Inheritance tax and the accidental taxpayer
Tudor Stainsby, Chartered Financial Planner at The Penny Group provides insight into Inheritance Tax and shares key planning strategies to protect wealth for future generations.
Inheritance Tax and fiscal drag
Inheritance tax (IHT) is often seen as a concern only for the very wealthy or, in more recent times, our nation’s farmers. In reality, those who fall into either the Baby Boomer (1946–1964) or Gen X (1965–1980) categories will have first-hand experience of rising property values combined with long-frozen tax thresholds, resulting in more families exposed to inheritance tax than ever before. The art of fiscal drag.
How inheritance tax (IHT) in the UK works
A reminder, there is normally no inheritance tax to pay if the total value of your estate is below the nil-rate band of £325,000, or you leave everything above the £325,000 threshold to your spouse, civil partner or charity.
In addition, if you leave your home to your children, including adopted, foster or step-children, there is a further residence nil-rate band of £175,000. This means that a total of £500,000 can be passed on free from inheritance tax. For married couples, this could total £1,000,000, providing your estate is worth less than £2,000,000, as separate rules apply and specialist financial planning advice is required.
Frozen thresholds and the rise of the accidental IHT taxpayer
The standard inheritance tax nil-rate band has remained at £325,000 since 2009 and, on 26 November 2025, the Chancellor announced it will remain frozen until at least April 2031. While an additional residence nil-rate band may be available of £175,000, also frozen until 2031, property price growth alone has pushed a growing number of estates above these limits.
As a result, families who never considered themselves “wealthy” may face an unexpected 40 percent inheritance tax charge on part of their estate.
The forgotten child: HM Revenue and Customs
It often comes as a surprise in inheritance tax discussions with clients when advisers highlight an additional “forgotten child” by the name of His Majesty’s Revenue and Customs.
For homeowners, this is a source of frustration when considering the emotions attached to the family property, as it is often the largest asset and the main driver of IHT exposure. Importantly, inheritance tax is based on the value of an estate at death, not on income or lifestyle during one’s life. This means individuals can appear asset-rich but cash-poor, leaving beneficiaries with difficult decisions around selling property to meet inheritance tax liabilities.
Gifting and IHT financial planning
Increasingly at The Penny Group, we are seeing clients’ family homes fully utilising their nil-rate and residence nil-rate bands, creating a need to begin effective inheritance tax planning with other assets such as surplus cash, income and investments.
This often starts with early, structured gifting. Making use of annual exemptions, regular gifts out of surplus income and potentially larger lifetime gifts can reduce the value of an estate over time. However, gifting must be carefully planned to ensure affordability and to avoid unintended consequences, such as loss of control or financial security.
Click here for more information on gifting.
Changes to pensions and inheritance tax
Pensions have previously played an integral role in inheritance tax planning, as in most cases defined contribution pensions sit outside the estate for IHT purposes, but only until April 2027.
While the true intended purpose of a pension as a tax-efficient long-term savings vehicle has not changed, it does mean that attention for intergenerational and inheritance tax financial planning now turns elsewhere.
Other Inheritance tax solutions
Other solutions, such as loan, gift and discounted gift trusts, or whole-of-life assurance written in trust, can help manage or fund future inheritance tax liabilities.
These are not one-size-fits-all solutions and will depend on individual needs for income and or access to capital. All solutions require professional financial planning advice to ensure suitability, cost-effectiveness and alignment with wider goals.
Wills, estate planning and financial protection
Finally, up-to-date wills and estate planning remain essential. Without them, even well-structured financial arrangements may not deliver the intended outcome.
We typically suggest reviewing your will every five years and ensuring that both your Financial and Health and Welfare Powers of Attorney are aligned. Family matters are complex, and this is particularly important when ensuring that your chosen executors and attorneys are in keeping with your current wishes.
Get expert advice on inheritance tax planning
Inheritance tax planning is not about avoiding tax at all costs, nor is it about relinquishing all control of your assets. It is about ensuring that more of your wealth passes to the people you care about, in a controlled and considered way.
Starting early provides more options, greater flexibility and better outcomes for future generations.
Remember, all decisions should be considered in the context of your own personal circumstances.
If you wish to discuss your financial position, inheritance tax or wider financial planning options available to you, please contact one of our advisers.
You can reach us at info@thepennygroup.co.uk or on 0207 061 2345.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Will writing is not part of the Openwork offering and is offered in our own right. Openwork Limited accept no responsibility for this aspect of our business. Will writing and Power of Attorneys are not regulated by the Financial Conduct Authority.
The Penny Group Ltd is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Approved by The Openwork Partnership on 14/01/2026
Tudor Stainsby
Associate Director, Chartered Financial Planner at The Penny Group.
