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How to Use Your Will to Plan for Inheritance Tax

· 32 min

Note: The following scenario is fictional and used for illustration.

Emma Richardson never thought inheritance tax applied to "people like her." As a 58-year-old secondary school teacher from Manchester with a £315,000 house and £170,000 in savings, she assumed her modest estate would pass tax-free to her husband, then their two children. But when she sat down to write her will, the calculation shocked her: without proper planning, her children could face a £64,000 inheritance tax bill when both she and her husband were gone.

Emma's situation is increasingly common. In 2022-23, 4.62% of UK deaths resulted in an inheritance tax charge - 31,500 estates paying a total of £6.70 billion to HMRC. With inheritance tax thresholds frozen at £325,000 until April 2031 while property values rise, more families are being pulled into the tax net every year.

The good news? Your will is one of your most powerful tools for reducing or eliminating inheritance tax legally - if you know how to use it properly.

Table of Contents

Understanding the UK Inheritance Tax Thresholds

Before you can plan effectively, you need to understand exactly when inheritance tax applies and how much your estate can pass on tax-free.

The nil-rate band (NRB) currently stands at £325,000 - the amount everyone can leave tax-free regardless of who inherits or what assets you own. This threshold has been frozen since 2009-10 and will remain at this level until at least April 2031. While house prices have more than doubled in many areas since 2009, this allowance hasn't moved a penny.

If you own your home and plan to leave it to your children, grandchildren, or step-children, you may qualify for the residence nil-rate band (RNRB) of £175,000. This additional allowance, introduced in April 2017, brings your total tax-free threshold to £500,000 - but only if your estate meets specific criteria we'll cover shortly.

Everything above these thresholds is taxed at 40% for death transfers. That's not 40% of your total estate - it's 40% of the amount over the threshold. But when you're talking about tens or hundreds of thousands of pounds, that 40% adds up quickly.

Here's where it gets more complex: the RNRB isn't available to everyone. If your estate exceeds £2 million, the RNRB reduces by £1 for every £2 over that threshold. This means estates worth £2.35 million or more lose the entire £175,000 RNRB.

Let's see how this works with real numbers.

David's estate is worth £400,000. After deducting the £325,000 nil-rate band, £75,000 is taxable at 40%, creating a £30,000 inheritance tax bill.

Sarah's estate is worth £475,000, including her home, which she leaves to her daughter. She qualifies for the full £500,000 combined allowance (£325,000 NRB plus £175,000 RNRB), so her estate pays zero inheritance tax.

James's estate is worth £2.4 million. The RNRB taper kicks in: (£2.4 million minus £2 million equals £400,000) divided by 2 equals £200,000 reduction. Since the RNRB is only £175,000, he loses it entirely and only gets the basic £325,000 allowance. His taxable estate: £2.075 million, resulting in an inheritance tax bill of £830,000.

Understanding these thresholds is essential because they determine what planning strategies will work for your estate size. Fewer than 1 in 20 estates currently pay inheritance tax, but this percentage is climbing steadily as frozen thresholds meet rising property values.

How Your Will Determines Your Inheritance Tax Bill

Your will isn't just about deciding who gets what. The structure of your will directly determines how much inheritance tax your estate pays - sometimes by tens of thousands of pounds.

When you die, your estate value is calculated by adding up everything you own: property, savings, investments, possessions, and business interests. From this total, you deduct mortgages, loans, debts, and funeral costs. What's left is your net estate for inheritance tax purposes.

Your will then directs where these assets go. Here's the critical part: different beneficiaries receive different tax treatment. Gifts to your spouse or civil partner are completely exempt from inheritance tax with no limit. Gifts to your children or other individuals are taxable above the nil-rate bands. Gifts to registered charities are fully exempt.

The sequence and structure of bequests in your will determines which assets use exemptions and which face the 40% tax rate. This is where understanding what to include in your will becomes crucial for tax planning.

