Inheritance Tax and Estate Planning

Inheritance Tax & Estate Planning FAQs

• Can I reduce inheritance tax by gifting out of surplus income?

  Gifting out of surplus income is a valuable inheritance tax (IHT) exemption that can allow you to make regular gifts without them counting towards your estate for IHT purposes, provided certain conditions are met.

  Broadly, the gifts must form part of your normal expenditure, come from your income rather than your capital, and leave you with enough income to maintain your usual standard of living. Unlike many other lifetime gifts, there is no annual monetary limit on this exemption if the conditions are satisfied.

  Why this matters

  Many people focus on the £3,000 annual gifting exemption and overlook the potentially much larger exemption for gifts made from surplus income.

  For those with pension income, investment income or rental income that exceeds their spending needs, regular gifts to children, grandchildren or other beneficiaries can be an effective way to reduce the future value of their estate without waiting for the seven-year rule that applies to many other gifts.

  What the answer depends on

  The exemption is only available if all of the following are broadly met:

  • The gifts are made regularly and form part of a pattern of normal expenditure.
  • The gifts are made from income, not from accumulated savings or investments.
  • You retain enough income after making the gifts to maintain your normal lifestyle.
  • Good records are kept to demonstrate the source of the gifts.

  Common examples might include:

  • Regular monthly gifts to children.
  • Paying grandchildren’s school fees from surplus income.
  • Regular contributions into a family member’s savings account.

  One of the main technical traps is poor record keeping. HMRC may ask executors to prove years later that gifts were genuinely made from income rather than capital.

  How Wingate would look at this

  The tax exemption is only part of the picture. At Wingate, we would usually look at whether the income is genuinely surplus after allowing for future spending needs, inflation, care costs, tax changes and unexpected events.

  A gifting plan that appears affordable today may create difficulties later if income falls or expenditure increases. A planner would normally test the sustainability of ongoing gifts before treating the surplus as permanently available.

  What to do before acting

  Before setting up regular gifts:

  • Prepare an income and expenditure summary.
  • Identify which income sources are funding the gifts.
  • Keep records of gifts, bank transfers and the reasoning behind them.
  • Review whether the gifts remain affordable each year.
  • Consider documenting your intention to make regular gifts from surplus income.

  Where significant amounts are involved, maintaining a clear audit trail can make it much easier for executors to claim the exemption after death.

• Will my estate be liable for inheritance tax when I die?

  Not necessarily. Many estates do not pay inheritance tax (IHT), but whether your family faces a tax bill depends on the value of your estate, who inherits it, and which allowances and reliefs apply.

  For the 2026/27 tax year, most people have a £325,000 nil-rate band. An additional residence nil-rate band of up to £175,000 may be available if a qualifying home passes to direct descendants.

  Married couples and civil partners can often transfer unused allowances between them. In some cases, this means up to £1 million can pass free of IHT. However, larger estates, certain trust arrangements, gifts made before death, and assets that do not qualify for relief can still create a tax charge.

  Why this matters

  Inheritance tax can significantly reduce the amount passed to family. However, many people worry about IHT when they may not actually have a liability, while others underestimate how investment growth, property values, pension changes or gifting arrangements affect their position.

  The right answer often requires looking at the whole estate rather than focusing on a single asset or allowance.

  What the answer depends on

  • The total value of your estate, including property, savings, investments and personal possessions.
  • Whether you are single, married or in a civil partnership.
  • Whether a qualifying home passes to children or other direct descendants.
  • Whether you have made gifts during your lifetime and when those gifts were made.
  • Whether business, agricultural or other reliefs apply.
  • The value of your estate relative to the residence nil-rate band taper, which can reduce allowances for larger estates.
  • Future rule changes, including planned changes affecting some pension death benefits from April 2027, which should be reviewed carefully.

  How Wingate would look at this

  A tax calculation is only the starting point. At Wingate, we would usually look at the interaction between pensions, ISAs, investment portfolios, property, gifting plans, wills and family objectives.

  For example, reducing a future IHT bill is not always the most important objective. A planner would normally test whether gifting affects your financial security, care costs, retirement income and flexibility before recommending action.

