A guide to passing on wealth
You’ve spent a lifetime building your wealth, so you will want to make sure that it’s distributed according to your wishes. Estate planning is key to minimising the tax your loved ones will have to pay, so they get the full benefit of your hard work.
It’s not always easy to talk about what will happen when you pass away, but being prepared and understanding the legal ramifications of your choices will allow you to plan for your family’s future.
By completing a Will and putting powers of attorney in place, you can make sure your wishes are implemented when you are no longer here or no longer able to make your own decisions.
This guide will give you an understanding of how you can plan ahead, but everyone’s situation is unique. A professional adviser will help you find the right path for you and your loved ones.
Do I need a Will?
Making a Will means you can ensure that your wealth is shared the way you want it to be after you pass away. A Will also makes it easier for your loved ones to deal with your affairs, relieving some pressure during a difficult time.A Will outlines your beneficiaries, who will inherit your wealth and property when you pass away. It also allows you to nominate your executor who will be in charge of dealing with your estate and implementing your wishes.
A Will is particularly important if you are in a relationship which is not legally recognised, as the law does not give unmarried partners the same rights as a spouse or civil partner. Without a Will, your long-term partner could be left with nothing after your death.
Depending on your choice of beneficiaries, having a Will may also reduce the amount of inheritance tax your loved ones have to pay.
Can I write my own Will?
You can write your own Will, but any mistakes may cause problems after your death or may even invalidate the Will. Therefore, it is best to obtain the guidance of a solicitor, who will ensure that there are no issues later on.
Where should I keep my Will?
It’s important that your executors know exactly where to find your Will when you pass away and how they can access it. For example, keeping it in a safe or deposit box may make it difficult for them to retrieve it. Copies can be retained by a solicitor or other professional advisers, or with the Probate Registry.
Reviewing your Will
Once a Will has been written and is signed, it should be reviewed regularly to make sure it remains fit for purpose. Reviewing your Will is particularly important in the following circumstances:
- you get married or enter into a civil partnership
- you separate or divorce
- you have children or new family members to support
- you have children from a previous relationship and have remarried
- you have business assets
- you have assets located abroad
- you are not domiciled in the UK, but have assets located in the UK
- an executor or beneficiary has died
- anyone is financially dependent on you
- you purchase or sell an expensive asset for example, a property.
We have a team of private client solicitors who can advise and prepare your new Will.
Who inherits if I don’t have a will?
What is a lasting power of attorney?
A lasting power of attorney (LPA) is a legal document allowing people you trust to help you make decisions or make decisions on your behalf. Many people do not consider a LPA until they are elderly, but it is a good idea to consider this while you are still fit and healthy.
Making a LPA means that you can plan how your health, wellbeing and financial affairs will be looked after once you can no longer make decisions for yourself. It means that you can choose in advance what decisions you want to be made on your behalf and who you want to make those decisions for you.
What happens if you don’t have a LPA?
If you lose capacity before having an LPA in place, your family (including a spouse) will not be able to get access to, or deal with, your assets. The only exception will be for accounts that are jointly owned. Your bank may freeze your accounts and not let anyone access them until the Court of Protection has appointed a deputy to act on your behalf and deal with your property and finances. This can take considerable time and effort and be costly during a potentially very stressful and emotional period.
There are two kinds of LPA, both of which constitute an agreement between you (the donor) and someone you trust to handle your affairs (the attorney).
LPA 1: for property and financial affairs
This gives your attorney permission to handle your financial affairs and property. It could simply mean paying bills, or it could entail selling your property or handling your investments.
This type of power of attorney can be used while you still have the capacity to handle your own financial affairs and property. Your attorney will be acting on your instructions, and will carry on acting for you if you were to lose mental capacity.
LPA 2: for health and welfare
This can only be used once you are no longer able to make your own decisions. Your attorney can make decisions on your behalf, including your daily routine, where you stay and your medical care. If you wish, your attorney can be given the authority to give or refuse consent to life-sustaining treatment for you.
If you are interested in finding out more, please feel welcome to get in touch with our specialists.
What is inheritance tax and who must pay it?
Inheritance tax is a tax on the property, money and possessions of someone who has passed away. It can cost your loved ones dearly if not organised effectively.Careful financial planning can significantly reduce, or even eradicate, inheritance tax so that your family can retain as much of your wealth as possible.
