Figures published by Today’s Wills and Probate have confirmed the potential cost of delaying estate planning, and the impact could be significant.
The UK’s wealthiest 10% could pass on nearly £400,000 less if they delay legacy planning for 20 years. That’s an estimated £12.3 billion in preventable Inheritance Tax (IHT), based on post-April 2027 rules.
Estate planning, then, isn’t something to think about only as you get older. Instead, it should form part of your financial plan from the outset.
Keep reading to find out more.
Frozen allowances (among other factors) have seen Inheritance Tax receipts rise in recent years
Over the last few years, frozen IHT thresholds, asset growth, and changes to the tax landscape have pushed more estates into the IHT net.
The nil-rate band is the value of your estate that can be passed on without triggering an IHT liability. It currently stands at £325,000 and has done so since 2009. It is currently frozen until at least 2031. The residence nil-rate band applies if you pass your estate to a direct descendant. This stands at £175,000 and is also frozen until 2031.
For the UK’s most affluent households, the impact of these changes could be significant. Especially where estate planning is left until late.
The research in Today’s Wills and Probate confirms that affluent UK families who make the most of available reliefs and allowances from age 50 pass on an additional £397,000 compared to those of comparable wealth who only start planning at 70.
That’s about £12.3 billion when upcoming changes to the IHT treatment of pensions is taken into account. But even under 2026/27 rules, early planning could reduce a potential IHT bill by an average of £258,000 (£7.9 billion in total).
There are plenty of tax-efficient strategies you can use to lower the potential value of your estate, and Globe IFA are on hand to help, so be sure to get in touch now if you worry imminent changes could impact the amount you’re able to leave behind.
Planning should start at 44.6 years of age, with advisers reporting their typical client engages at 61. In the most exposed cohort – those aged 45 to 49 – 86% have done no estate planning at all. Among those in their 50s, the figure is 70%.
3 strategies to consider
1. Have the difficult conversations
One reason for putting off estate planning is reticence to have the difficult conversations. Talking about money isn’t always easy, and when you add your own mortality into the mix, these discussions can understandably be pushed down the priority list.
But communication is key to tax-efficient planning and avoiding potential disputes after you are gone.
Communication (and education) is especially important in the context of the Great Wealth Transfer, as we will see trillions pass between generations over the next three decades or so. Ensuring your beneficiaries understand their likely inheritance and have the financial education to cope with a sudden windfall could give you peace of mind that your money will be in safe hands.
2. Consider giving while living
Estate planning can seem like something you only need to think about when you get older, but this is only true if you plan to leave all your inheritance in your will.
This might be the most tax-efficient approach, but it has disadvantages; your beneficiaries will be waiting longer to receive a potential inheritance, which may come too late to help them at life’s major milestones, like buying a house or starting a family.
You can gift as much wealth as you like to loved ones during your lifetime, but these gifts will only be IHT free if you live for a further seven years after the date the gift is made. This is known as the seven-year rule, and the gifts are “potentially exempt transfers” (PETs).
Giving earlier in life gives you the greatest chance of surviving for seven years. Some HMRC exemptions allow you to give gifts that are free from tax when you make them.
3. Plan for upcoming changes
From April 2027, most unused pensions and pension death benefits will be out of scope for IHT calculations. Currently, pensions are IHT-sheltered and could have previously formed part of your estate plan. For this reason, the upcoming changes could require a rethink.
Taking steps early to plan for these changes could help to ensure your wealth remains tax-efficient, and you can pass on as much as possible.
You might need to shift back to viewing your pensions as income for retirement, and that will mean finding wealth for passing on from elsewhere.
Get in touch
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage your long-term financial and estate plans.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
