Inheritance tax planning is no longer just a concern for the very wealthy. With London property values among the highest in the UK and thresholds frozen until April 2031, a growing number of ordinary families now face significant inheritance tax (IHT) bills. Getting specialist IHT advice in London can help you protect your estate, reduce your tax liability, and ensure your wealth passes to the people you care about.
This guide explains how inheritance tax works, which planning strategies are available, and how to find the right adviser for your circumstances.
Key Takeaways
- The standard inheritance tax threshold is £325,000, frozen until April 2031. Estates above this level are taxed at 40%.
- London homeowners are disproportionately affected because high property values push more estates above the threshold.
- Practical strategies including gifting, trusts, business property relief, and charitable giving can meaningfully reduce your IHT liability.
- Specialist London advisers understand local asset values and the latest legislative changes, making their guidance particularly valuable.
- Significant reforms to business and agricultural property relief took effect in April 2026, and pension pots will come into scope for IHT from April 2027.
Why Inheritance Tax Planning Matters in London?
London presents a distinct challenge for estate planning. Property prices across the capital are substantially higher than the national average, meaning many homeowners whose estates would be modest elsewhere will face an IHT bill. This is not a problem unique to the very rich. A family home, modest savings, and modest investments can together push an estate well above the nil rate band.
Beyond property values, the fast pace of legislative change in this area means that strategies that worked a few years ago may now be less effective, or may need to be adapted. Specialist IHT advisers in London stay up to date with HMRC guidance, court decisions, and Budget announcements, so their clients always benefit from current, accurate advice.
Local advisers also bring practical experience of the specific issues London residents face, including high property equity, complex ownership structures, and the need to plan for care costs alongside inheritance tax.
Understanding Inheritance Tax
Inheritance tax is charged on the estate of a person who has died. The estate includes property, savings, investments, personal possessions, and certain lifetime gifts. Any estate with a net value above the nil rate band is subject to IHT at 40% on the excess.
The Nil Rate Band
The standard nil rate band (NRB) is currently £325,000 per person. This threshold has been frozen since April 2009 and, following the November 2025 Budget, will now remain frozen until April 2031. As asset values rise while the threshold stays fixed, more estates are drawn into the IHT net each year.
The Residence Nil Rate Band
An additional allowance, the residence nil rate band (RNRB), applies when a main residence is left to direct descendants such as children or grandchildren. This allowance is £175,000 per person and is also frozen until April 2031.
When both allowances are combined, an individual can pass up to £500,000 free of inheritance tax. For married couples and civil partners, unused allowances transfer to the surviving spouse, potentially creating a combined threshold of up to £1,000,000.
The RNRB is tapered for estates valued above £2,000,000. It reduces by £1 for every £2 that the estate exceeds this threshold. For a single person, the RNRB is fully withdrawn when the estate exceeds £2,350,000. For a married couple with both allowances available, the full combined RNRB of £350,000 is withdrawn once the combined estate exceeds £2,700,000.
IHT Rate on Charitable Giving
Where at least 10% of the net estate is left to charity, the IHT rate on the remainder is reduced from 40% to 36%. This can make charitable giving a tax-efficient component of estate planning.
IHT Receipts
The Office for Budget Responsibility forecasts that inheritance tax will raise approximately £8.7 billion in 2025/26, up sharply from £6.7 billion three years earlier. Frozen thresholds combined with rising asset values are the primary driver of this increase.
Calculating Your Inheritance Tax Liability
To understand your IHT exposure, you need to add up the total value of your estate. This includes:
- Your property and any other real estate interests
- Bank accounts and cash savings
- Investments, ISAs, and shares
- Personal possessions, jewellery, and vehicles
- Any gifts made in the seven years before death (subject to certain exemptions)
From this total, you can deduct any outstanding debts and the value of assets passing directly to a spouse, civil partner, or registered charity.
Once you have a net estate figure, you can work out how much falls above your available nil rate band and apply the 40% rate to that amount. An inheritance tax calculator can be a useful starting point, but a professional adviser will be able to factor in reliefs and exemptions that an online tool may miss.
