How to preserve wealth across generations

Things have changed since the days of surprise fortunes and mysterious wills read aloud in creaky old drawing rooms. Inheritances today aren't some Great Expectations-style twist of fate. They're common, calculated, and increasingly central to how wealth moves through British society.

Between now and 2050, around £7 trillion is expected to pass from older to younger generations in the UK. That's enough to give every person in the country over £100,000. Of course, it won't be shared out like that.

The real question is: how much will your family keep? This guide is here to help you answer that, and make sure your money goes where you actually want it to.

The inheritance landscape in the UK

If you've built wealth, you're not alone.

Older generations in the UK now hold record levels of assets – from property and pensions to investment portfolios. That wealth is increasingly being passed down in planned stages: gifts, loans, and inheritances.

Despite its bogeyman reputation, Inheritance Tax (IHT) currently applies to only a small share of estates (roughly 4–5%). But rising house prices, frozen thresholds and plans to include pensions from 2030 mean that by the end of the decade, around one in 10 estates will end up facing a bill.

The chart below shows just how much inheritance tax receipts have risen – and are predicted to rise further – according to the OBR:

How inheritance tax works in the UK

• You can pass on £325,000 tax-free (the "nil-rate band")
• You get an additional £175,000 allowance if you're passing on your main home to direct descendants (like children or grandchildren)
• Couples can combine allowances to shield up to £1 million
• Anything above that is taxed at 40%, or 36% if 10% or more goes to charity
• Transfers to a spouse or civil partner are exempt
• Certain business and agricultural assets may also qualify for 50–100% relief, though both will be capped at £1 million from April 2026
• The value of your estate includes your stock market investments.

The basics are simple enough, but the planning isn't. The rules are laced with conditions, time limits, and potential traps.

In the sections that follow, this guide explains how to navigate this difficult area: how to minimise IHT legally, how to structure family wealth, and how to avoid costly mistakes.

Tax-efficient planning

Inheritance tax might not apply to every estate, but when it does, the results can be ugly.

Fortunately, there are legal ways to reduce the hit. The trick is to start early, use the rules properly, and keep things structured.

Use gifts while you're alive

The most powerful tool in IHT planning is the Potentially Exempt Transfer, or PETs.

If you give away money during your lifetime and live for seven more years, that gift drops out of your estate for inheritance tax purposes.

Die sooner and it's pulled back in – they are counted against your £325,000 nil-rate band first, so contribute towards the "tax-free" portion of the inheritance.

Gifts that add up to more than the nil-rate band are taxed at the full 40% if you pass away within three years. After three years, taper relief reduces the tax due on gifts above the nil-rate band, with no tax after seven years.

On top of that, there are several exemptions you can use every year, regardless of survival:

• Annual exemption: You can give away £3,000 each tax year without it being added to your estate for inheritance tax. If you didn't use last year's allowance, you can carry it forward for one year only
• Small gift exemption: You can give up to £250 per person to as many different individuals as you like (so long as you haven't used another allowance on the same person)
• Wedding gifts: These are exempt within limits – £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else. The gift should be made on or shortly before the wedding to count
• Gifts from surplus income: Regular payments from your post-tax income (not capital) are exempt if they don't reduce your standard of living; however, be aware that they must form part of a pattern (not one-offs) and should be well documented.

These allowances don't sound like much, but used consistently and with good timing, they can get large amounts out of the door without touching your nil-rate band.

Cover the tax bill with life insurance

For families who expect to exceed the thresholds, life insurance can be used as a shield. A whole-of-life policy, held in trust, can pay out just enough to settle an IHT bill.

Since the payout goes directly to beneficiaries, it's outside the estate. The idea is to prevent a fire sale of assets when the tax bill arrives.

We work with LifeSearch and Heath Protection, two brokers that you could speak with if you're looking for cover in this area.

We will receive a commission at no additional cost to you if you use their services via our links, but we do genuinely use these services otherwise we'd never be recommending them. We've even interviewed the founder of Heath Protection on the Making Money Podcast:

Remember, for surplus income gifts, HMRC only accepts these as exempt if they are genuinely regular, come from post-tax income (not capital), and don't reduce your standard of living.

You can't just give a chunk of cash all at once and call it exempt – you'd have to show a history of similar gifts or make a clear plan to repeat them annually.

Proper records and written intent are key. Also, they must come from surplus income. This means you must be earning more than you're spending each month.

Common pitfalls to avoid when gifting

One of the most common traps is the gift with reservation of benefit. That's when you try to give something away but continue using or enjoying it – for example, signing your house over to your children while still living there rent-free.

HMRC won't be fooled that easily. In this case, the property remains part of your estate for inheritance tax purposes, even though you no longer own it on paper.