Without a will, intestacy rules distribute your estate according to a legal formula that may not be tax-efficient. For example, intestacy might split your estate between your spouse and children, wasting the spousal exemption that could have sheltered the entire amount.

Michael leaves his £600,000 estate equally to his wife and two children. His wife inherits £200,000 tax-free under spousal exemption, but the children's £400,000 share is immediately taxable. After deducting the £325,000 nil-rate band, £75,000 is taxed at 40%, creating a £30,000 tax bill. By structuring his will differently, Michael could have avoided this entirely.

Rachel takes a different approach. She leaves her entire £600,000 estate to her husband, who inherits it completely tax-free under spousal exemption. When he later dies, their combined estate can use both their nil-rate bands (£650,000 total if they both qualify for the basic NRB), significantly reducing the eventual tax bill when assets pass to their children.

The difference between these approaches? A simple change in will structure that saves the family £30,000.

Your will is a tax planning tool, not just a distribution document. Strategic structuring can save your family thousands without requiring complex legal arrangements or expensive advice.

Maximising Your Nil-Rate Band and Residence Nil-Rate Band

Getting both the nil-rate band and the residence nil-rate band requires understanding exactly what qualifies and how to structure your will to claim them.

The £325,000 nil-rate band is straightforward - everyone gets it regardless of who inherits or what assets you leave. You could leave your entire estate to friends, distant relatives, or a dozen different charities, and you'd still get the full NRB.

The residence nil-rate band is more demanding. Four conditions must all be met: you must die on or after 6 April 2017, your estate must include a residence you lived in as your home, that residence (or proceeds if you downsized after 8 July 2015) must pass to direct descendants, and your estate must be under £2 million before the taper applies.

Direct descendants means children (biological, adopted, step-children), grandchildren, and great-grandchildren. It does not include siblings, nieces, nephews, unmarried partners, or friends - no matter how close they are to you.

This is where your will's exact wording becomes critical. Your will must explicitly leave your home to qualifying descendants to claim the RNRB.

Emma's will states: "I leave my property at 14 Oak Avenue, Bristol to my daughter Sophie Richardson." Sophie is a direct descendant, so the estate qualifies for the £175,000 RNRB plus the £325,000 NRB, totaling £500,000 tax-free. This structure saves Sophie £70,000 in inheritance tax (£175,000 RNRB multiplied by 40% tax rate).

Compare this to Peter's will: "I leave my property at 14 Oak Avenue, Bristol to my partner James Thompson." James and Peter have lived together for 15 years, but they're not married or in a civil partnership. James isn't a direct descendant, so the estate only gets the £325,000 NRB. The missing RNRB costs James an additional £70,000 in inheritance tax.

The taper makes planning even more important for larger estates. Margaret's estate is worth £2.2 million. The taper calculation: (£2.2 million minus £2 million) divided by 2 equals £100,000 reduction in RNRB. Her available RNRB becomes £175,000 minus £100,000, leaving £75,000. Her total tax-free allowance: £325,000 NRB plus £75,000 reduced RNRB equals £400,000. Without understanding the taper, Margaret might structure her will assuming she has the full £500,000 allowance, leaving her family facing an unexpectedly large tax bill.

If you sold your main home and downsized to a smaller property or moved into rental accommodation after 8 July 2015, you may still claim some or all of the RNRB through downsizing relief. This allows you to claim the RNRB based on the difference in value between your former home and your current residence, provided you leave equivalent assets to direct descendants.

RNRB Qualification Checklist:

  • Your estate includes your main residence
  • The property passes to children, grandchildren, or step-children (direct descendants)
  • Your estate value is under £2 million (or you calculate the taper reduction)
  • Your will includes an explicit bequest of property to descendants

The residence nil-rate band can save your family £70,000 in inheritance tax, but only if your will explicitly leaves your home to direct descendants. This doesn't happen automatically - it must be structured correctly in your will.

Using Spousal Exemption to Double Your Tax-Free Allowance

For married couples and civil partners, the spousal exemption is the most powerful inheritance tax planning tool available - and it's completely unlimited.

