TTF Tackles the Money Monster Under Your Bed: Losing Sleep Over Inheritance Tax

"I’m starting to lose sleep over inheritance tax. My family has worked hard to build up our assets, and I worry that when I pass, my children will be left with an enormous tax bill that could force them to sell parts of our estate just to cover the cost. I’ve heard horror stories of farming families and small business owners having to break up everything they’ve built because of inheritance tax. I don’t want that to happen to my loved ones.

I’ve been reading about changes to agricultural and business property relief, and it seems like things are only getting worse. With the new £1 million cap coming into effect in 2026, I fear that my family business — something I’ve spent my entire life growing — could be hit hard. We’ve always planned to keep things in the family, but now I worry we won’t have the means to do so. Are there any ways I can protect my assets from being swallowed up by inheritance tax?

I’ve also heard that life insurance could help, but I don’t fully understand how it works when written in trust. Could this be a way to ensure my children aren’t left scrambling to pay the taxman? Should I consider a bare trust or a discretionary trust? I’m not sure which option is best, and I don’t want to make a mistake that could cost my family in the long run.

Additionally, I have some assets abroad, and I’m concerned about how the new tax rules for non-domiciled individuals might affect my estate. Will I still be subject to UK inheritance tax on my overseas assets if I’ve lived here for a long time? I worry that my financial affairs are too complicated for me to sort out alone.

Please help—I need guidance before it’s too late."

First, let me reassure you that you are not alone in your concerns. Inheritance tax (IHT) is a growing issue, especially with the recent changes to tax reliefs that have left many families feeling uncertain about their financial future. The good news is that there are steps you can take now to mitigate the impact on your loved ones. You mentioned a number of issues that are worrying and confusing you so let's take it one section at a time:

Protecting Your Family Business and Assets

The new £1 million cap on Agricultural Property Relief (APR) and Business Property Relief (BPR), coming in 2026, will indeed affect many family-run businesses and farms. However, careful estate planning can still help protect your legacy. One approach is to start passing down business assets gradually, ensuring you make use of existing reliefs while they are still available. Trusts may also play a role here, helping to ring-fence assets in a tax-efficient manner.

Life Insurance as a Safety Net

A life insurance policy written in trust is a highly effective way to provide for your beneficiaries without increasing your taxable estate. Because the payout from a trust-held policy does not count as part of your estate, it ensures that funds are available immediately upon your passing to cover any IHT bill, preventing your heirs from having to sell assets to meet tax liabilities.

Bare trusts versus discretionary Trusts

The right choice depends on your circumstances:

• Bare trusts give named beneficiaries an absolute right to the payout, making them more suitable when you know exactly who will inherit.

• Discretionary trusts allow trustees to decide how and when funds are distributed, offering greater flexibility — ideal for larger estates or when financial needs might change over time.

Overseas Assets and Non-Domiciled Status

If you have lived in the UK for at least 10 of the last 20 years, your worldwide assets — including those held overseas — will be subject to UK inheritance tax from April 2025. If you are planning to move abroad in the future, your tax position could change, but careful structuring of your estate now could help reduce future liabilities.

Seeking Expert Advice

Given the complexity of these rules, professional advice is crucial. A specialist tax advisor with expertise in inheritance tax planning can help structure your estate in the most tax-efficient way. They can also assist with the legal nuances of setting up trusts, life insurance policies, and succession planning.

A Positive Way Forward

While inheritance tax planning may seem overwhelming, proactive steps today can ensure that your family benefits as much as possible from the wealth you have built. There are solutions available, and with the right guidance, you can create a secure financial future for your loved ones.

If you haven’t already, I recommend speaking to a tax professional who can tailor a strategy to your specific needs. You have worked hard to build your legacy —now it’s about making sure it is protected.

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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