If the gift was routed through a trust – while you continued benefiting from it – the move could end up being a massive own goal. You'd pay a 20% charge on anything above the nil-rate band (more on how trusts work below), but the asset would still be counted in your estate when you die, triggering the 40% inheritance tax you were trying to sidestep.

Another mistake is attempting to move assets to dodge care fees.

Local authorities apply deprivation of assets rules when assessing means-tested benefits. If they believe you gave wealth away to reduce your care bill, they'll ignore the gift, treating you as if you still owned it. This can apply for up to seven years after the transfer.

We've gone into way more detail about how to plan for long-term care costs – including all the legitimate ways to lower your care bills – in this guide.

The takeaway is this: if you want a gift to be effective, whether for tax or care planning, it has to be genuine. Once it's going, it's gone. HMRC doesn't care if your name's off the deed if your slippers are still by the fire.

Trusts and structures

So far, we've looked at how to give wealth away – cleanly, tax-efficiently, and often. But what if you don't want to give it away outright? Sometimes the intention isn't just to pass money on; it's to protect it, control how it's used, or keep it out of the hands of your children's future exes or other family liabilities.

That's where trusts and other legal structures become worth considering.

In the UK, the three main types of trusts used in estate and succession planning are bare trusts, interest-in-possession (IIP) trusts, and discretionary trusts. Each comes with different levels of control, tax implications, and strategic uses.

Bare trusts

A bare trust is the most straightforward kind.

The trustee holds assets in their name, but the beneficiary has an absolute right to them once they reach adulthood – that's 18 in England, Wales, and Northern Ireland, or 16 in Scotland. It's essentially a delayed handover.

Because the beneficiary is the legal owner, income from the trust is taxed as theirs. If the trust was funded with a lifetime gift, that gift is treated as a PET (Potentially Exempt Transfer) for inheritance tax; it drops out of the settlor's estate if they survive seven years.

Bare trusts are often used to hold savings or investments for children. They're simple, low-cost, and transparent – but they offer no ongoing control. Once the child comes of age, the money is theirs, full stop. That also means no protection from creditors or divorce settlements down the line.

Interest-in-possession trusts

Interest-in-possession (IIP) trusts are a step up in complexity.

These allow a named beneficiary to receive income from the trust as it arises – rental income, dividends, and so on – while the underlying capital is held for someone else. For example, a parent might set one up to ensure a surviving spouse gets income for life, with the capital passing to the children later.

The life tenant (the person entitled to the income) is usually taxed on it, though the full tax treatment involving trustees can be complex.

And in some cases, the residence nil-rate band (RNRB) – that's the additional £175,000 allowance we mentioned at the start of this guide – can still apply if a home is held in trust for children or grandchildren, depending on the trust's structure.

Discretionary trusts

Discretionary trusts give maximum flexibility and control.

The trustees decide who gets what, and when. There's no fixed beneficiary; instead, there's a pool of potential recipients, and the trustees manage the distributions based on evolving needs – say, a grandchild needs school fees paid, or a son loses his job.

This flexibility comes at a steep price.

Discretionary trusts get hit with what's called the "relevant property regime" – basically HMRC's way of saying "we're going to tax these trusts heavily."

That means they face:

• A 20% entry charge on amounts above the nil-rate band (£325,000)
• A 10-year anniversary charge of up to 6% on amounts above the nil-rate band
• Exit charges of up to 6% when assets are distributed.

Any income the trust keeps gets hammered with tax at 45%. Capital gains tax is also punitive – trusts only get half the tax-free allowance that individuals get.

Still, for families who want long-term control, asset protection, or the ability to respond to changing circumstances, discretionary trusts might be worth the extra admin and taxes.

At their core, trusts allow you to separate ownership from benefit. That's useful when your heir is too young, too reckless, or just not ready. It also protects family assets from external threats like bankruptcy and divorce.

Family investment companies (FICs)

Not all families like the idea of putting their assets under the lock and key of a trust. An alternative is the Family Investment Company (FIC). This is just a private company – usually limited – that holds family wealth in the form of investments.

You can split the shares cleverly: parents keep the voting shares (so they stay in control), while children get non-voting shares (so they benefit from any growth). It's like being the CEO while your kids are silent shareholders.

The main benefit of FICs is that they allow for tax-efficient growth. Inside the company, investment returns are taxed at corporation tax rates (currently 19–25%) rather than income tax or dividend tax rates, which are typically higher.

If you gift shares in an FIC to your children, the transfer is treated as a PET – so it only attracts IHT if you die within seven years. Still, if you're in good health, it may be a better deal than using a discretionary trust, which triggers an immediate 20% entry charge on anything above the nil-rate band, regardless of how long you live.