  What to do before acting

  Prepare a current estimate of your estate, including:

  • Property values.
  • Savings and investments.
  • Pension arrangements.
  • Outstanding debts.
  • Recent gifts made to family.

  Then compare those figures against the available allowances and reliefs. If your estate may exceed the available thresholds, or if you have significant pension assets, trusts, business interests or large gifts, those areas should be reviewed together rather than in isolation.

• How do I know if I can afford to give money to my children?

  Possibly, but affordability is usually a more important question than tax.

  Many parents and grandparents want to help children with house purchases, education costs, mortgage repayments or other financial milestones. The key issue is whether making the gift could affect your own future financial security.

  A gift is generally easier to make than to reverse. Before transferring money, it is important to understand the impact on your retirement income, emergency reserves, future care costs, tax position and ability to deal with unexpected expenses.

  Why this matters

  People often focus on inheritance tax savings and overlook the risk of giving away assets that may later be needed.

  Life expectancy is increasing, investment returns can be unpredictable and future spending requirements are often uncertain. A gift that feels affordable today may create difficulties years later if circumstances change.

  Equally, some families delay gifting unnecessarily when they have more than enough resources to maintain their lifestyle. The opportunity to help children or grandchildren can sometimes be greater when money is given during life rather than through an inheritance.

  What the answer depends on

  Key factors normally include:

  • Your current assets, income and expenditure.
  • Expected retirement spending.
  • Future care fee requirements.
  • Inflation and the rising cost of living.
  • Investment risk and expected returns.
  • Pension income and other guaranteed income sources.
  • The size and timing of the proposed gift.
  • Whether the gift is a one-off payment or an ongoing commitment.
  • The effect on inheritance tax planning and estate objectives.

  Common mistakes include:

  • Using emergency reserves to fund gifts.
  • Underestimating future care or healthcare costs.
  • Assuming investment growth will replace gifted capital.
  • Making equal gifts to family members without considering personal affordability.
  • Committing to ongoing financial support that becomes difficult to sustain.

  How Wingate would look at this

  At Wingate, we would usually start with a long-term cashflow assessment rather than the tax position.

  A planner would normally test whether the gift remains affordable under different scenarios, including lower investment returns, higher inflation, longer life expectancy and increased spending needs.

  In some cases, an outright gift may be appropriate. In others, a phased gifting strategy, gifts from surplus income, trust planning or retaining more capital may provide a better balance between helping family and preserving financial security.

  The best gifting decision is often the one that helps family members while still allowing you to live the retirement you want.

  What to do before acting

  Before making a significant gift:

  • Calculate your current net worth.
  • Review all sources of retirement income.
  • Estimate future spending requirements.
  • Consider potential care costs and other contingencies.
  • Identify how much capital you want to retain as a safety margin.
  • Determine whether the gift affects inheritance tax planning.
  • Keep records of any gifts made and the dates involved.

  A useful rule of thumb is that gifting should normally be tested against your future needs, not just your current bank balance.

• What are the main ways to reduce inheritance tax legally?

  There is no single inheritance tax (IHT) solution. The most effective strategy depends on the size of your estate, your income needs, your family circumstances and the types of assets you own.

  Common ways people reduce a future inheritance tax bill include making lifetime gifts, using the gifts out of surplus income exemption, ensuring available allowances are used efficiently, structuring assets appropriately, reviewing pension death benefits and beneficiary nominations, and in some cases using trusts or other estate planning arrangements.

  The right approach is usually the one that reduces inheritance tax without compromising your own financial security.

  Why this matters

  Inheritance tax is charged on the value of an estate above available allowances. For larger estates, the tax cost can be significant.

  However, some people focus so heavily on reducing inheritance tax that they give away assets they later need. Others miss opportunities because they assume inheritance tax planning is only relevant to very wealthy families.

  Good planning often starts years before it is needed and usually involves much more than simply writing a will.

