How to pass on your wealth and keep it in the family
Passing on your wealth should be straightforward. You've spent a lifetime building it, and you want the people you care about to benefit from it. But inheritance tax can take 40% above the £325,000 nil-rate band, and that threshold hasn't moved since 2009. If it had risen with inflation, it would be closer to £520,000 today. That frozen threshold alone is pulling thousands more families into the net every year.
There are well-established ways to reduce what your family will owe. Some can be started straight away, like using your annual gifting allowances. Others take time, like the seven-year rule on larger gifts. With business property relief reforms now in force and pension rules changing in April 2027, some decisions need making sooner rather than later.
At Vintage Wealth, inheritance tax planning is one of the areas we work on most closely with our clients. The sections that follow walk through the main ways to pass on more of your wealth to the people you love, and the decisions worth making at each stage.
What can you pass on tax-free in 2026/27?
The £325,000 threshold is only one of several allowances the UK gives you. Used together, a married couple who own their home can typically pass on £1 million tax-free, and there are smaller annual allowances on top of that for gifts made during your lifetime.
For the 2026/27 tax year:
| Allowance | Amount | Who it applies to |
|---|---|---|
| Nil-rate band | £325,000 per person | Everyone |
| Residence nil-rate band | Up to £175,000 per person | If you leave your main home to direct descendants (children, stepchildren, adopted or foster children, or grandchildren) |
| Spousal exemption | Unlimited | Anything left to a UK spouse or civil partner is IHT-free |
| Annual gifting allowance | £3,000 per year | Unused allowance can be carried forward one year, giving £6,000 |
| Small gifts | £250 per person, per year | Unlimited recipients, but not to anyone who's had the £3,000 |
| Wedding gifts | £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else | Per wedding |
| Gifts out of normal expenditure | Unlimited | Must come from regular income, not capital, and not affect your standard of living |
| Charity rate | 36% (instead of 40%) | If you leave 10% or more of your estate to charity |
A married couple who own their home and leave it to their children can therefore pass on up to £1 million before any IHT is due. Above an estate value of £2 million, the residence nil-rate band tapers away by £1 for every £2 over, and very large estates lose it altogether.
All of these thresholds are now frozen until April 2031, following the extension announced in the November 2025 Budget. With property values continuing to rise, more estates are being pulled above the line each year without anything in the rules changing.
How gifting can reduce your inheritance tax bill
One of the simplest ways to reduce inheritance tax is to start giving money to your family while you're still alive. Every gift you make reduces the value of your estate, and many types of gift are immediately exempt from tax.
Each tax year, you can give away £3,000 under your annual exemption without it counting towards your estate at all. If you didn't use last year's allowance, you can carry it forward once, giving you up to £6,000 in a single year. On top of that, you can make as many small gifts of up to £250 per person as you like, and there are separate exemptions for weddings: up to £5,000 for a child, £2,500 for a grandchild, or £1,000 for anyone else.
One of the most underused exemptions is gifts from surplus income. If you can show that your gifts are regular, come from income rather than capital, and leave you with enough to maintain your normal standard of living, they fall outside your estate immediately. There's no cap on the amount. For someone with a comfortable income and relatively modest outgoings, this can be one of the most effective ways to pass on wealth. The key is keeping clear records, as HMRC will want to see a pattern of regular giving.
For larger gifts, the seven-year rule applies. If you give away more than your annual exemptions allow and survive for seven years, the gift falls completely outside your estate. If you die within seven years, the gift is added back in and may be taxed, though taper relief reduces the rate from year three onwards.
| Years between gift and death | IHT rate on the gift |
|---|---|
| 0–3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% |
Taper relief only applies to gifts above your nil-rate band, and only to the tax on the portion above the threshold.
The earlier you start, the more useful these rules become. A couple who begin gifting in their early sixties could have seven full years behind them before their mid-seventies, with those gifts sitting entirely outside their estate, and a longer runway gives the family more certainty later.
Using trusts to pass on wealth with more control
Gifting is effective, but once you've given money away, you've given it away. If you want to pass on wealth while keeping some say over how and when it's used, a trust can offer that control.
When you place assets into a trust, they're legally owned by the trustees rather than you. That means they can sit outside your estate for inheritance tax purposes. You can set the terms: who benefits, at what age, and under what circumstances. That makes trusts particularly useful when passing on wealth to children or grandchildren who may not yet be ready to manage a large sum.
There are different types of trust, and the tax treatment varies between them. The two most commonly used for inheritance tax planning are:
Bare trusts are the simplest. The beneficiary has an absolute right to the assets once they turn 18. Assets transferred into a bare trust are treated as a gift for inheritance tax purposes, so the seven-year rule applies in the same way as a direct gift. These are often used by parents and grandparents setting money aside for a child's future.
Discretionary trusts give trustees the flexibility to decide who receives what and when. Any value above your available nil-rate band is subject to an immediate 20% inheritance tax charge, and the trust faces a periodic charge of up to 6% on assets above the nil-rate band every ten years. The trade-off for that complexity is far more control over how the wealth is distributed.
Trusts aren't right for everyone. They involve ongoing administration, registration with HMRC, and in many cases professional trustees. The costs and tax charges need to be weighed against the benefits. We'd always suggest talking through the options with an adviser before setting one up, because the wrong type of trust can create more problems than it solves.
What the pension inheritance tax changes mean for your family
Until now, pensions have been one of the most tax-efficient ways to pass on wealth. Unused pension funds sit outside your estate for inheritance tax purposes, which is why many people have deliberately drawn from other assets first and left their pension untouched for the next generation.