Your loved ones should not have to pay inheritance tax if your estate is below the nil-rate band, or if you leave everything above the threshold to your spouse, civil partner, a charity or an amateur community sports club.
Who pays inheritance tax?
Funds from your estate are used to pay inheritance tax to HMRC. This is undertaken by the person dealing with the estate, for example, the executor.
Your beneficiaries do not normally pay tax on their inheritance. They may, however, have related taxes to pay, for example, if they receive rental income from a house left to them in a Will.
The nil-rate band
The nil-rate band is the value of an estate that does not attract inheritance tax. It is currently £325,000 per individual, with 40% tax payable on the value of the estate above that level.
If at least 10% of the net value of the estate has been left to a UK registered charity, a reduced rate of inheritance tax will apply. This reduced rate provides a 10% discount against the standard 40% rate of inheritance tax, charging 36% on the remaining estate.
The residence nil-rate band
This additional allowance applies when a main residence is passed to a direct descendant such as your children. It adds a further £175,000 per person to the tax-free allowance. The nil-rate band (£325,000) and residence nil-rate band (£175,000) will remain unchanged until April 2031 as announced in the November 2025 Budget.
In summary
If your estate is worth more than the threshold, only the surplus amount will be taxed. For example, if your estate is worth £500,000 and you do not own a personal property, your total inheritance tax allowance is £325,000, and £175,000 will be subject to inheritance tax.
If your estate is worth £500,000 and you also have a property you are leaving to your children, you will have no inheritance tax liability (nil-rate band: £325,000 + residence nil-rate band: £175,000 = £500,000).
This means a married or civil partnership couple can pass on up to £1 million of assets between them without attracting inheritance tax.
Estates that are worth more than £2 million will lose some or all the residence nil-rate band. For every £2 of estate over £2 million, £1 of the allowance is forfeited.
Therefore, if you are a couple, estates valued above £2,350,000 will not benefit from any level of residence nil-rate band, just the £325,000 each.
We know this may be confusing; an adviser can help you to understand your inheritance tax position.
How do I work out the value of my estate?
Assets include such items as money in a bank, property or land, jewellery, cryptoassets, cars, shares or a pay-out from an insurance policy. Some of your assets may be jointly owned by someone else, such as your spouse.If you’re not sure if something is an asset, ask your adviser.
Any gifts you make are also included in the value, including cash gifts. Most gifts only need to be included if they are given in the seven years immediately before you pass away. You’ll only need to include gifts made before this period if you have continued to benefit from them. These are known as ‘gifts with reservation of benefit’. An example of this is if you gift your house to your children but continue to live in it.
To find out more about gifts and inheritance tax, see below.
If you have any debts or liabilities when you pass away, they will be deducted from the value of the estate. This includes things like mortgages, household bills, credit card debts and possibly funeral expenses. However, costs incurred after you have passed away, such as solicitor and probate fees, won’t be deducted.
Once all of this has been worked out, whatever remains can be passed onto your loved ones. It is sensible to plan your finances so they don’t pay more tax than they need to.
Example inheritance tax calculation:
*Pensions will also be subject to inheritance tax from 6th April 2027
Are gifts exempt from inheritance tax?
The short answer is ‘no,’ but the reality is a little more complicated. Up to £3,000 can be given away in gifts each tax year without being added to the value of an estate. You should tell your adviser about any gifts you give, so they can keep a record.
What is the seven-year rule?
The most generous exemption from inheritance tax is the potentially exempt transfer (PET). Currently, you can legally make a gift of any size to your loved ones without incurring inheritance tax, provided you survive for seven years from the date the gift is made. After this seven-year period, the gift is excluded from the value of your estate — this is commonly referred to as the “seven-year rule.”
It’s important to note that gifts made to certain types of trusts do not qualify for this exemption. Your adviser can provide further guidance on which trusts are affected.
If you make a gift that exceeds the nil-rate band and death occurs within seven years, the gift will be subject to inheritance tax at a tapered rate, depending on how much time has passed between the date of the gift and your passing:
Transfers between spouses
Any assets you transfer to your spouse or civil partner are exempt from inheritance tax, if you are both considered long-term UK residents. This applies both during your lifetime and when you have passed away.
If your partner is not long-term UK resident, up to £325,000 is exempt from inheritance tax.
There are a few other scenarios in which you can make gifts without it counting towards the value of your estate, even if they are made in the seven years before you pass away.
