Estate costs and Inheritance Tax are often made more complicated because of two reasons. One, it is often a topic that is closely linked to death which is an uncomfortable thing at the best of the times. This can limit the scope of conversations and prevent meaningful progress from being made.

Secondly, it is a topic that is surrounded by regulations, as well as exemptions and reliefs. Approaching this topic with no knowledge can make everything feel very daunting. However, a small amount of information goes a long way and here, we’ll be outlining the pragmatic approach you need to take to handle these costs and taxes in a way that gives you future peace of mind.

1. Understand what your estate looks like and what it’s worth

Before planning wealth transfers and beneficiaries it is essential to know where you start from.

In other words, what does your ‘estate’ look like?

Start breaking it down into your assets and liabilities and then further into your properties owned, investments made, and any debts outstanding. Doing this can give you an estimate of its total value, and show you whether or not you meet the Inheritance Tax threshold.

From this total, you can deduct debts, mortgages or loans that are still outstanding.

2. Keep an eye out for regulatory changes

As mentioned in the introduction, Inheritance Tax is filled with regulations and rules.

To handle all these taxes and costs properly, it is essential to keep informed about changes.

Some recent changes include the freezing of the Inheritance Tax threshold. It was announced by the government that this threshold would remain in place until 2030. Currently, if your estate is worth more than £325,000 then everything over that threshold is taxed at 40%.

Another big change is how Inheritance Tax may impact your pension. From April 2027, unused pension savings will no longer be exempt from Inheritance Tax.

These changes have only been introduced in recent years and both are great examples of why you should stay informed and up to date.

3. Maximise reliefs and exemptions to keep more of your estate

Inheritance Tax can significantly reduce the wealth of your estate but with proper planning and use of reliefs and exemptions, you can reduce your liabilities.

One such relief is called the nil-rate band. It is a tax free allowance currently set at £175,000 (and frozen at this figure until 2030) and is available to married couples and civil partners when their main residence is inherited by direct descendants.

Essentially, it means that you could have an estate worth up to £500,000 and it would still not be affected by Inheritance Tax.

Aside from nil-rate bands, gifting money or assets is a very common way of reducing liabilities. With this though, come rules. If you gave away money or assets in the seven years prior to your death or you continued to benefit from the gift this will be included in the value of your estate.

There are also exempt transfers which would not incur tax, these include:

• Gifts between spouses
• Yearly gifts up to £3,000 in a tax year
• Wedding gifts up to £5,000 for children and £2,500 for grandchildren
• Donations to charities and organisations

4. Estate loans can help prevent forced sales and deficits

Life is rarely predictable and in times of turmoil it might be necessary to access funds quickly. When it comes to Inheritance Tax and estate planning, there are estate loans available to cover immediate costs and prevent a deficit.

Funeral costs, legal fees, or tax obligations may require a loan to cover them when capital isn’t immediately available. They are there to cover a shortfall and reduce anxiety during particularly worrisome times. Specifically, they can also help to stop forced purchases of assets that would otherwise be covered under Inheritance Tax rules.

5. Work with professional estate planners

While knowing changes in the law and having a strong idea of what your estate looks like is essential, consulting with financial advisors who specialise in this area can add a layer of assuredness to your plan.

It can also provide priceless peace of mind knowing your affairs in this area are in order. With help from experts, you can maximise what you pass on to your loved ones in a sound and legal way.

Plan today to ensure tomorrow is looked after

Inheritance Tax and estate planning is a complicated topic, and one fraught with emotion at times, but by approaching it pragmatically you can enjoy life knowing everything is in order.