A guide to inheritance planning for high-net-worth families

Death and taxes are meant to be inevitable, unless you're a Silicon Valley biohacker or you've blocked HMRC's number and now live in a forest hut.

Inheritance tax, however, is not inevitable. It's selective. Few estates will pay it, and even fewer will demoniate the bill: in fact, recently, just 6,400 estates worth more than £1.5 million were responsible for roughly 64% of all inheritance tax collected.

That said, rising house prices, frozen thresholds and plans to include pensions by 2030 mean you might be more likely to be caught out than you'd think – particularly if your wealth sits in property, investments or a business.

Just take a look at how steeply inheritance tax receipts have risen in the past decade, and are predicted to rise further by 2030:

The good news is that inheritance tax is one of the more plan-able taxes in the UK system.

There are established rules, clear timeframes and well-trodden strategies that can materially reduce the eventual bill – as we'll explore below.

Earlier is always easier

It's easy to treat inheritance planning as morbid, or as something to worry about later, when later feels closer. In practice, the opposite is true. The further away you are from the end of life, the more effective planning becomes. 

The earlier you start thinking about it, the more room you have to move. Leave it too late and decisions tend to get made in a hurry – often at a cost.

As we'll see, time is your friend when it comes to lifetime gifts, insurance, and reshaping complex assets gradually rather than under pressure.

The mechanics of inheritance tax

• The headline inheritance tax rate is 40%. Anything above the available allowances is taxed at that level when you die
• The basic allowance is £325,000 per person. It has been frozen for years and, in real terms, is shrinking
• There's an extra allowance linked to the family home, but it only applies if the property passes to direct descendants and it starts to melt away once estates reach the low millions. Many wealthy families never see it in full
• Transfers between spouses or civil partners are tax-free, and unused allowances can usually be carried across. This often delays the problem rather than removing it.
• Everything counts. Property, investments, valuables and most other assets form part of the calculation. Certain gifts made in the seven years before death may also be brought back into the estate, although some assets can qualify for reliefs
• The tax is normally paid by the estate, not the beneficiaries. In practice, that means assets are often sold or borrowed against to hurriedly raise cash.

Lifetime gifting: removing assets from the firing line

Lifetime gifting is the most direct way to reduce an inheritance tax bill. The principle is simple: assets that are no longer in your estate are not taxed at death. 

Small, immediately exempt gifts

Certain gifts are exempt from inheritance tax as soon as they are made.

• You can give away £3,000 per tax year in total under the annual exemption. If unused, this can be carried forward for one year only
• You can also make unlimited gifts of up to £250 per person per year, provided no other allowance is used for the same recipient
• Wedding and civil partnership gifts are exempt up to fixed limits (£5,000 to a child, £2,500 to a grandchild, £1,000 to others).

For high-net-worth families, this can feel like bailing water from a sinking boat with a thimble. Over time, however, small gifts transfer value out of the estate with no conditions and no waiting period. 

Larger gifts and the seven-year rule

More substantial gifts can also fall outside the estate, provided you survive long enough.

• Gifts to individuals are classed as potentially exempt transfers
• If you survive seven years from the date of the gift, it becomes fully exempt from inheritance tax
• If you die within seven years, the gift may still be taxed, with the amount depending on how long you survived.

If death occurs between:

• 3–4 years after the gift, tax is charged at 32%
• 4–5 years, 24%
• 5–6 years, 16%
• 6–7 years, 8%
• After 7 years, 0%

Gifts made within seven years of death also use up the nil-rate band before tax is charged.

This is one example of many that shows why time is your greatest ally. Large gifts only work if the seven-year clock runs out. Miss it, and value you thought was overboard can be hauled straight back on deck.

Gifts from surplus income

One of the most powerful exemptions applies to gifts made from surplus income. This is one of the few parts of the tax code that rewards having more income than you know what to do with.

• There is no seven-year rule and no monetary limit
• The gifts must be habitual and must not reduce your standard of living.

Examples include paying grandchildren's school fees, making regular transfers to children, or funding a trust from surplus income.

The condition is evidence. Executors must be able to show:

• your income,
• your normal expenditure,
• and a consistent pattern of gifting.

When documented properly, this exemption can let large sums slip out of the estate each year without ever attracting inheritance tax.

Pause for thought before gifting 

It should go without saying that once assets are given away, control is usually gone.

You cannot give money to the kids and then behave as if it's still yours when the roof springs a leak, the boiler gives up, or care costs turn out to be higher than expected. 

Gifts with reservation of benefit do not work either. If you give something away but continue to enjoy it as if nothing has changed, HMRC will still treat it as part of your estate.

Giving the house to the children while continuing to live there rent-free is the classic example. Calling it a gift does not make it one as long as your slippers are still warming up by the fireplace.

For many families, outright gifts are only part of the answer. 

Control, flexibility, and tax efficiency often need to be balanced using more structured approaches. That is where trusts and family investment structures come in.

Trusts: control, protection, and the price you pay for both

Trusts exist for cases where you want assets to leave your estate, but still keep a few tentacles wrapped around how they are used.

They tend to appear when outright gifts feel premature: children are young, family situations are layered, or assets are shared or illiquid.

From a tax perspective, trusts stopped being a free lunch a long time ago.

How trusts interact with inheritance tax

Most substantial transfers into trust are chargeable lifetime transfers.

That has the following consequences:

• Value above the nil-rate band triggers an immediate 20% inheritance tax charge on entry.
• Value within the nil-rate band enters the trust with no immediate tax charge.
• Once inside a discretionary trust, the assets are generally outside your estate for inheritance tax at death. Instead, the trust falls into its own inheritance tax regime, including periodic and exit charges if its value exceeds the nil-rate band.