Under Section 18 of the Inheritance Tax Act 1984, all assets passing between spouses or civil partners are exempt from inheritance tax with no upper limit. You could pass £10 million to your spouse, and it would be completely tax-free.

But the real power comes from how unused allowances transfer. When the first spouse dies, any unused percentage of their nil-rate band and residence nil-rate band automatically becomes available to the surviving spouse. The survivor can ultimately use up to 200% of each band - potentially £1 million tax-free (two times £325,000 NRB plus two times £175,000 RNRB).

When Patricia died in 2020, she left her entire £400,000 estate to her husband Colin. Inheritance tax due: £0 under spousal exemption. Because she left everything to Colin, she used 0% of her £325,000 NRB and 0% of her £175,000 RNRB.

When Colin dies in 2026 with a £750,000 estate including their home (which he leaves to their children in his will), he can claim: his own £325,000 NRB, Patricia's transferred £325,000 NRB, his own £175,000 RNRB, and Patricia's transferred £175,000 RNRB. Total tax-free allowance: £1 million. The entire estate passes to their children with zero inheritance tax.

Compare this to Graham's approach. When Graham died in 2022, he left £325,000 directly to his children (using his full NRB) and the remainder to his wife. He used 100% of his NRB, meaning 0% transfers to his wife. When she later dies, she only gets her own £325,000 NRB - not the doubled £650,000 they could have achieved together.

To claim the transferred allowances when the surviving spouse dies, executors must complete Form IHT402 as part of the inheritance tax return. This form calculates what percentage of allowances were used at the first death and claims the unused portion.

The spousal exemption applies equally to same-sex couples in civil partnerships and married couples. However - and this is critical - it does not apply to unmarried couples, no matter how long you've been together. Cohabiting partners receive no spousal exemption and face the full 40% tax rate on amounts above the basic nil-rate band.

Will Structure First Death Tax Second Death Tax Total Family Tax
All to spouse first (£750,000 combined estate to children at second death) £0 £0 £0
Split between spouse and children at first death (£375,000 each time) £20,000 £20,000 £40,000

For most married couples with combined estates under £1 million, leaving everything to the surviving spouse first, then to children, maximizes tax-free allowances and keeps planning simple. You protect your spouse's financial security while preserving the maximum amount for your children.

Charitable Gifts: Reducing Tax Rates While Supporting Causes

Charitable giving through your will serves double duty: supporting causes you care about while significantly reducing your family's inheritance tax bill.

Under Section 23 of the Inheritance Tax Act 1984, all gifts to registered UK charities are 100% exempt from inheritance tax. Every pound you leave to charity is one less pound in your taxable estate.

But there's an additional benefit many people miss: the charitable rate reduction introduced by Finance Act 2012. If you leave 10% or more of your net estate to charity, the inheritance tax rate on the rest of your estate drops from 40% to 36%.

The calculation uses your "net estate" - your total estate value minus the nil-rate band, residence nil-rate band, spousal exemptions, and other reliefs. You calculate 10% of what's left after those deductions.

Margaret's estate is worth £800,000. After applying the £500,000 combined allowances (£325,000 NRB plus £175,000 RNRB), £300,000 remains taxable. She leaves £30,000 to Cancer Research UK - exactly 10% of the taxable amount.

Result: £30,000 goes to charity tax-free. The remaining £270,000 is taxed at the reduced 36% rate, creating a £97,200 tax bill. Without the charitable gift, the entire £300,000 would be taxed at 40%, creating a £120,000 tax bill.

The charitable gift saves Margaret's family £22,800 while giving £30,000 to cancer research. The net cost to her family is only £7,200 (£30,000 gift minus £22,800 tax saving).

David takes a simpler approach. He leaves £50,000 to the RNLI in his will. This amount is completely exempt from inheritance tax, reducing his taxable estate by £50,000 and saving his family £20,000 in tax (£50,000 multiplied by 40%).

For charitable gifts to qualify, the charity must be registered with the Charity Commission (England and Wales), OSCR (Scotland), or the equivalent regulatory body. You can verify registration status on the Charity Commission register.

