. DIY wills are possible, but it’s nearly always better to have your will prepared by a solicitor or professional will writer. Errors in a poorly drafted will may only emerge after it’s too late for you to make changes.

And if you don’t make a Will…

Whether or not you have a Will, anything you own jointly with someone else will pass to the other joint owner(s) on your death. (The exception is where ownership takes the form of a tenancy in common, which is unusual for married couples and civil partners.)

Without a valid Will, the laws of intestacy apply — and these differ across the UK. Intestacy rules often don’t produce the distribution you might expect. For example, a surviving spouse or civil partner won’t necessarily receive everything.

Example — The unwelcome intestacy surprise

Henry and Ann had been married for over 30 years when Henry died in a fishing accident in Scotland in August 2025. He made no will, but both assumed everything would pass to Ann. The family home did pass to Ann (owned jointly as joint tenants), but Henry’s £900,000 personal estate was dealt with under intestacy.

Although Henry died in Scotland, English intestacy laws applied (his roots were in Kent). So:

• • • Ann received £322,000 outright and Henry’s personal chattels.
    • Ann was entitled to half of the remaining estate (£289,000).
    • The other £289,000 passed to Patrick — the 37-year-old son from Henry’s first marriage.

Unscrambling the effects of intestacy can be done with a deed of variation, but it requires all affected parties to agree to give up their benefits. They may be unable or unwilling to do so.

Whenever you make (or update) your will, you should also consider putting in place a power of attorney. Types differ across the UK.

Arranging powers of attorney can be enormously valuable to your family, allowing your affairs to be handled efficiently if needed. Without one, the state fall-back through the Public Guardian can be slow, expensive and impersonal.

Establishing PoAs can be very beneficial for your family in managing your affairs, should the need ever arise.

How inheritance tax works

Don’t underestimate the impact of inheritance tax (IHT). Broadly speaking, IHT is levied on your estate at death and on certain gifts made during your lifetime.

The current tax rate at death is normally 40%. Everyone has a Nil Rate Band (frozen at £325,000 until at least April 2031). To the extent it hasn’t been used against lifetime gifts in the preceding seven years, it’s available on death.

The inheritance tax regime

The IHT rules are complex. Here’s a summary of the key provisions:

Transfers between spouses and civil partners

These are exempt from IHT, provided the recipient is domiciled in the UK.

The Transferable Nil Rate Band

To the extent that one spouse or civil partner doesn’t use their full nil rate band at death, it can be transferred to the survivor. In practice, a couple currently has a combined nil rate band of up to £650,000. The transfer must be claimed in the estate IHT return — it isn’t given automatically.

Residence Nil Rate Band

This is an Additional Nil Rate Band of £175,000 (2025/26) can be set against the value of your home where it is left to a direct descendant. Like the Nil Rate Band, any unused portion is transferable between spouses (on claim), but it’s subject to a 50% taper if your estate is worth more than £2 million. No RNRB is available if you hold assets above £2.35 million at death (£2.70 million where a full RNRB is transferred from a deceased spouse). Special rules apply for downsizing or selling up.

Example — The residence nil rate band in practice

Jack and Jill each had an estate of £1.2 million when Jack died in September 2025. His will left everything to Jill, who died four months later.

Jill inherited 100% of Jack’s nil rate band and, as his estate was under £2 million, 100% of his residence nil rate band (£175,000). But on Jill’s death, her estate was worth £2.4 million, bringing the tapering rule into play. Instead of a total residence nil rate band of £350,000 (2 × £175,000), it was reduced by £200,000 (£400,000/2) to just £150,000.

If Jack had used his £325,000 nil rate band on first death to make gifts to other beneficiaries, there would still have been no IHT on his death — and Jill’s estate would have been correspondingly smaller, making more RNRB available.