The hidden cost of putting off inheritance tax planning
"Inheritance tax is, broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue." Former Chancellor Roy Jenkins made this quip almost 40 years ago, and it remains one of the most quoted lines in financial planning because there is some truth in it.
Many people have opportunities to reduce the amount of inheritance tax (IHT) their family might pay, but they’re understandably put off. One of the challenges is that thinking about IHT means thinking about your own mortality, which isn't exactly a fun way to spend an afternoon. And the language of trusts, allowances and seven-year rules can easily feel overwhelming, so it all gets quietly filed under ‘another day's problem’.
But this might turn out to be more of a problem once new legislation comes in around IHT next April.
Why IHT is becoming a bigger issue
IHT was once seen as something that only affected the very wealthy, but that’s becoming less true every year.
The nil-rate band has remained frozen at £325,000 since 2009, while the residence nil-rate band has been fixed at £175,000 since 2020. Over the same period, house prices, investments and pension values have risen significantly. As a result, more families are finding themselves caught by IHT without necessarily feeling wealthy.
The issue will become even more important from April 2027, when most unused pension funds will be brought into an estate for IHT purposes. As pensions have historically been one of the most tax-efficient assets to pass on, the changes could affect many families who previously assumed IHT wouldn't be a problem.
Data from Octopus Investments suggests that nine out of 10 UK postcodes will have more estates liable for IHT in 2026/27 compared to 2021/22. The sad thing is a lot of this is avoidable - it calculates there’s as much as £12.3bn in preventable IHT once unused pensions enter the tax's scope next April.
That’s £12.3bn that could go to loved ones instead of the tax man. But how?
The key is to plan early
According to the report, wealthy families who start planning at 50 and make the most of the IHT strategies available could pass on an average of £397,000 more compared to those that start planning at 70. That's because earlier estate planning allows you to make full use of allowances and reliefs that need time to work.
Take for example, the ‘seven-year rule’. If you give money away during your lifetime, those gifts can fall outside your estate for IHT purposes. However, in many cases you need to survive seven years from the date of the gift for that to happen.
That means a decision made at age 63 may not be fully effective until age 70, leaving fewer options available the longer planning is delayed.
Also, trusts and Business Relief investments often need time to mature or to be structured properly around your wider finances.
It's a bit like pension contributions: the earlier you start, the more time your money has to work in your favour. Estate planning works the same way - except instead of compound growth, you're compounding the value of allowances, exemptions and reliefs used well ahead of time.
The emotional side of estate planning
There are many reasons thinking about IHT is often avoided. Building wealth usually involves decades of saving, investing and making sensible financial decisions, so it can feel surprisingly uncomfortable to reach a point where the conversation shifts from accumulating wealth to spending it, gifting it or passing it on.
For many, savings provide emotional reassurance as much as financial security.
The challenge is finding the balance between preserving that security and avoiding an unnecessarily large tax bill later.
There are additional emotional aspects to consider too: financial planning is rarely just about tax. It's often about family, relationships and peace of mind.
Some parents don't want their children making assumptions about future inheritances, while others worry that discussing money could create unrealistic expectations. And while some people are keen to reduce IHT wherever possible, others are comfortable paying it. There are even clients who openly say they'd rather see some of their estate go to HMRC than leave large sums to children they believe would waste it.
Every family is different, which is why estate planning is rarely as simple as applying a formula.
What can be done?
The good news is that there are often more options available than people realise. Depending on individual circumstances, planning may involve:
Making use of gifting allowances
Larger lifetime gifts
Trust arrangements
Reviewing pension withdrawal strategies
Life insurance solutions
Charitable giving
Business or agricultural reliefs where appropriate
Ensuring wills remain up-to-date
The most effective plans often combine several of these strategies, balancing IHT considerations with your own personal financial goals and priorities.
You may not have an IHT problem at all
One point that often gets lost in media coverage is that not every estate will face IHT.
Married couples and civil partners can generally pass assets between each other without incurring IHT. They may also benefit from combined allowances that can significantly increase the amount that can pass to the next generation tax-efficiently.
Many who worry about IHT ultimately discover they have little or no liability, which raises an important question: would you rather spend the next year worrying about IHT headlines, or spend an hour finding out where you actually stand?
The biggest mistake we see is not necessarily poor planning, it's delayed planning. The earlier conversations begin, the more options tend to be available, the more time strategies have to work, and the more likely it is that decisions can be made calmly and deliberately rather than in response to changing rules or health concerns.
The upcoming pension changes mean many families would benefit from reviewing their position sooner rather than later, whether that's to confirm they have little to worry about or to identify opportunities that may become harder to use over time.
Either way, knowing is usually better than wondering. Give us a call if you’d like to chat to us.
Please note: The value of investments can go down as well as up and you may get back less than you originally invested. Past performance is not a guide to future returns.
The information in this blog was correct as of 12 June 2026. The Financial Conduct Authority does not regulate Trusts, Tax and Estate Planning.