Your will can specify exact amounts ("I leave £25,000 to Macmillan Cancer Support") or percentages ("I leave 10% of my estate to the British Heart Foundation"). You can split gifts between multiple charities, and they all count toward the 10% threshold.

Calculation steps for the 10% charitable rate reduction:

  1. Calculate your gross estate value
  2. Deduct nil-rate band, residence nil-rate band, and spousal gifts to find your net taxable estate
  3. Calculate 10% of that net taxable estate
  4. If your charitable gift equals or exceeds 10%, the remaining estate is taxed at 36%
  5. If your charitable gift is less than 10%, the remaining estate is taxed at 40%

Charitable gifts through your will reduce inheritance tax while creating a lasting legacy. Even leaving 10% to charity can save your family thousands through the reduced rate, effectively making the gift far less expensive than it appears.

The Seven-Year Rule and Lifetime Gifting Strategy

Your will planning should coordinate with any lifetime gifts you've made or plan to make, because gifts within seven years of death can still be taxed as part of your estate.

When you gift assets to individuals during your lifetime (not to trusts), these become potentially exempt transfers (PETs) under Section 3A of the Inheritance Tax Act 1984. If you survive seven years after making the gift, it becomes completely exempt from inheritance tax. If you die within seven years, the gift is included in your estate for tax calculations.

The seven-year clock starts ticking the day you make the gift. For gifts made three to seven years before death, taper relief reduces the tax (though not the value included in your estate):

  • 3-4 years before death: 20% relief (32% effective tax rate)
  • 4-5 years before death: 40% relief (24% effective tax rate)
  • 5-6 years before death: 60% relief (16% effective tax rate)
  • 6-7 years before death: 80% relief (8% effective tax rate)
  • 7+ years before death: 100% relief (0% tax)

Helen gifted £200,000 to her son in 2018 to help him buy a house. She dies in 2026, eight years later. The gift is completely exempt and not included in her estate for inheritance tax purposes. Her will distributes her remaining assets without this £200,000 counting against her allowances.

Robert gifted £350,000 to his daughter in 2021. He dies in 2026, five years later. The gift is included in his estate but receives 40% taper relief. The £350,000 exceeds his £325,000 nil-rate band by £25,000. Tax due: £25,000 multiplied by 40% tax rate multiplied by 60% (after applying 40% taper relief) equals £6,000. His daughter must pay this tax on the gift she received five years ago.

Not all gifts count toward the seven-year rule. You have several annual exemptions that create immediately exempt gifts:

  • £3,000 annual exemption (can carry forward one unused year)
  • £250 small gifts to unlimited recipients per year
  • Regular gifts from surplus income that don't reduce your standard of living
  • Gifts between spouses or civil partners (always exempt)

The most dangerous trap in lifetime gifting is the "gift with reservation of benefit." If you gift an asset but continue to benefit from it, HMRC treats it as still part of your estate regardless of how long ago you made the gift.

Patricia transferred her £400,000 house to her children in 2020 but continued living in it rent-free. When she dies in 2026, HMRC includes the house's current value in her estate for inheritance tax purposes despite the 2020 transfer. The gift with reservation rules mean the seven-year clock never started.

In 2023-24, HMRC investigated 220 cases of gifts with reservation, bringing £61 million back into estates for inheritance tax calculations. The most common scenario: parents "gifting" their home to children while continuing to live there without paying market-rate rent.

To make a valid gift of property and have it count toward the seven-year rule, you must either move out completely or pay the new owners full market-rate rent as if you were an unrelated tenant. There's no middle ground.

Your will should account for lifetime gifts you've made. Don't promise the same assets twice - if you've already gifted £100,000 to your daughter, don't leave her another £100,000 of the same funds in your will. Coordinate your lifetime planning with your will to create a coherent overall strategy.

Lifetime gifting reduces your estate for inheritance tax purposes, but you must survive seven years and genuinely give up control and benefit from the gifted assets. Your will should work alongside these gifts, not duplicate them.