As with trusts, setting up an FIC is complex and best done with professional advice.

The table below provides a quick summary of how the three types of trusts work compared with a Family Investment Company (FIC).

	Bare trust	IIP trust	Discretionary trust	FIC
Control	None once the child comes of age	Trustees control capital	Trustees control everything	Directors control company
Who benefits	Named beneficiary	Income to one; capital to another	Anyone in named pool	Shareholders (e.g. children)
IHT on setup	PET (if gifted during life)	Often PET	20% on amounts above nil-rate band	PET if shares are gifted
Ongoing IHT	None	None	10-year and exit charges	None
Income tax	Paid by beneficiary	Paid by life tenant	45% on retained income	Corporation tax (19–25%)
Best for	Simple gifts to children	Protecting income for spouse	Control, flexibility, protection	Growth and control without a trust
Setup complexity	Low	Medium	High	High

Family governance and succession planning

Good estate planning involves more than just clever tax structures and legal documents.

People – as Succession fans will tell you – are what turn a tidy estate into a four-season HBO drama.

A finely-tuned trust structure won't protect wealth if heirs misunderstand their roles, mismanage assets, or start lawyering up before the funeral's over.

Establishing clear family communication

Many wealthy families struggle with communication around inheritance plans.

One survey found that over 40% of high-net-worth families lacked an updated will or estate plan; more than half had never discussed their inheritance plans openly with heirs.

While dodging awkward conversations might feel like the English way, it frequently leads to confusion, resentment, and costly litigation later on.

Advisers recommend creating clarity early.

Families often begin by defining the core purpose behind their wealth. That could be maintaining a lifestyle, funding philanthropy, or supporting future generations. Many families even draft a family constitution: an informal document that sets out the family's values, shared objectives, and expectations. 

Preparing heirs

Inheriting money is often straightforward. Managing it responsibly is another matter entirely.

To bridge this gap, wealthy families increasingly involve younger generations in their financial decisions. Younger family members often participate in family business meetings, suggest investment strategies, or help shape charitable initiatives.

Some families set up dedicated family funds or impact-investment projects, allowing younger heirs to develop practical experience and demonstrate responsibility.

Wealth advisers describe this process as "emotional mentoring"; it couples financial training with personal guidance. This prepares heirs financially and emotionally, equipping them to handle complex family assets thoughtfully and sustainably.

Don't let it burn in legal squabbles

Inheritance litigation in the high court has surged eightfold in ten years, with claims frequently alleging undue influence, lack of capacity, or unfair distribution. Such disputes become costly fast: one notable case saw legal fees entirely consume a £120,000 estate.

Clear communication, transparent decision-making, and meticulous documentation reduce the risk of such outcomes. That means regularly updating wills and trusts to stop changes in law or family structure making them look out of date and ripe for a challenge.

Assembling a team of professionals

Estate planning isn't the best area to try your hand at DIY.

Given the legal and financial complexity, getting proper advice usually pays off. It's a cross-disciplinary sport, involving family law, inheritance tax, trust administration, and investment management. Rarely will one adviser handle all of these angles alone.

Here are the types of professionals that are usually involved, and why:

Specialist solicitors or estate lawyers

These professionals write wills. They can also help with setting up trusts, and navigating the tangled web of family law (particularly around marriage, divorce, and inheritance).

Specialist solicitors should be accredited by respected bodies like STEP (Society of Trust and Estate Practitioners) or Resolution. They'll ensure documents do exactly what you want them to.

Tax advisers or accountants

You'll want to consider hiring a chartered accountant (ACA) or chartered tax adviser (CTA) for your tax strategy. They will help you with structuring gifts, trusts, and family investment companies (FICs) to cut your inheritance tax, capital gains tax, and income tax bills.

Their fees can look steep at first glance, but typically pale next to the savings.

Financial planners and wealth managers

Look for FCA-regulated professionals who can steer your investments, plan your pension, and manage risk through diversified portfolios.

If you're looking for help in this area, you can speak with our sister company, Most – you'll be able to book a free consultation to talk through your options before deciding whether to go ahead.

Corporate advisers or chartered secretaries

If your wealth includes family businesses, these advisers handle share transfers, shareholder agreements, and corporate governance.

Of course, if you use a private family office or you've assembled one yourself, you'll already have your team in place and ready to go.

Final thoughts

Inheritance shouldn't be about surprise fortunes or mysterious wills; it's about choices.

How much your family keeps – and how much gets swallowed by tax or torn apart in court – depends on what you do while you're still alive.

Plan well, communicate clearly, and involve the right professionals. Otherwise, your legacy might be to create a real-life Bleak House: a drawn-out legal mess where the only real winners are the lawyers (and HMRC).

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