How to help your parents plan for inheritance tax

The Great Wealth Transfer is underway

The Great Wealth Transfer is already happening as baby boomers begin passing down their wealth to the next generation.

An estimated £5.5 trillion to £7 trillion is anticipated to change hands through inheritance, gifts and estate transfers over the next three decades.

If you could be in line to inherit, consider asking your parents how you can help them make sure this transfer happens in the most tax-efficient way possible.

Approaching your parents about their plans for their wealth might feel difficult or awkward. But starting the conversation early can help protect family wealth, honour your parents’ wishes, reduce tax and avoid future stress.

Leaving it until a parent is seriously ill or lacks capacity to make decisions vastly reduces the options available.

Why estate planning matters

One of the main purposes of estate planning is to legitimately reduce the size of the inheritance tax (IHT) bill that beneficiaries may have to pay when they inherit.

As of the 2025/26 tax year, IHT is charged at 40% on estates worth more than £325,000, unless the estate is being passed on to a spouse or civil partner, or a charity.

There is an extra IHT-free allowance called the residence nil-rate band, worth up to £175,000, which allows someone to leave their main home to children or grandchildren. This means a married couple can potentially pass on up to £1 million tax-free, provided the estate is structured correctly. 

Anything above the allowance thresholds counts for IHT purposes, including investment portfolios, holiday homes, and even personal items such as jewellery, cars, antiques or artwork.

One way to pay less IHT is by using different allowances that are available, such as gifting during someone’s lifetime, but this requires some forward planning, as some gifts may still be taxed if your parent dies within seven years of giving them.

More families are paying IHT

Many families don’t talk about estate planning until it’s too late to make any meaningful changes, such as gifting years in advance.

Part of this may be the perception that only the wealthiest families need to plan for inheritance tax. But rising property prices, investment growth and frozen tax thresholds mean more families than ever are set to be caught in the IHT net.

The Office for Budget Responsibility forecasts that the government’s tax take from IHT will top over £9 billion in 2025/26, nearly double what it collected a decade ago.  

An important reason that IHT will soon become more relevant to everyone is that unused defined contribution pensions will be classed as part of people’s estate from 2027 and therefore subject to IHT when they die.

Government figures suggest this change could see 10,500 estates paying IHT for the first time. 

Pension savings built up over someone’s entire working life can add up to a substantial amount, so it’s worth considering whether the value of unspent pension savings could push your parents’ total estate value over the IHT threshold.

Starting the conversation

When you’re ready to open a dialogue with your parents about estate planning, you may worry about sounding greedy or making them uncomfortable. Acknowledge that this is a sensitive topic, but that your aim is to honour their wishes and safeguard their legacy.

Remind them that getting organised now will make the emotionally difficult process of ‘death admin’ easier on you and the wider family, if you or they will be involved in it. It’s in everyone’s interest to protect the wealth your parents worked hard for.

What to discuss

If they are open to talking to you about this subject, here are some areas you could cover:

• Wills: Do their wills still reflect their wishes? Do they need updating in light of any family changes such as births, deaths or divorces? Have they left instructions on where their executors can find the documents? Without a valid will, intestacy rules may apply, and their wealth may not be distributed as they intended.

• Gifting: Have they considered making financial gifts during their lifetime? Do they understand what the allowances and rules are? Individuals can gift up to £3,000 per tax year, free from IHT, with other exemptions for wedding gifts, regular gifts from income and small gifts of up to £250. Larger gifts may be exempt if your parent lives for at least seven years after giving them. Early gifting can significantly reduce the size of an estate, and means your parents can see their money being used and enjoyed, but it requires forward planning.

• Pensions: Have they nominated the beneficiaries they would like to inherit their pensions? Do they know that pensions will soon be caught by IHT?

• Trusts: Have they considered setting up trusts to ringfence money outside of their estate in the name of a beneficiary? Specialist advice is needed here. If you need help, Unbiased can match you with one qualified financial adviser.

• Lasting power of attorney: Have they thought about appointing an attorney who can make healthcare and/or financial decisions for them in the event they lose capacity? This can be invaluable in later life, but again, requires some forethought.

Get expert financial advice

Estate planning can help give your parents control and peace of mind that their loved ones will be protected, and make handling their estate easier for their executors when the time comes. 

You may want to encourage your parents to speak to a qualified financial adviser for help with estate planning, which can be a complex area.