Common Inheritance Tax Planning Mistakes in Wills

The difference between a tax-efficient will and one that wastes opportunities can cost your family tens of thousands of pounds. Here are the most common and expensive mistakes.

Mistake #1: Not Having a Will or Failing to Update It

When you die without a will, intestacy rules distribute your estate according to a fixed legal formula. For married couples with children, the spouse receives the first £322,000 plus all personal belongings and half the remainder. Children receive the other half.

This split can waste the spousal exemption. If you have a £600,000 estate, your spouse receives £461,000 tax-free, but your children immediately receive £139,000. After deducting the nil-rate band, they face tax on amounts above £325,000 - but the split distribution has already wasted the opportunity to pass everything to your spouse first, then use combined allowances later.

Old wills present different problems. A will written in 2005 might assume thresholds that no longer exist or reference a family structure that's changed completely after divorces, remarriages, or estrangements.

Mistake #2: Gifting Property But Continuing to Live There

This is the single most investigated inheritance tax arrangement. Parents transfer their home to children, expecting the seven-year clock to start ticking and the property to leave their estate for tax purposes. But they continue living there rent-free.

HMRC treats this as a gift with reservation of benefit. The property remains in your estate indefinitely, regardless of how long ago the "gift" occurred. The 220 investigations in 2023-24 that recovered £61 million prove HMRC actively pursues these arrangements.

Mistake #3: Not Utilizing Both NRB and RNRB

Many wills leave "everything to my spouse," which is tax-efficient at the first death but may waste the residence nil-rate band if the home should have gone directly to children.

For the RNRB to apply, the residence must pass to direct descendants. If you leave your home to your spouse (even though it's tax-free under spousal exemption), you may lose the opportunity to claim the RNRB for that property at the first death. While unused RNRB can transfer to a surviving spouse, complex estates may not use both effectively.

The potential cost: £70,000 (£175,000 RNRB multiplied by 40% tax rate) in additional inheritance tax that could have been avoided.

Mistake #4: Failing to Coordinate Will with Lifetime Gifts

Thomas's will leaves his daughter £200,000 from his savings. But three years before he dies, he gifts her £350,000 to help buy a business. He dies before updating his will.

Now his estate faces two problems: the £350,000 gift is included in his estate calculation (failed PET within seven years), and his will promises another £200,000 that may not exist separately. The overlap creates confusion, potential family disputes, and unnecessary tax on both amounts.

Mistake #5: Missing the 10% Charitable Gift Rate Reduction

Sarah wants to support cancer research and plans to leave £25,000 to Cancer Research UK from her £800,000 estate. After deducting her £500,000 combined allowances, her taxable estate is £300,000.

Her charitable gift is £25,000 - which equals 8.3% of the £300,000 taxable amount. She's just under the 10% threshold (which would be £30,000). By leaving only £5,000 more to charity, she would unlock the 36% reduced rate on the remaining £270,000.

At 40%: £300,000 taxable minus £25,000 charity equals £275,000 multiplied by 40% equals £110,000 tax.

At 36% (with £30,000 to charity): £300,000 taxable minus £30,000 charity equals £270,000 multiplied by 36% equals £97,200 tax.

By increasing her charitable gift by £5,000, Sarah's family saves £12,800 in tax - making the additional charity gift effectively cost her family nothing while supporting a cause she cares about.

Mistake #6: Ignoring the £2 Million RNRB Taper

Estate values change over time, especially with rising property prices. An estate worth £1.9 million when you write your will might grow to £2.3 million by the time you die.

Once your estate exceeds £2 million, you lose £1 of RNRB for every £2 over the threshold. At £2.35 million, you lose the entire £175,000 RNRB, adding £70,000 to your inheritance tax bill.

Without monitoring your estate value and understanding the taper, you might assume you have the full £500,000 allowance when you actually only have £325,000.