  What the answer depends on

  Some of the most common inheritance tax planning strategies include:

  • Making use of the £3,000 annual gifting exemption.
  • Making regular gifts from surplus income where HMRC conditions are satisfied.
  • Making larger lifetime gifts and surviving the relevant qualifying period.
  • Ensuring wills are drafted efficiently and make best use of available allowances.
  • Reviewing whether the residence nil-rate band may apply.
  • Using spouse or civil partner exemptions where appropriate.
  • Reviewing business or agricultural property reliefs where relevant.
  • Checking pension nominations and death benefit arrangements.
  • Considering whether trusts may be appropriate in specific circumstances.

  Potential pitfalls include:

  • Giving away more than you can comfortably afford.
  • Continuing to benefit from assets that have supposedly been gifted.
  • Creating trust arrangements without fully understanding the tax consequences.
  • Focusing on inheritance tax while overlooking income tax, capital gains tax or retirement planning issues.
  • Failing to keep records of gifts and exemptions claimed.

  How Wingate would look at this

  At Wingate, we would usually start with your wider financial plan rather than the inheritance tax calculation.

  A strategy that saves inheritance tax but damages retirement security, investment flexibility or family objectives may not be a good outcome. We would normally assess cashflow needs, pensions, investments, property, gifting plans, wills and family circumstances together.

  For many families, the biggest opportunity is not a complicated tax structure. It is having a coordinated plan that connects investments, pensions, gifting and estate planning decisions.

  What to do before acting

  Before implementing any inheritance tax strategy:

  • Estimate the current value of your estate.
  • Review your will and beneficiary nominations.
  • Identify any gifts already made.
  • Assess whether you have surplus income available for gifting.
  • Consider future retirement spending, care costs and family commitments.
  • Check which allowances and reliefs may apply to your circumstances.

  Inheritance tax planning works best when it is reviewed alongside retirement, investment and family planning rather than as a standalone tax exercise.

• Should I use a trust or a family investment company for estate planning?

  Neither a trust nor a family investment company (FIC) is automatically better. The right choice depends on your objectives, the assets involved, the amount being transferred, your tax position, how much control you want to retain, and the needs of current and future family members.

  In broad terms, trusts are often used where asset protection, succession planning or control of distributions is important. Family investment companies are often considered where families want a corporate structure to hold investments while retaining control through company shares and voting rights.

  Why this matters

  Trusts and family investment companies are frequently discussed as inheritance tax planning tools, but they operate very differently.

  The wrong structure can create unnecessary complexity, additional administration, ongoing costs, tax charges or governance problems for future generations. The right structure can help manage family wealth across multiple generations while supporting wider financial planning objectives.

  What the answer depends on

  Key factors include:

  • The value of assets being transferred.
  • Whether your primary objective is inheritance tax planning, asset protection or family governance.
  • Whether you want to retain control over investment decisions.
  • The age and circumstances of beneficiaries.
  • The expected investment time horizon.
  • Income tax, capital gains tax and inheritance tax considerations.
  • Future succession plans and family dynamics.
  • Trusts may offer advantages where:
  • You want trustees to control distributions.
  • Beneficiaries are young, vulnerable or financially inexperienced.
  • Asset protection is an important objective.
  • Flexible distribution powers are required.

  Family investment companies may offer advantages where:

  • A family wishes to retain centralised control over investments.
  • The family is comfortable operating a company structure.
  • Different classes of shares are useful for succession planning.
  • Long-term investment management is a priority.

  Common technical traps include:

  • Focusing solely on inheritance tax and ignoring income tax, corporation tax and capital gains tax consequences.
  • Assuming a family investment company automatically provides tax advantages.
  • Transferring assets into trust without understanding potential inheritance tax entry charges.
  • Underestimating administration, reporting and governance requirements.
  • Creating structures that future family members do not understand or wish to maintain.

  How Wingate would look at this

  At Wingate, we would usually begin with the planning objective rather than the product or structure.

  A family that wants to pass wealth efficiently may not need either a trust or a family investment company. In some cases, pensions, beneficiary nominations, wills, lifetime gifting or gifts from surplus income may achieve similar objectives with less complexity.

  Where trusts or family investment companies are being considered, a planner would normally assess inheritance tax, ongoing taxation, investment management, cashflow needs, family governance and long-term succession together rather than treating them as separate issues.

  The most tax-efficient structure is not always the most practical or sustainable structure.

