For many people in the UK, wealth is tied up in a family home, pensions, and possibly a business. Passing these on efficiently can make a big difference to what the next generation actually receives. A few key strategies can help manage tax, protect family members, and keep the process as smooth as possible.
1. Clarify Your Objectives First
Before choosing any specific tools, think about what you want to achieve. For example, you may want your spouse or partner to be financially secure for life, but you also want children from a previous relationship to receive a fair share. You might want to support grandchildren with education or help adult children with housing. You may also have worries about a particular family member’s ability to manage money.
Setting out these priorities on paper helps your solicitor or adviser design a structure that fits, rather than relying on generic solutions.
2. Combine Wills and Trusts Thoughtfully
Most people start with a will, but in many cases a will on its own does not give enough control. Trusts can be used alongside a will to shape what happens after your death. For example, a life interest trust can allow a spouse or partner to live in a property or receive income from investments for the rest of their life, after which the capital passes to your children.
Discretionary trusts are sometimes used for children and grandchildren. Instead of each beneficiary receiving a fixed sum at a fixed age, trustees can decide when and how to support them, which can be especially useful if some beneficiaries are more financially mature than others.
3. Make Sensible Use of Tax Reliefs
UK inheritance tax has several reliefs that can significantly reduce the final bill. Transfers between spouses or civil partners are typically free of inheritance tax. Unused allowances can often be transferred, which can increase how much passes free of tax when the second partner dies.
If you own a trading business or agricultural property, Business Property Relief or Agricultural Property Relief may apply. When structured correctly, these reliefs can reduce the taxable value of those assets, sometimes down to zero. The details are technical, so it is important to take expert advice rather than assuming a relief applies automatically.
4. Include Lifetime Gifting in Your Planning
Lifetime gifts can be part of a wider strategy rather than just occasional ad hoc payments. For instance, you might decide to make regular gifts from surplus income to children or grandchildren. If you can demonstrate that these gifts are affordable and part of a pattern, they may be exempt from inheritance tax, even if you die within seven years.
Larger one off gifts reduce the size of your estate if you survive seven years after making them. However, there is always a balance between reducing future tax and keeping enough resources for your own later life. Scenarios and forecasts can help you test what you can safely give away.
5. Use Life Insurance to Provide Liquidity
In some families, most wealth is tied up in property or a business that relatives want to keep, not sell. In these cases, inheritance tax can be difficult to fund. One practical option is to take out a life insurance policy designed to cover the expected tax bill. If the policy is written in trust, the payout can be available quickly and fall outside your taxable estate.
This does not remove tax, but it can avoid a forced sale of important assets simply to pay HMRC.
6. Plan for Loss of Capacity as Well as Death
Wealth transfer planning should cover what happens if you are no longer able to manage your own affairs. Lasting Powers of Attorney for property and financial affairs allow trusted people to act on your behalf if you lose capacity. Without these documents, your family may face a lengthy and expensive process through the Court of Protection.
Having these arrangements in place means your financial plan can continue with minimal disruption even if you become unable to manage it yourself.
7. Keep Your Family Informed
Complex structures can fail in practice if nobody understands them. It can help to give your executors and perhaps key family members a basic explanation of how your estate is set up, why certain decisions have been made, and where documents are held.
You can also write informal letters of wishes to guide trustees. These are not legally binding, but they explain how you would like them to exercise their discretion, which can give them confidence when they make decisions in the future.
With clear objectives, proper use of UK tax rules, and a willingness to review your arrangements as life changes, you can improve the chances that your assets move to the next generation in an orderly and efficient way. Good planning reduces both tax and friction, which is often just as valuable.