Mistake #7: Unmarried Couples Assuming Spousal Exemption Applies

Lisa and Mark have lived together for 22 years, own their £600,000 home jointly, and consider themselves married in every way except legally. When Lisa dies, she leaves everything to Mark.

Mark receives no spousal exemption. He's treated as any other beneficiary, subject to the 40% inheritance tax rate on amounts above the nil-rate band. The tax bill: (£600,000 minus £325,000) multiplied by 40% equals £110,000.

If Lisa and Mark had legally married or entered a civil partnership, the entire £600,000 would pass to Mark tax-free under spousal exemption. The cost of not formalizing their relationship: £110,000.

Mistake #8: Not Nominating Pension Beneficiaries Separately

Pensions don't pass through your will. You must complete a separate "expression of wishes" form with your pension provider to direct where your pension goes when you die.

Without a completed nomination form, the pension provider has discretion over where your pension goes. They may choose differently than your will directs, creating family disputes and potential tax inefficiencies.

From April 2027, unspent defined contribution pension pots will be included in inheritance tax calculations, making pension nominations even more important for overall estate planning.

The cost of inheritance tax planning mistakes can reach tens of thousands of pounds. Most errors stem from not understanding how will structure affects tax calculations or making assumptions about exemptions that don't apply to your situation.

When to Consider Trusts and Advanced Tax Planning

For most people with straightforward estates between £325,000 and £1 million, a well-structured will provides all the tax planning you need. But certain situations require specialist advice and potentially more complex arrangements like trusts.

Trusts can hold assets outside your estate, providing tax benefits and control over how and when beneficiaries receive assets. But they come with significant complexity, ongoing administration costs, and their own tax rules that can sometimes create more tax than they save.

Nil-rate band discretionary trusts were popular before the transferable nil-rate band rules changed in 2007. These trusts preserved the first spouse's nil-rate band while giving the survivor access to trust assets. Today, with automatic nil-rate band transfers between spouses, these trusts are less commonly needed for standard estates.

Life interest trusts (also called life rent trusts in Scotland) give a surviving spouse the right to income or use of assets during their lifetime, with the capital passing to children when the second spouse dies. These can protect children from previous marriages while providing for a current spouse.

Business property relief (BPR) provides 50% or 100% relief from inheritance tax on business assets and shares in unlisted trading companies. From April 2026, a new £1 million cap applies to the combined total of BPR and agricultural property relief (APR) that can receive 100% relief. Amounts over £1 million receive only 50% relief.

Agricultural property relief works similarly for agricultural land and property. Qualifying assets receive 50% or 100% relief, subject to the same £1 million cap from April 2026.

These reliefs require specialist advice to claim correctly. The qualifying conditions are complex, and the new caps create planning challenges for business owners and farmers with significant holdings.

From April 2027, unspent defined contribution pension pots will be included in your estate for inheritance tax purposes. Currently, pensions pass outside your estate and aren't subject to inheritance tax, making them powerful planning tools. The 2027 changes will require new strategies for people with large pension pots.

You should seek professional advice if:

  • Your estate value exceeds £1 million (complex allowance interactions and potential taper issues)
  • You own business assets or shares in companies (business property relief planning)
  • You own agricultural land or farms (agricultural property relief planning)
  • You have property in multiple countries (international tax and domicile issues)
  • You're considering setting up trusts for asset protection or control
  • You have dependent adult children with disabilities (special trusts needed)
  • You're not UK-domiciled or have complex residence history
  • You have unspent pension pots over £500,000 (post-2027 planning)
  • Family circumstances are complicated (previous marriages, estranged children, business partnerships)

What WUHLD can handle:

  • Straightforward estates under £1 million
  • Standard spousal exemption and nil-rate band/residence nil-rate band planning
  • Direct bequests to children, family members, and charities
  • Clear property transfers to direct descendants for RNRB qualification
  • Simple lifetime gift coordination

Specialist inheritance tax solicitors typically charge £300-500 per hour for consultations. A full estate plan with trusts can cost £2,000-5,000 or more depending on complexity. WUHLD provides comprehensive will creation with basic tax planning for £99.99.