The main charge is the 10-year charge. On each 10-year anniversary, the trust pays up to 6% on the value above the nil-rate band.

When assets leave the trust, there may also be an exit charge, calculated by reference to how long it has been since the last ten-year charge.

Trusts replace a single inheritance tax charge with a series of smaller ones spread over time. Depending on how long assets remain in trust, the total tax paid can be lower than or higher than a single charge at death.

Interest-in-possession trusts work differently. One person has the right to income or occupation during their lifetime. The tax point usually arrives when that interest ends. These structures are common in second marriages, where one spouse needs security but capital is intended to pass to children later.

Bare trusts sit at the other end of the spectrum. Once the beneficiary is entitled, the asset is effectively theirs for tax purposes. 

When trusts earn their keep

Trusts make sense when tax is only part of the problem.

They work well when:

• you want assets to benefit people who are not ready to own them outright
• you want to skip a generation
• you want family assets insulated from divorces, creditors, or poor decisions
• you are prepared to accept ongoing tax and administrative costs in exchange for control.

Some families might accept a 20% charge now to avoid a 40% charge later, particularly when the trust also solves governance problems that a gift never would.

Over time, however, periodic charges and exit charges can push the total tax paid well beyond that initial 20%, especially if assets sit in trust for decades.

Others keep trusts deliberately small, funding them gradually so they sit under the nil-rate band and avoid most periodic charges.

Where people get this wrong

Trusts disappoint people who expect a prettier bank account; once assets are settled, they have left you. Acting as trustee does not turn them back into personal funds, and dipping in as though nothing changed is how arrangements unravel and HMRC starts asking questions.

They also come with upkeep – think valuations, returns, 10-year calculations. 

The exchange is straightforward: less simplicity and less direct ownership in return for control, protection, and structure over time. 

Family Investment Companies: control in a corporate shell

A Family Investment Company is simply a private limited company, except rather than flogging scented candles or doing anything recognisably productive, its sole purpose is to hold and invest the family’s wealth.

Think of it as a piggy bank with Companies House filings and a board meeting. 

Instead of you holding shares, funds, rental property or cash in your own name, the company holds them. Family members hold shares in the company. 

You usually sit on the board as a director; you decide what gets bought and sold. The cleverness lies in the share classes. Parents might hold voting shares – control without much economic upside. Children might hold growth shares – little value on day one, plenty if the portfolio compounds. 

Often the parents inject capital as a loan; the loan stays fixed, the investments hopefully grow, and that growth accrues to whoever owns the equity. If those shares were given away early, and you survive seven years, that future growth no longer inflates your estate.

That is the play: freeze today's value; redirect tomorrow's upside.

Why people bother

Large transfers into trust above the nil-rate band generally trigger a 20% inheritance tax entry charge; subscribing for shares in your own company does not. Gifting those shares is usually a potentially exempt transfer – survive seven years and the value at the date of the gift drops out of your estate.

There's also the annual tax drag to consider. A company pays corporation tax on profits – up to 25%. Many dividends received by a UK company are exempt; gains are taxed at corporate rates.

Compare that with paying additional-rate income tax at 45% or capital gains tax in your own name, and you'll be letting out a full-throated Fred Flintstone "yabba-dabba-doo." 

Money left inside the company compounds with less leakage. Your benefactors can withdraw it later as a dividend and pay tax then, with the decisions around timing in their hands.

Business and Agricultural Reliefs – generous, conditional, political

If you own a trading business, or you're reading this with a bit of straw hanging out of your mouth because the family wealth is tied up in actual working farmland, the inheritance tax landscape looks very different.

Business Relief can remove up to 100% the value of a qualifying trading company from inheritance tax. Agricultural Relief can achieve much the same for farmland and certain farming assets. For decades, this has allowed family companies and farms to pass between generations with little or no 40% charge.

The generosity comes with strict parameters. The company must be carrying on genuine trading activities rather than primarily holding investments, and the ownership conditions must be satisfied, typically including a minimum two-year holding period.

From 6 April 2026, under reforms introduced in the Finance Act 2026, the first £2.5 million of combined qualifying business and agricultural property attracts 100% relief.

Value above that level receives 50% relief, producing an effective 20% inheritance tax charge on the excess at current rates.

Shares listed on the Alternative Investment Market, often used as a late-stage inheritance tax tactic, are also being brought within this new framework. The era of unlimited 100% shelter is narrowing, even if it has not disappeared entirely.

Life insurance – paying HMRC with someone else's cheque

Even after all the planning, there may still be an inheritance tax bill. Insurance doesn't shrink it; it makes sure the cash is there when HMRC comes knocking.

Inheritance tax is usually due within six months. If most of your wealth lives in a company, property or land, that can mean a scramble.

A whole-of-life policy – often written on a joint, second-death basis for couples – pays out a lump sum designed to cover the expected tax. The estate stays intact; the cheque to HMRC comes from the insurer.

One non-negotiable detail: the policy must be written in trust. Own it personally and the payout swells your estate – potentially taxed at 40% like everything else. Put it in trust and the proceeds sit outside, ready to be deployed.

We work with LifeSearch and Heath Protection, two brokers that you could speak with if you're looking for cover in this area. They can also guide you through the process of putting a life insurance policy in trust.

Bottom line 

As Pink Floyd put it in Time, "Every year is getting shorter, never seem to find the time".

That is exactly how estate planning tends to slip down the list – always important, rarely urgent. But inheritance tax waits for no man. It runs on fixed clocks – seven years for gifts, two years for reliefs, frozen bands stretching into 2030 and beyond.

Time is the only variable you cannot negotiate with – so use it while it's still on your side.

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