Gifts on marriage
Each tax year, £5,000 can be given by each parent on the marriage of their children and £2,500 by each grandparent. Wedding gifts by brides and grooms are also exempt up to a value of £2,500.
Small annual gifts
There’s no limit to the number of gifts of up to £250 per person that can be given during the tax year, as long as you have not given the same individuals any other gifts that were exempt from inheritance tax.
For example, if you made a gift to your daughter when she got married, and then gave her another gift of £250 in the same year, the £250 would be taxable, as she’s already benefitted from an exemption.
You could, however, give your son £250 tax-free, as long he hasn’t received any other gifts from you that year.
Regular gifts out of surplus income
Regular gifts out of surplus taxed income of any size, such as funds towards school fees, are exempt from tax, if they do not affect the donor’s normal standard of living.
HMRC is vigilant in ensuring that these conditions are satisfied. It is, therefore, very important to maintain an accurate record of the donor’s income and expenses and the sums transferred.
Gifts to charities
You can give any amount to a UK charity and it will be exempt from inheritance tax, so it won’t count towards the value of your estate.
You can even benefit from giving some of your estate to charity; if the gift is 10% of the net estate, the rate of inheritance tax payable on the whole estate is reduced from 40% to 36%.
It is important to note that this doesn’t mean 10% of your total estate should pass to charity, just 10% of the excess over the threshold.
For example, if your estate was valued at £500,000 and your tax allowance threshold was £325,000, you could gift 10% of the excess value (£175,000) to charity. The charity would receive £17,500, and the taxable portion of your estate would be taxed at 36% instead of the standard 40%.
Take control with trusts
Trusts are a valuable tool for planning your legacy. They can be used to reduce inheritance tax and pass on your wealth. They also give you the opportunity to influence how your loved ones use the wealth you pass on.
There are many reasons you may wish to have a little more control over your legacy. Trusts can protect your loved ones in the future, even when you are no longer around.
If your surviving spouse remarries after you are gone, you may wish to ensure your wealth is passed onto your descendants by creating a trust. In some cases, you can even protect their inheritance from any future marital disputes, in case your children or grandchildren face divorce.
Another common reason for creating a trust is to keep their inheritance safe for a little while longer after you have passed away. You may believe that your loved ones are not ready to inherit a certain sum and wish to protect it so they can enjoy it in the future. It’s not uncommon to impose age requirements, to make sure the money you leave them is spent wisely.
Don’t forget life assurance
You can use life assurance to either pay or reduce a potential inheritance tax bill or pass money onto a loved one to support them in the event of your death.
You could set up a whole-of-life assurance policy, which lasts for as long as you live. If you place this policy into a trust, any proceeds will not be included in your estate. When you pass away, the policy will pay out into the trust. This could be used to pay all or part of any inheritance tax bill that arises.
These are all scenarios in which a trust can be a good solution, but trusts can also be quite complex. For example, if you pass away within seven years of making a transfer into a trust, it may still be subject to inheritance tax.
To find out more about trusts and whether they are right for you, please get in touch with our team.
Plan with pensions
Pensions have been one of the most tax-efficient vehicles for passing on your wealth due to their exemption from inheritance tax. However, this will change from 6th April 2027 when pensions are to be included in the taxable estate and subject to inheritance tax at the standard rate of 40%.
Historically a common inheritance tax planning strategy was to leave pensions as the last source of retirement income. This allowed any remaining pension funds to be passed on free of inheritance tax, while drawing income from assets subject to inheritance tax such as ISAs, shares and unwrapped investments.
From April 2027, unused pension funds and most death benefits will be included in the taxable estate for inheritance tax purposes, unless passed to a spouse, civil partner, or charity, which remain exempt. Personal representatives will be responsible for reporting and settling any IHT liabilities.
In addition, pensions will continue to be subject to income tax at the beneficiaries’ marginal rate if death occurs after age 75.
With the upcoming changes, it is essential to revisit your pension planning and retirement strategy.
Consolidating multiple pensions into a single arrangement should be considered as this could significantly simplify administration for executors and ensure timely reporting to HMRC.
Drawing from pensions earlier may also be a strategic action to reduce the values and mitigate the risk of the double taxation. Any surplus income that isn’t needed may be gifted during your lifetime and could benefit from available IHT exemptions.
For some individuals, purchasing an annuity may be a worthwhile option as it can mitigate inheritance tax exposure on pension assets.