For many people, the smart approach is starting with WUHLD to create a solid, tax-efficient will foundation, then consulting a specialist only if your circumstances genuinely require advanced planning beyond standard will structures.

Most people with straightforward estates can implement effective inheritance tax planning through a properly structured will without expensive trusts or complex arrangements. Know when you've crossed the line into "needs specialist advice" territory, but don't assume you need it when a well-structured will will do the job.

Creating Your Tax-Efficient Will: Next Steps

You've learned the strategies. Now it's time to implement them. Here's your step-by-step action plan for creating a tax-efficient will.

Step 1: Calculate Your Estate Value

List everything you own: your home and any other property, savings accounts, ISAs, investments, business interests, pension pots, valuable possessions like jewelry or artwork, and your car. From this total, deduct your mortgage balance, personal loans, credit card debts, and estimated funeral costs.

This gives you your current estate value. Now project forward - property values typically grow 3-5% annually in many UK regions, and your retirement savings will accumulate over time. Where will your estate value likely be in 10, 20, or 30 years?

Step 2: Identify Your Tax Planning Opportunities

Check if you qualify for the residence nil-rate band. Do you own your home? Do you have direct descendants (children or grandchildren) to inherit it? If yes, you can claim the additional £175,000 allowance by structuring your will to leave your home to those descendants.

If you're married or in a civil partnership, calculate the spousal exemption benefit. Leaving everything to your spouse first can shelter up to £1 million from tax when your combined estates eventually pass to your children.

Consider whether charitable giving aligns with your values. Would you want to support specific causes through your will? Calculate the 10% threshold of your taxable estate to understand how much you'd need to leave to unlock the reduced 36% tax rate.

Review any lifetime gifts you've made in the past seven years. These count toward your estate calculation if you die before the seven-year period expires.

Step 3: Choose Your Will Structure Based on Estate Size

Under £325,000: You need a basic will for asset distribution, but inheritance tax planning isn't necessary. Your entire estate falls within the nil-rate band.

£325,000-£500,000: Residence nil-rate band planning is essential. Structure your will to leave your home specifically to children or grandchildren to claim the full £500,000 combined allowance.

£500,000-£1 million (married couples): Use spousal exemption combined with RNRB planning. Leave everything to your spouse first, ensuring their will then leaves the home to children to claim both sets of allowances at the second death.

Over £1 million or complex assets: Consider selecting executors who understand tax planning and consult a specialist alongside your WUHLD will for advanced strategies.

Step 4: Draft Your Will with Tax-Efficient Structure

Use WUHLD's guided platform to structure your bequests with inheritance tax in mind. Ensure your property bequest explicitly names direct descendants if you're claiming the RNRB. Include any charitable gifts you've planned, ensuring you meet the 10% threshold if you want the reduced rate.

Choose executors who understand the importance of tax planning and can handle the inheritance tax return process competently.

Step 5: Coordinate with Lifetime Planning and Schedule Regular Reviews

Complete separate pension "expression of wishes" forms with all your pension providers - these assets don't pass through your will. Consider any lifetime gifts you want to make, remembering the seven-year rule and the dangers of gifts with reservation of benefit.

Review your will regularly - at minimum every three to five years, or after major life events like marriage, divorce, births, deaths, or significant changes in estate value.

Action checklist:

  • Calculate current estate value including all assets and debts
  • Identify applicable tax thresholds (NRB, RNRB, spousal exemption)
  • List direct descendants for RNRB qualification
  • Decide on charitable gifts if desired (calculate 10% threshold)
  • Draft will with tax-efficient bequest structure
  • Complete pension beneficiary nomination forms
  • Schedule will review in three years

Inheritance tax planning isn't reserved for the ultra-wealthy. With frozen thresholds and rising property values, ordinary families can save tens of thousands through smart will structuring - and it starts with understanding your options and taking action today.

Frequently Asked Questions About Will Inheritance Tax Planning

Q: How much can I leave in my will before inheritance tax applies?