Inheritance Tax Planning Strategies
There is a range of legitimate and well-established strategies to reduce inheritance tax. The right approach depends on the composition of your estate, your family circumstances, and how much flexibility you want to retain over your assets during your lifetime.
Gifting Assets
Gifts made from your estate reduce its value for IHT purposes. The main gifting rules are as follows:
Annual exemption:
You can give away up to £3,000 per year free of IHT. Any unused allowance from the previous tax year can be carried forward once.
Small gifts exemption:
You can make unlimited small gifts of up to £250 per recipient per year, provided no other exemption has been used for the same person.
Wedding and civil partnership gifts:
You can give up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else as a wedding or civil partnership gift, free of IHT.
Potentially Exempt Transfers (PETs):
Larger gifts to individuals are known as potentially exempt transfers. If you survive for seven years after making the gift, it falls entirely outside your estate. If you die within seven years, the gift may be brought back into the estate for IHT purposes. Taper relief can reduce the tax on gifts made between three and seven years before death.
Gifts from surplus income:
Regular gifts made from income, rather than capital, can be exempt from IHT provided they form part of a clear pattern of giving and do not reduce your standard of living. This exemption can be particularly valuable for those with pension income in excess of their needs.
Using Trusts
Trusts are legal arrangements in which assets are held by a trustee for the benefit of named beneficiaries. Placing assets into a trust removes them from your personal estate, which can reduce your IHT liability over time.
Trusts can be structured in different ways depending on your goals. A bare trust passes assets directly to beneficiaries at a fixed point. A discretionary trust gives trustees flexibility over how and when assets are distributed. A family investment company, while not a trust in the strict sense, achieves similar separation of personal and investment assets.
It is important to understand that transferring assets into certain types of trust is itself a chargeable event for IHT purposes if the value transferred exceeds the nil rate band. The tax treatment of trusts is complex and specialist advice is essential before setting one up.
Business Property Relief
Business property relief (BPR) reduces the amount of IHT payable on qualifying business assets. Until 5 April 2026, BPR provided 100% relief on most qualifying assets with no monetary cap.
From 6 April 2026, the rules changed significantly. 100% relief now applies only to the first £2,500,000 of combined qualifying business and agricultural assets per individual. Assets above this threshold qualify for 50% relief. These changes were announced in the October 2024 Budget and modified in the November 2025 Budget (the threshold was raised from the originally announced £1,000,000 to £2,500,000 following lobbying from business and farming communities).
Qualifying assets include shares in unlisted companies, interests in business partnerships, and certain business premises. If you own a business or hold significant business assets, reviewing your position in light of these changes should be a priority.
Agricultural Property Relief
Agricultural property relief (APR) follows the same new structure as BPR from April 2026: 100% relief on the first £2,500,000 of qualifying agricultural assets, and 50% relief above that. Unused relief is transferable between spouses and civil partners, including in cases where the first death occurred before 6 April 2026.
Pension Planning
Until now, pension pots have generally been outside the scope of inheritance tax, making them a popular vehicle for passing wealth to the next generation. From April 2027, inherited pension pots will be brought within the IHT regime. Anyone who has relied on pension wealth as a tax-efficient inheritance planning tool should review their strategy before this change takes effect.
Charitable Giving
Gifts to registered charities are exempt from inheritance tax regardless of size. In addition, leaving at least 10% of your net estate to charity reduces the IHT rate on the rest from 40% to 36%. Donor-advised funds and charitable remainder trusts can provide additional flexibility in how and when charitable gifts are made.
The Nil Rate Band in Practice
The interaction between the nil rate band and the residence nil rate band is worth illustrating clearly.
Single person, no qualifying residence: Up to £325,000 passes free of tax.
Single person with qualifying residence left to children: Up to £500,000 passes free of tax (£325,000 plus £175,000 RNRB).
Married couple or civil partners, qualifying residence left to children: Up to £1,000,000 passes free of tax, assuming the first spouse’s unused allowances are transferred to the survivor on death.