  What to do before acting

  Before establishing a trust or family investment company:

  • Define the primary planning objective.
  • Prepare a summary of assets and expected future growth.
  • Review inheritance tax, income tax, corporation tax and capital gains tax implications.
  • Consider who will control decisions in future decades.
  • Assess administration, compliance and professional costs.
  • Review how the arrangement fits alongside wills, pensions and gifting plans.

  In many cases, the quality of the overall estate plan matters more than the specific legal structure chosen.

• What responsibilities do trustees have when managing trust investments?

  Trustees have a legal duty to manage trust investments in the best interests of the beneficiaries and in accordance with the terms of the trust. They must act with reasonable care and skill, make suitable investment decisions, keep investments under review, and take appropriate advice where necessary.

  Trustees are not expected to guarantee investment returns, but they are expected to follow a proper decision-making process. Poor governance, failure to review investments, or taking excessive or inappropriate risks can expose trustees to complaints and, in some circumstances, personal liability.

  Why this matters

  Many trustees are family members who have little investment experience. However, once appointed, trustees take on legal responsibilities that go beyond simply holding assets.

  Trust investments often form part of long-term family planning. Decisions can affect income needs, future generations, inheritance tax planning, and how fairly beneficiaries are treated. A trustee who leaves money in unsuitable investments, or fails to consider changing circumstances, may not be acting in the beneficiaries’ best interests.

  What the answer depends on

  Key trustee investment duties typically include:

  • Acting in accordance with the trust deed and trust law.
  • Considering whether investments are suitable for the trust’s objectives.
  • Diversifying investments where appropriate.
  • Balancing the interests of different beneficiaries, such as income beneficiaries and future capital beneficiaries.
  • Obtaining and considering proper investment advice unless there is a good reason not to.
  • Reviewing investments regularly.
  • Keeping records of decisions and the reasoning behind them.
  • Managing conflicts of interest.

  The appropriate investment strategy can vary significantly depending on:

  • The trust’s purpose.
  • The age and circumstances of beneficiaries.
  • Required income levels.
  • Time horizon.
  • Tax position.
  • The trust’s tolerance for investment risk.

  One common mistake is assuming trustees should always avoid investment risk. In some cases, being overly cautious can damage beneficiaries’ long-term interests by failing to preserve the real value of trust assets after inflation and tax.

  How Wingate would look at this

  At Wingate, we would usually view investment management as only one part of trustee decision-making.

  A trustee investment strategy should normally be tested against the trust’s objectives, distribution plans, tax position, beneficiary needs, expected investment horizon and wider family circumstances. The investment portfolio should support the purpose of the trust rather than simply aiming for the highest possible return.

  For example, a trust intended to provide income to a surviving spouse may require a different approach from a discretionary trust designed to preserve assets for children and grandchildren over many decades.

  What to do before acting

  Before making investment decisions as a trustee:

  • Read and understand the trust deed.
  • Clarify the trust’s objectives and beneficiary needs.
  • Review existing investments and asset allocation.
  • Document key decisions and trustee discussions.
  • Obtain appropriate professional investment advice where required.
  • Establish a process for regular reviews.

  Trustees should also ensure investment decisions remain aligned with changing market conditions, tax rules and beneficiary circumstances over time.

• How do gifts affect inheritance tax?

  Making gifts during your lifetime can reduce the value of your estate for inheritance tax (IHT) purposes, but the tax treatment depends on how much you give, who receives it and when the gift is made.

  Many gifts are immediately exempt, while larger gifts often fall under the “seven-year rule”. If you survive seven years after making a qualifying gift, it will usually fall outside your estate for IHT purposes. However, there are several exemptions and exceptions that can apply before the seven-year rule is relevant.

  Why this matters

  Lifetime gifting can be one of the most effective ways of reducing a future inheritance tax bill, but people often misunderstand which gifts are exempt and which continue to affect their estate.

  Poor record keeping, giving away more than you can afford, or retaining benefits from gifted assets can create unexpected tax problems.

  What the answer depends on

  Common gifting rules include:

  Annual exemption: You can generally give away up to £3,000 each tax year without the gift being included in your estate for IHT purposes. Unused allowance from one previous tax year may sometimes be carried forward.