A: In 2025-26, you can leave £325,000 tax-free under the nil-rate band. If you leave your main home to direct descendants (children or grandchildren), you get an additional £175,000 residence nil-rate band, for a total of £500,000. Married couples and civil partners can combine their allowances to pass on up to £1 million tax-free.

Q: How does the seven-year rule work for inheritance tax?

A: Gifts you make during your lifetime become "potentially exempt transfers" (PETs). If you survive seven years after making the gift, it's exempt from inheritance tax. If you die within seven years, the gift may be taxable, though taper relief applies after three years. This rule doesn't apply to gifts covered by annual exemptions or gifts to your spouse.

Q: Can I avoid inheritance tax by giving away my house but continuing to live in it?

A: No, this creates a "gift with reservation of benefit" and HMRC will still count the property as part of your estate. To avoid inheritance tax on a gifted property, you must either pay market-rate rent to the new owners or move out completely. In 2023-24, HMRC conducted 220 investigations resulting in £61 million of such gifts being included in estates for tax purposes.

Q: Does leaving money to charity in my will reduce inheritance tax?

A: Yes, charitable gifts are completely exempt from inheritance tax under Section 23 of the Inheritance Tax Act 1984. Additionally, if you leave 10% or more of your net estate to charity, the inheritance tax rate on the rest of your estate drops from 40% to 36%, as set out in Finance Act 2012.

Q: What happens to my nil-rate band if my spouse dies first?

A: Any unused nil-rate band and residence nil-rate band from your spouse or civil partner can be transferred to you. This means if your spouse left everything to you (using 0% of their allowance), you inherit their full allowances. When you die, your estate can use up to 200% of both bands - potentially £1 million tax-free for qualifying estates.

Q: Will my pension be subject to inheritance tax?

A: Currently, most pensions don't form part of your estate for inheritance tax purposes and are passed tax-free to beneficiaries. However, from April 2027, unspent defined contribution pension pots will be included in your estate for inheritance tax calculations. Pensions are not covered by your will - you must complete a separate "expression of wishes" form with your pension provider.

Q: How does the residence nil-rate band taper work?

A: The residence nil-rate band (£175,000) is reduced by £1 for every £2 your estate exceeds £2 million. This means if your estate is worth £2.35 million or more, you lose the entire residence nil-rate band. The taper applies before you calculate inheritance tax, so estates just over £2 million can face significantly higher tax bills.

Conclusion

Key takeaways:

  • Understand your thresholds: In 2025-26, you can pass £325,000 tax-free (nil-rate band) or £500,000 if leaving your home to children (residence nil-rate band). Married couples can combine allowances to pass up to £1 million tax-free.

  • Structure bequests strategically: Your will determines who pays tax. Leave your home to direct descendants (children or grandchildren) to claim the residence nil-rate band worth £70,000 in tax savings. Use spousal exemption to transfer allowances to your surviving partner.

  • Consider charitable giving: Gifts to registered UK charities are completely tax-exempt, and leaving 10% or more to charity reduces your inheritance tax rate from 40% to 36% on the rest of your estate - potentially saving thousands while supporting causes you care about.

  • Coordinate lifetime gifts: Gifts made more than seven years before death are exempt from inheritance tax, but never gift your home while continuing to live in it rent-free - HMRC will include it in your estate regardless of timing.

  • Know when you need specialist advice: Estates over £1 million, business assets, agricultural property, or complex family situations may require professional tax planning beyond a standard will. Start with a solid will foundation, then consult specialists for advanced strategies.

Inheritance tax planning isn't about being greedy or avoiding your obligations - it's about ensuring the assets you've worked a lifetime to build pass to the people and causes you care about, not unnecessarily to HMRC.

With thresholds frozen until 2031 and property values rising, more families face inheritance tax bills every year. The difference between a will that ignores tax planning and one that structures bequests strategically can be £50,000, £100,000, or more - money that could change your children's lives or support charities doing vital work.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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