Regardless of the course of action you take, it remains paramount to keep the beneficiary nomination updated to reflect your current wishes and reduce potential tax complications for your beneficiaries.
Each individual’s circumstances may be unique, so it’s important to seek personalised advice from a qualified financial adviser.
Thoughtful planning today can make all the difference tomorrow ensuring your loved ones are protected and your legacy preserved.
Business relief
Certain investments qualify for business relief, which means your qualifying shares may be exempt from inheritance tax after just two years. This relief is designed to support investments in smaller businesses.. Typically, this will be a company that isn’t quoted on the Financial Times Stock Exchange (FTSE).
This can be a very effective strategy if you have money available to invest, as your shares may be exempt from inheritance tax after just two years. At the same time, you can retain access to the investment, in case your needs change in the future.
You can also invest in qualifying investments via an ISA, meaning you won’t need to pay capital gains tax, income tax or stamp duty on the investments.
Because investments that qualify for this relief tend to be in smaller companies, the risk of investing in them is often relatively high and may be volatile. High-risk investments can result in rewarding returns but there is also a greater capacity for loss. If you are considering utilising business relief to reduce inheritance tax, you should weigh up the risk of making a loss on your investment against the benefit of potential inheritance tax relief after two years. A benefit of this strategy is that you always remain in control of your assets. Unlike other tax solutions, you are not ‘locked in’ and you won’t have given your assets away, so you can sell the portfolio should your circumstances change. The value of investments can go down as well as up, so you may not get back what you put in.
Currently there is no cap on business relief. However, from April 2026 a new £2.5 million allowance per individual will apply to the total value of assets eligible for this relief. This means that 100% relief will only be available for assets valued up to £2.5 million. Any value exceeding this threshold will qualify for only 50% relief.
The November 2025 Budget confirmed that any unused portion of the £2.5 million allowance will be transferable to surviving spouses or civil partners.
It’s important to note that qualifying AIM shares will not benefit from the allowance and will only qualify for 50% relief, i.e. the qualifying AIM investments will benefit from a reduced inheritance tax rate of 20%.
If you are interested in exploring investments that qualify for business relief, you should discuss it with your adviser. It is important that you are aware of the risks involved and the forthcoming changes to the current rules, so you can make an informed decision.
How we can help you
Planning to pass on your wealth means first planning for later life, so you can balance your lifestyle and your legacy. To do this, take the time to understand your family and circumstances in order to create a plan that is right for you.
If you have a large or complicated estate, the sooner you start planning the better. However, for many people, an opportune time to establish an inheritance plan is just after they retire.
An efficient plan involves gifting assets during your lifetime, but you don’t want to give away money that you might need later. The benefit of planning once you retire is that you are likely to have a better idea of your future financial needs once you have stopped working.
Once you have a clear plan for your future, you can start looking at how you pass the remainder of your wealth onto your loved ones.
If you would like to discuss any of the issues raised in this guide, please get in touch with our specialist team of advisers.
Moore Kingston Smith offers an integrated approach to estate planning. We have a team of private client tax, solicitors and independent financial advisers who will work together to meet all your needs and objectives.
Contributors
Moore Kingston Smith LLP is a multi-disciplinary practice regulated by the Institute of Chartered Accountants in England and Wales (ICAEW) and, in relation to certain legal services, by the Solicitors Regulation Authority (SRA) as a licensed body under the Legal Services Act 2007 (LSA). Our registered address is 9 Appold Street, London, EC2A 2AP. Regulated financial advice is provided by Moore Kingston Smith Financial Advisers Limited an appointed representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority (FCA). The FCA number for Best Practice IFA Group Limited is 223112, and the FCA number for Moore Kingston Smith Financial Advisers Limited is 558116.. Moore Mortgages UK is a trading name of Moore Kingston Smith Financial Advisers Limited, a wholly owned subsidiary of Moore Kingston Smith LLP. The information contained in this publication represents our understanding of the current law and HM Revenue & Customs practice which may be subject to change. Moore Kingston Smith LLP is not responsible for the accuracy of the information contained within the linked sites. This information does not constitute personalised advice and you should seek professional advice before acting or making any decisions based on the contents. Investments can fall as well as rise in value and past performance should not be considered a guide to future performance. Your home may be repossessed if you do not keep up repayments on any mortgage secured on it. Not all products are regulated. The FCA does not regulate tax advice. @ Copyright 2025. All rights reserved.
