Seven estate planning tips for 2025

The OBR forecasts a huge increase in Inheritance Tax (IHT) receipts over the coming years. By the 2028-2029 tax year, they’re expecting the tax on people’s estates to raise £9.7 billion. That’s helped by the freeze on both the nil-rate band (£325,000) and the residence nil-rate band (£175,000) until 2030. 

That means the money and assets you’ve worked hard to build could be exposed to IHT when the time comes. But, with a bit of careful planning, you can pass on more of your estate to your loved ones.  To help you get started, here are our seven key estate planning tips for 2025. 

1. Review your Inheritance Tax position

Before anything else, you need to review the value of your estate. You might have multiple properties, various investments, or even business interests. It all needs to be accounted for so you can estimate your Inheritance Tax liability.  

This is the first step towards effective estate planning and it’s even more important now. The freeze on Inheritance Tax thresholds until 2030 will create a “fiscal drag” effect, catching more people out. 

It’s quite simple. The threshold for Inheritance Tax doesn’t change, but the value of an estate does. So, as asset and property values increase, more estates are “dragged” over the threshold. 

If you only have a single home, savings and a few investment accounts, a review shouldn’t be too difficult. But for those with more complicated estates, we recommend speaking to our team for professional advice.

2. Create (or update) a will

When a person passes away without a will, the rules of intestacy apply, and stress, confusion, and conflict are likely to follow. Part of estate planning is making sure your wishes are understood and followed. Creating a clear, legally sound will lets you decide who inherits your assets, who cares for your children, and even who manages your affairs after you’re gone.  

However, a will isn’t static. Life changes and relationships evolve, so we recommend reviewing your will once every five years, or after major life events (like marriage or divorce), to ensure that it still reflects your wishes. 

You may also want to set up a Lasting Power of Attorney (LPA). If you lose mental capacity, your LPA will step in to make important financial and health decisions on your behalf.  

All of these decisions help you in retaining control over the future, your family, and your estate.

3. Make use of gifts

Now we’re past the basics, it’s time to consider how you can reduce your estate’s exposure to Inheritance Tax. 

Gifts are one of the simplest, most valuable options. There are different types, too: 

• Every year, you have an annual gift allowance of £3,000. If you don’t use it, you can carry it forward (but only for one year).  
• Making regular gifts out of surplus income can be immediately free from IHT.   
• Additionally, smaller gifts up to £250 per person per tax year won’t affect your estate’s IHT position.  
• Weddings offer extra flexibility. You can gift up to £5,000 to your child, £2,500 to a grandchild, and £1,000 to anyone else – all without any IHT considerations. 
• Larger gifts, known as “Potentially Exempt Transfers,” might become fully exempt if you survive for seven years after giving them. Learn more about the seven-year rule in our guide. 
• Be aware that there are tax considerations if you gift property to your children. 

While gifts are great for estate planning, we suggest speaking to one of our tax advisers first. The rules and paperwork can be complex so having an expert walk you through the process will ensure you get thing right.

4. Set up a trust

There are several types of trusts, each with different rules and tax liabilities. They require regular administration, can be impacted by changes in the law and expensive to set up.  However, for our purposes here, there’s only one thing you need to know. 

Provided certain conditions are met, the assets (savings, property, investments, etc.) you put into a trust no longer belong to you. They belong to the trust. That means they no longer form part of your estate for Inheritance Tax purposes.  

But if you want to set up a trust, you’ll need careful planning and expert guidance to ensure you fully understand how the trust works. This is important, with the collapse of McClure Solicitors in 2021 showing the various issues of poorly set-up trusts and the significant impact on beneficiaries.

5. Life assurance in trust

If you decide to go ahead with a trust, there’s an extra step you can take: placing your life insurance policy in the trust. 

When your policy pays out, the funds go directly to your chosen beneficiaries through the trust. This means the payout remains outside your estate. No 40% tax bite. No delays from probate. Just timely financial support when your loved ones need it most. 

If you’ve followed our advice and valued your estate (see tip one), you’ll have an estimate of your Inheritance Tax liability.  

The smart approach is to take out a policy that covers your estimate. That way, your beneficiaries can use the payout to settle your Inheritance Tax bill, rather than needing to sell assets from your estate.

6. Plan for upcoming IHT changes

The freeze to the Inheritance Tax thresholds wasn’t the only news for estate planning in the Autumn 2024 Budget. Change is coming – and it’s significant. Here’s what you need to know: 

• Agricultural Property Relief (APR): Previously, farmland qualified for 100% tax relief from IHT. From April 2026, this will be capped at £1 million. Anything above the cap will incur a 20% Inheritance Tax rate. 
• Business Property Relief (BPR): It’s the same for business assets, too. From April 2026, qualifying business assets will have a £1 million cap on tax relief, with anything above the threshold incurring a 20% charge. 
• Pensions: Historically, pensions have not been considered part of a person’s estate. However, that changes from April 2027, with unused pension pots becoming subject to Inheritance Tax. 
• Non-Domiciled Individuals: Perhaps the most significant change is the switch, effective April 2025, from a domicile-based to a residence-based system. IHT now applies to non-doms who’ve lived in the UK for at least 10 of the previous 20 years, affecting their worldwide assets (not just those in the UK). Even if they leave the UK, they could face an IHT liability for up to 10 years afterwards. 

These changes received extensive coverage in the news, so you’re likely well aware. But it’s best to be prepared and start thinking about how this will affect your estate in the future.

7. Donate to charity

Finally, why not consider donating to charity? It’s not only a lovely gesture, but it benefits your estate too. Leaving at least 10% of your net estate to charity reduces your Inheritance Tax rate from 40% to 36%, a notable saving.

For example, let’s imagine you have an estate worth £900,000 (after allowances). You own your main residence, and you’re leaving it to your children. Therefore, you qualify for both: 

• The nil-rate band of £325,000 
• The residence nil-rate band of £175,000 
• Total tax-free allowance: £500,000 

Scenario one: No Charitable Donation

• Taxable estate: £900,000 – £500,000 = £400,000 
• IHT rate: 40% 
• IHT due: £400,000 * 40% = £160,000 
• Amount received by beneficiaries: £900,000 – £160,000 = £740,000 

Scenario two: 10% Charitable Donation

• Charitable gift (10% of estate) = £90,000 
• Taxable estate: £900,000 – £500,000 – £90,000 = £310,000 
• IHT rate: 36% 
• IHT due: £310,000 * 36% = £111,600 
• Amount received by beneficiaries: £900,000 – £90,000 – £111,600 = £698,400 

Your beneficiaries receive £41,600 less, but the charity receives £90,000, and the tax bill is reduced by £48,400 (which could be a big bonus for cash flow). That’s a strong trade-off if you have a charity that’s close to your heart. 

Need Estate Planning advice?

It can be strange to think about life after you’re gone, but carefully made plans can help protect your loved ones. We hope you’ve found the estate planning tips in this article useful, especially as you start considering your next steps. These are seven basic steps you can take, we can assist in providing you with bespoke sophisticated planning to meet your requirements. 

As part of our Estate Planning services, we offer everything from Inheritance Tax advice to preparing a will. Get in touch today to find out more.