  Small gifts exemption: You can usually give up to £250 per person each tax year to as many people as you wish, provided no other exemption is being used for the same recipient.

  Wedding and civil partnership gifts: Specific exemptions apply, subject to relationship and monetary limits.

  Gifts out of surplus income: Regular gifts made from excess income rather than capital may be immediately exempt if they meet HMRC conditions.

  Potentially Exempt Transfers (PETs): Larger gifts to individuals are often covered by the seven-year rule.

  Gifts with reservation of benefit: If you give away an asset but continue to benefit from it, such as gifting a house but continuing to live there without appropriate arrangements, the asset may still be treated as part of your estate.

  Key technical traps include:

  • Assuming every gift becomes tax-free immediately.
  • Failing to keep evidence of gifts and their dates.
  • Giving away capital that may later be needed for retirement, care costs or unexpected expenses.
  • Overlooking the interaction with trusts, which can have different tax rules.

  How Wingate would look at this

  At Wingate, we would usually start with affordability before tax efficiency.

  A gifting strategy should be tested against retirement income needs, investment plans, future care considerations, family circumstances and overall estate planning objectives. In some cases, regular gifts from surplus income may be more attractive than large capital gifts. In others, pension and beneficiary planning may offer greater flexibility.

  The inheritance tax saving is only one part of the decision.

  What to do before acting

  Before making significant gifts:

  • Calculate the likely value of your estate.
  • Review your retirement cashflow and future spending needs.
  • Keep records of gift amounts, dates and recipients.
  • Identify which exemptions may apply.
  • Consider how gifts fit alongside wills, pensions, trusts and other estate planning arrangements.

  A structured gifting plan is often more effective than a series of ad hoc gifts made without a long-term objective.

• What is a trust and when might I use one?

  A trust is a legal arrangement where assets are held by one or more trustees for the benefit of other people, known as beneficiaries. Assets placed into a trust can include cash, investments, property or life assurance proceeds.

  Trusts are often used as part of inheritance tax planning, to protect assets for future generations, to control how and when money is distributed, or to provide for vulnerable family members.

  However, trusts can create tax, administrative and legal consequences, so they are not automatically the right solution.

  Why this matters

  Trusts are sometimes presented as a simple way to reduce inheritance tax or protect family wealth. In reality, the benefits depend on the type of trust, the assets involved and your objectives.

  Used appropriately, a trust can provide control and flexibility. Used incorrectly, it can create unexpected tax charges, reporting requirements, costs and complexity.

  What the answer depends on

  The most suitable structure depends on:

  • The reason for creating the trust.
  • The type and value of assets involved.
  • Who the beneficiaries are.
  • Whether inheritance tax, capital gains tax or income tax may apply.
  • Whether you need ongoing access to the assets.
  • The desired level of control over future distributions.

  Common trust types include:

  • Bare trusts, where beneficiaries generally have an entitlement to the assets at age 18.
  • Discretionary trusts, where trustees decide when and how beneficiaries receive benefits.
  • Interest in possession trusts, where a beneficiary may have a right to trust income while capital passes to others later.

  One common mistake is focusing solely on inheritance tax without considering who controls the assets, how the trust will be administered, and whether the arrangement remains appropriate over time.

  How Wingate would look at this

  At Wingate, we would usually start with the planning objective rather than the trust itself.

  For example, a trust might help if your aim is to protect assets for children or grandchildren, provide for a second spouse while preserving capital for your own family, or manage wealth across generations. However, the same objective may sometimes be achieved more simply through pensions, gifting strategies, wills or beneficiary nominations.

  A planner would normally compare the potential tax benefits against the loss of access, ongoing administration and long-term family implications.

  What to do before acting

  Before setting up a trust:

  • Define exactly what outcome you are trying to achieve.
  • Identify which assets would be placed into the trust.
  • Understand any inheritance tax, capital gains tax and income tax consequences.
  • Consider who would act as trustees and how decisions would be made.
  • Review how the trust fits alongside your will, pensions and wider estate planning.

  It is often easier to choose the right structure once the underlying planning objective is clear.