Succession and Estate Planning Guide

Estate planning is about more than just writing a will. It encompasses how you structure your assets during your lifetime to ensure they are protected, tax-efficient, and distributed according to your wishes. In the 2022/23 tax year, HMRC collected £7.1 billion in inheritance tax — a figure that has been rising as property values push more estates above the threshold.

Source: HMRC — Inheritance Tax statistics

Understanding Inheritance Tax (IHT)

Inheritance tax is charged at 40% on the value of an estate above the nil-rate band. The key thresholds are:

Nil-Rate Band: £325,000 per person
Residence Nil-Rate Band: £175,000 (when leaving your home to direct descendants)
Combined Individual Threshold: Up to £500,000
Combined Couple Threshold: Up to £1,000,000

The nil-rate band has been frozen at £325,000 since 2009 and is scheduled to remain frozen until April 2028. Transfers between spouses and civil partners are exempt from IHT, and any unused nil-rate band can be transferred to the surviving partner. Source: GOV.UK — Inheritance Tax

The residence nil-rate band is tapered for estates worth over £2 million, reducing by £1 for every £2 above that threshold. For estates over £2.35 million, the residence nil-rate band is lost entirely.

Writing a Will

A valid will is the foundation of any estate plan. Without one, your assets are distributed according to the rules of intestacy, which may not reflect your wishes. For example, under intestacy rules, unmarried partners receive nothing regardless of how long they have lived together.

Key Points for Your Will

Appoint executors you trust — they will manage the administration of your estate
Name guardians for minor children
Consider a letter of wishes alongside your will to explain your intentions
Review and update your will after major life events (marriage, divorce, births, deaths)
Note: marriage automatically revokes a previous will in England and Wales (unless the will was made in contemplation of marriage)

IHT Planning Strategies

There are several legitimate strategies to reduce the inheritance tax burden on your estate. These should always be implemented with professional advice, as the rules are complex and getting them wrong can be costly.

Lifetime Gifts

You can give away £3,000 per year free of IHT (annual exemption). Small gifts of up to £250 per recipient are also exempt, as are gifts out of normal income that do not affect your standard of living. Larger gifts become exempt after 7 years (potentially exempt transfers, or PETs).

Trusts

Trusts can be used to remove assets from your estate while retaining some control over how they are used. Common types include discretionary trusts (for flexible distribution), bare trusts (for straightforward gifts to beneficiaries), and life interest trusts (providing income to one person with capital passing to another).

Pension Planning

Pensions generally fall outside your estate for IHT purposes. By drawing on other assets first in retirement and preserving your pension, you can potentially pass on a significant tax-free sum. If you die before 75, beneficiaries can typically draw the pension tax-free. After 75, they pay income tax at their marginal rate.

Life Insurance in Trust

A life insurance policy written in trust pays out directly to beneficiaries without forming part of your estate. This can provide immediate funds to cover an IHT bill, avoiding the need for your family to sell assets (such as a property) to pay the tax.

Business Property Relief (BPR)

Qualifying business assets can receive 50% or 100% relief from IHT. This includes shares in unquoted companies, shares listed on AIM (the Alternative Investment Market), and business assets used in a trading company. Assets must generally have been held for at least 2 years.

Charitable Giving

Gifts to registered charities are exempt from IHT. Furthermore, if you leave 10% or more of your net estate to charity, the IHT rate on the rest of the estate is reduced from 40% to 36%.

Source: GOV.UK — Inheritance Tax on gifts

Lasting Power of Attorney

A lasting power of attorney (LPA) is a legal document that allows someone you trust to make decisions on your behalf if you lose the capacity to do so. There are two types:

Property and Financial Affairs LPA

Allows your attorney to manage your bank accounts, pay bills, sell property, and manage investments on your behalf.

Health and Welfare LPA

Allows your attorney to make decisions about medical treatment, care arrangements, and end-of-life care.

An LPA must be set up while you still have mental capacity. If you lose capacity without one, your family may need to apply to the Court of Protection, which is time-consuming and expensive. The registration fee for each LPA is £82.

Source: GOV.UK — Make, register or end a lasting power of attorney

Business Succession Planning

If you own a business, succession planning is about ensuring continuity when you step back or pass away. Key considerations include:

Shareholder agreements — cross-option agreements allow surviving shareholders to purchase the deceased's shares, funded by life insurance
Key person insurance — protects the business against the financial impact of losing a critical individual
Business property relief — qualifying business assets may be exempt from IHT, but the rules are strict and specialist advice is essential
Management buyout planning — if you plan to sell to your management team, start structuring this 3-5 years before your target exit

Find an Estate Planning Specialist

Estate and succession planning involves complex tax rules and legal structures. Find an FCA-authorised adviser who specialises in wealth management and inheritance tax planning.

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