Inheritance tax and estate planning

Inheritance tax is a voluntary tax!

You’ve spent a lifetime building your wealth, but did you know up to 40% of the value of your estate may go to HMRC when you die? Inheritance tax can severely reduce the amount of money that eventually passes onto your loved ones but the good news is that there are many steps you can take to mitigate inheritance tax. At Borealis Financial Planning we specialise in estate planning and helping families pass as much of their wealth onto their beneficiaries as possible.

What is Inheritance Tax?

Inheritance Tax (IHT) is up to 40% tax on your estate when you pass away. It typically applies to estates over the value of the nil-rate band which is £325,000.

Many people are unaware that the inheritance tax bill must be paid by their Executors before they can access the money in the estate so it could leave your family with a large financial burden and significant stress at an already emotional time. It must be paid within 6 months of your death with interest being added to late payments. Probate cannot be granted until the inheritance tax bill is paid.

Effective inheritance tax planning can significantly reduce or even eliminate this tax burden for your loved ones.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

What assets are inside of your estate?

The majority of your assets will fall inside of your estate, including your family home, rental properties, cars, ISAs, investments and family heirlooms. In fact, your worldwide assets at the time of your death, with a few exceptions. From April 2027 this will also include most pensions.

Why should you should you plan ahead to reduce inheritance tax?

Without planning ahead, a large portion of your wealth could go to HMRC instead of your loved ones. By taking expert financial advice from Borealis Financial Planning, you could take advantage of exemptions, reliefs, and tax-efficient strategies to preserve and pass more of your wealth onto the next generation.

With house prices continuing to rise it is likely that more and more families will have an inheritance tax liability.

What is the residence nil-rate band?

The family home is likely to be a large part of your total estate value. The government have added a ‘residence nil rate band’ of £175,000 per person if you leave your main residence to a direct descendant. This is on top of the nil-rate band of £325,000 meaning an individual can effectively shelter up to £500,000 of their estate from inheritance tax. Anything over these bands will usually be taxed at 40%.

Estates over the value of £2 million will lose the residence nil rate band at a rate of £1 for every £2 over the value of £2 million.

The rules and allowances are complex. It is worth speaking to a financial adviser who can calculate your potential inheritance tax liability and design a plan that will help you reduce the inheritance tax liability.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

5 ways to reduce your inheritance tax bill

  • Trusts

    The most effective way of protecting and passing on wealth. Our Trust solutions can protect your wealth while still paying you an income, or creating lump sum pots to pay the eventual inheritance tax bill, or pay for your care in old age.

    Trusts are not regulated by the Financial Conduct Authority.

  • Gifting and allowances

    Making sure you using all of your annual allowances and lifetime gifting wisely to reduce your IHT liability

  • Charitable Giving & Philanthropy

    Leave a legacy aligned with your values and mitigate IHT at the same time

  • Specialist Insurance

    For some people, insurance is part of the inheritance tax mitigation solution

When should I start planning for Inheritance Tax?

The sooner, the better. Inheritance tax planning is most effective when started early, especially if you’re considering large gifts or setting up trusts as some of these inheritance tax solutions take seven years to fall outside of your estate and be completely free from inheritance tax.

If you are concerned about the seven years, then there are other options which are immediately outside of your estate which can be explored with you and also some two year solutions.

The aim of careful Inheritance Tax planning is to pass as much of your estate as possible to your loved ones while allowing you to maintain control and flexibility over your assets in your lifetime.

There are various inheritance tax solutions that you can consider but it is important to take financial advice and find out which options are best for your individual circumstances.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Find out if we can help you. Book a meeting today – it’s completely no-obligation

To find out which options are available to you to potentially reduce your inheritance tax bill, you can book in a no-obligation meeting with us. The initial meeting should take around one hour and can be at your home address, at at an office in Bristol, Cirencester or London or on Teams/Zoom.

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Frequently Asked Questions

  • In the current tax year (2025/26), everyone has nil rate band of £325,000. Anything over this band is usually taxed at 40%. However, if you leave your home to a direct descendant you may benefit from the residence nil rate band of £175,000 on top of this meaning you can shelter up to £500,000 from inheritance tax.

    with 40% normally charged on any amount above that. However, this Inheritance Tax-free allowance increases to £500,000 for anyone who leaves their home to their 'direct descendants'.

  • Yes, we can refer you to one of our trusted solicitors.

    Wills involve the referral to a service that is separate and distinct to those offered by St. James's Place.

  • A Trust is a legal arrangement in the UK where assets are held by trustees for the benefit of named beneficiaries. Trusts are outside of your estate.

  • Yes, we offer discretionary trusts which provide you with flexibility to choose who benefits from the trust and when.

  • You can take 25% tax free lump sum from your pension. However, it is important to note that pensions are outside of your estate and by taking the money you are putting it back inside your estate. It is important to take financial advice before making any decisions regarding this.

  • This tax year (2025/26) you can gift up to £3,000 tax free. You can gift larger amounts and these will be outside of your estate after 7 years.