From trusts that don’t work to wills that haven’t been reviewed in years.
I’ve had more conversations about inheritance tax in the last few months than in the whole of last year. Some of that is the April changes getting attention. But most of it is people who’ve been putting this off for years finally deciding to take a look - and finding that what they assumed was sorted, isn’t.
So rather than write another rundown of the rules (there are plenty of those around), I thought it would be more useful to talk about the mistakes we’re actually seeing. Not hypothetical ones. The ones that cost real families real money.
“I’ve got a trust - I’m covered”
Someone came in recently who’d paid a few thousand pounds for a living trust set up through a company they found online. The idea was straightforward enough – put the house into a trust and it’s out of your estate.
Except it doesn’t work like that. If you set up a trust but carry on living in the property rent-free, HM Revenue and Customs treats it as a “gift with reservation of benefit”. It’s still counted as part of your estate for inheritance tax.
And there’s a sting in the tail. By holding the property in a trust rather than leaving it directly to their children, they may have lost the residence nil rate band - that’s an extra £175,000 of tax-free allowance that only kicks in when your main home passes to direct descendants. So not only was the trust not saving anything, it may have made things worse.
We see versions of this more than you’d think. Someone has a conversation at a dinner party, or spots an advert promising to “protect your home from inheritance tax,” and ends up paying for something that doesn’t do what it says on the tin. Trusts have a genuine place in estate planning. But they need to be set up properly, for the right reasons, with proper advice.
“Our wills are fine - everything goes to each other”
This is the standard arrangement for most couples. Mirror wills, everything to each other, then to the children. It’s simple and it feels safe.
But it’s worth asking whether simple is actually the best approach when the tax thresholds have been frozen for over fifteen years.
The nil rate band - that’s the amount you can pass on free of inheritance tax - has been stuck at £325,000 since 2009. It’s not going up before 2030 at the earliest. Meanwhile, property values and savings have kept growing. So the gap between what you can pass on tax-free and what your estate is actually worth has been quietly widening.
For couples, this raises a question that not enough people ask: is leaving everything to each other actually the most tax-efficient thing to do? There are other ways to structure things - ways that could keep more of your wealth outside the taxable estate as it grows between the first death and the second. It depends entirely on your circumstances, which is why it’s worth a proper conversation rather than assumptions based on a will that was written ten or fifteen years ago.
If your wills haven’t been reviewed since the thresholds were frozen, it’s worth checking whether they’re still working as hard as they could be.
“My estate isn’t big enough to worry about”
This is the one that catches people out more than any other. Someone living on their own in a perfectly ordinary house in South East London, with a few savings and a pension, assumes inheritance tax is a problem for wealthy people.
Then you sit down and add it up. In Bexleyheath or Eltham, an average family home might be worth £400,000 to £500,000. In Blackheath or Greenwich, you're looking at £800,000 or more before you've counted a single penny in savings. Add an ISA, some premium bonds, maybe a small pension pot, and you can easily reach £750,000 to a million.
For a single person, the nil rate band plus the residence nil rate band comes to £500,000. Everything above that is taxed at 40%. On a £750,000 estate, that's a £100,000 bill. On a million, it's £200,000.
And most of the estate is tied up in bricks and mortar, so there’s no convenient pot of cash to pay it from. The family either has to sell the property or find the money some other way.
The good news is there are straightforward things you can do. The annual gift exemption - £3,000 a year - is immediately outside your estate. Gifts from surplus income can be exempt too, with no upper limit, as long as they come from money you don’t need for normal living expenses. And if you’re charitably minded, leaving 10% or more of your estate to charity reduces the rate from 40% to 36%.
None of this is complicated. But it does require knowing where you stand, and most people don’t until they sit down and look at it properly.
What’s changing from April
Two things worth knowing about.
First, from 6 April 2026, the rules on business property relief and agricultural property relief have changed. Previously, qualifying business and farming assets were fully exempt from inheritance tax regardless of value. Now, 100% relief is capped at £2.5 million per person. Above that, relief drops to 50%, giving an effective tax rate of 20%. Married couples and civil partners can transfer unused allowance between them, so the combined cap is up to £5 million. This mainly affects business owners and farming families, but it’s a significant shift for those it does apply to.
Second - and this will affect far more people - from April 2027, most unused pension funds will be included in your estate for inheritance tax purposes. Up until now, pensions have sat outside the estate, making them one of the most efficient ways to pass on wealth. That’s changing. If you’ve been treating your pension as something to leave to your children rather than something to spend, that needs a rethink.
What I’d suggest
If you haven’t looked at your inheritance tax position recently - or ever - now is a sensible time. Not because the sky is falling, but because the rules have shifted, property values have gone up, and the thresholds have been frozen for years. The gap between what people think their estate is worth and what it’s really worth has been quietly widening.
Start with the basics. Do you know what your estate would be valued at today? Do you have a will, and does it still do what you need it to? Have you thought about lasting powers of attorney - a separate issue, but one that comes up in almost every estate planning conversation we have?
If you’d like to go through any of this, we’re happy to have a conversation. There’s no obligation, and sometimes all you need is a brief chat to get a clear picture.
Daren Wallban k- Chartered Financial Planner, Ginkgo Financial
Inheritance tax and estate planning is not regulated by the Financial Conduct Authority
Tax treatment depends on individual circumstances and may change in the future.
Will writing and Powers of Attorney are not part of the Quilter Financial Planning offering and are offered in our own right. Quilter Financial Planning accept no responsibility for this aspect of our business.