From 6 April 2027, unused pension funds will be included in your estate when calculating inheritance tax. For families who have built up significant pension pots, this could mean a much larger IHT bill than they were expecting. Pensions passed to a spouse or civil partner will still be exempt. For anyone else, including children, grandchildren, and other beneficiaries, the pension will be taxed as part of the estate.
There's also a risk of double taxation. If you die after age 75, your beneficiaries could face both inheritance tax at 40% on the pension and income tax when they withdraw from it. Depending on the beneficiary's marginal income tax rate, the combined effective rate could reach 64% or higher.
It also affects the £2 million taper we covered earlier. If your estate was comfortably below that threshold without your pension, adding it could push you over, reducing or removing your residence nil-rate band entirely.
The pension itself hasn't become a bad thing. It's still one of the most tax-efficient ways to save during your lifetime. What's changing is how it fits into your plan for passing on wealth. The question is no longer whether to leave your pension untouched, but in what order you should draw from your assets and when.
The decisions made over this tax year and the next will shape what your family receives in a way that decisions made later won't be able to fix. This is where cashflow modelling earns its keep, mapping out how different withdrawal strategies affect both your lifestyle and your estate.
What keeps wealth in the family beyond the tax
Tax planning is only part of the picture. A plan can look efficient on paper and still fall apart if the people inheriting don't understand it, aren't prepared for it, or end up disagreeing over it.
One of the most common reasons families end up in disputes after a death is that nobody explained the reasoning while the person making the decisions was still around. Heirs who understand why a parent chose to pass on wealth the way they did tend to accept it. Heirs who find out for the first time at the will reading often don't.
Where there's a discretionary trust involved, a letter of wishes can help with this. It sits alongside the trust and tells the trustees how you'd like them to use their discretion. It's not legally binding, but it can be updated easily and it can address situations the trust deed couldn't anticipate.
For families with second marriages, vulnerable beneficiaries, or a business where not everyone is equally involved, the letter of wishes is often the document that decides whether the plan works as everyone hoped.
Passing on wealth well means reducing your tax bill, yes, but also making sure the right people receive the right things, at the right time, with as little friction as possible. That's where the right adviser, working alongside your solicitor, tends to matter most.
Passing on your wealth works best when the plan handles the tax, the structure, and the family side together. At Vintage Wealth, helping families think through their inheritance tax planning is one of the things we do most. If you'd like to talk through your situation, or look at what cashflow modelling could mean for your pension and the order you draw from your assets, we'd be glad to.
Get in touch-
HMRC isn't notified at the time you make a gift, but the executors of your estate must list all gifts made in the seven years before your death on form IHT403 when applying for probate. Banks, solicitors, and HMRC's own data-sharing systems mean undeclared gifts are usually identified, and penalties for incorrect reporting can be significant. Keeping clear records of dates, amounts, and recipients makes the executor's job easier and protects your beneficiaries.
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Yes, you can gift any amount to your son with no immediate tax to pay. A gift of £100,000 would count as a Potentially Exempt Transfer, meaning it falls completely outside your estate if you live for seven years after making it. If you die within seven years, the gift is added back into your estate and may be taxed, with taper relief reducing the rate from year three onwards. Your annual £3,000 gifting exemption could be applied to the first £3,000 (or £6,000 if last year's allowance is unused), reducing the amount subject to the seven-year rule.
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You can pass up to £500,000 to your children tax-free if you leave your main home to them, combining the £325,000 nil-rate band with the £175,000 residence nil-rate band. A married couple can pass on up to £1 million using both partners' allowances. The residence nil-rate band only applies to your main home, only to direct descendants (children, grandchildren, stepchildren, adopted and foster children), and tapers away once your estate exceeds £2 million.
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The most common mistake is leaving estate planning too late. The biggest tools available, including gifting, the seven-year rule, restructuring assets, and drawing pension income strategically, all need years to work properly. Many families only start planning after a health scare or a Budget announcement, by which point the most efficient routes are no longer available. Reviewing your plan every few years, and at every major life change, is what separates plans that work from plans that don't.
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The most tax-efficient routes for passing wealth to grandchildren are direct gifts (using your annual £3,000 exemption, the £2,500 wedding gift allowance, and gifts from surplus income), bare trusts (where the assets become the grandchild's at age 18), and Junior ISAs or pension contributions made on their behalf. Grandparents can also leave wealth directly through their will, with the residence nil-rate band applying if the family home passes to them. Each route has different tax and control implications, so the right mix depends on the grandchild's age, your goals, and the size of the gift.
DISCLAIMER: The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor.
Business Property Relief (BPR) is subject to HMRC rules and may change in the future. Qualification depends on individual circumstances and is not guaranteed. Investments that aim to qualify for BPR, such as shares in smaller or unlisted companies, carry higher risk and their value can fall as well as rise. Investors may not get back the full amount invested. BPR typically requires assets to be held for at least two years and relief will only apply if the qualifying conditions are met at the time of death.
Your capital is at risk – your investment can fall as well as rise in value so you could get back less than you invest. In addition, because AIM-listed companies tend to be smaller, more volatile and subject to less stringent checks than those quoted on the main London Stock Exchange, the risks are greater. The Financial Conduct Authority do not regulate tax planning or trusts.
The information contained within this communication does not constitute financial advice and is provided for general information purposes only. Links to related sites have been provided for information only. Their presence on this blog does not mean that the firm endorses any of the information, products or views published on these sites. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.