These figures assume the estate falls below the £2,000,000 taper threshold for the RNRB. If the estate exceeds £2,000,000, the residence nil rate band begins to reduce.
Estate Planning Beyond Tax
Inheritance tax planning is one part of a broader estate planning process. A well-structured estate plan also covers:
Wills: A valid, up-to-date will ensures your assets are distributed according to your wishes. Without one, the rules of intestacy apply, which may not reflect your intentions.
Lasting Powers of Attorney: These documents give named individuals the authority to manage your financial affairs or make healthcare decisions on your behalf if you lose capacity. Without them, your family may need to apply to the Court of Protection, which is both slow and costly.
Guardians for minor children: If you have children under 18, your will should name a guardian. Without this, the courts decide.
Life insurance: A life insurance policy written in trust can provide funds to cover an IHT bill without adding to the value of your estate. This can be particularly useful where the estate is largely illiquid, such as when most of the value is tied up in property.
Beneficiary designations: Many financial products, including pensions and some life policies, pass outside the estate under an expression of wishes rather than through a will. It is important to keep these designations current.
The Role of a Specialist IHT Adviser
A specialist inheritance tax adviser does more than calculate your potential liability. They review the full picture of your estate, identify planning opportunities, assess the tax consequences of different options, and help you implement a strategy that reflects your personal priorities.
Initial consultations with IHT advisers are often offered free of charge. This is a good opportunity to understand your current position, ask questions, and assess whether the adviser communicates complex topics clearly.
When choosing an adviser, look for relevant professional qualifications, specific experience in inheritance tax and estate planning, and demonstrable knowledge of current legislation. Client testimonials can help you assess their track record. An adviser who specialises in London estates will also understand the specific challenges that high property values and complex ownership arrangements present.
Frequently Asked Questions
Can an accountant advise on inheritance tax?
Yes. Many accountants, particularly those who specialise in tax or private client work, can provide IHT planning advice. It is worth checking that they have relevant experience in this area, as the rules can be complex and change regularly.
Who is the best person to advise on inheritance tax?
For most people, a combination of a specialist tax adviser or accountant and a solicitor experienced in private client or estate planning work provides the most comprehensive guidance. The right choice depends on the complexity of your estate.
What is the current inheritance tax threshold?
The standard nil rate band is £325,000 per person. With the residence nil rate band, an individual can pass up to £500,000 free of tax. Married couples and civil partners can combine their allowances, potentially sheltering up to £1,000,000. All thresholds are frozen until April 2031.
How can I reduce my inheritance tax bill through gifting?
The annual gift exemption of £3,000 per year is a straightforward starting point. For larger gifts, surviving seven years after making them means they fall outside your estate entirely. Gifts from surplus income may also be exempt if they meet the relevant criteria.
What are the benefits of using a trust for IHT planning?
A trust removes assets from your personal estate, which can reduce your IHT liability. Trusts can also offer control over how and when assets are distributed, which can be valuable where beneficiaries are young or may need managing support. The tax treatment is complex, so professional advice is essential.
What changed with business property relief in April 2026?
From 6 April 2026, 100% business property relief is capped at £2,500,000 of qualifying assets per person. Above that level, relief is available at 50%. This is a significant change for owners of large business or agricultural estates.
Summary
Inheritance tax planning is a practical necessity for many London families, not just the very wealthy. Rising property values, frozen thresholds, and upcoming changes to pension and business property rules mean that more estates face larger bills than ever before.
The core strategies available include making use of annual gifting exemptions, considering trusts for longer-term planning, taking advantage of business or agricultural property relief where relevant, and incorporating charitable giving into your estate plan. Each approach has specific rules attached to it, and the best outcomes come from combining these strategies within a plan tailored to your personal circumstances.
Specialist IHT advisers in London understand both the legislative landscape and the practical realities of high-value London estates. If you have not reviewed your estate planning recently, or if your circumstances have changed, now is a good time to seek advice.
Last reviewed: May 2026. This article provides general information only and does not constitute legal or financial advice. Tax rules can change and individual circumstances vary. Please consult a qualified adviser before making decisions about your estate.
