Why a conversation about inheritance tax is worth having

Vicki Clayton, Senior Financial Adviser
17 November 2024

I want to ask you one thing as you read this article – and that is not to stop. That’s because I’m going to talk to you about a difficult topic. A topic a lot of us understandably want to avoid. But a topic that taking a bit of time to really think about could put you and your family in a better position.

I’m talking about when you’re no longer here. Yep. I know. Not an easy thing to consider at all. Change the subject, please. Let’s talk about the weather, sport – heck, even politics. Anything but that.

I absolutely get it. But please do stick with me. Because the hard truth is that it’s going to happen one day. And by having a conversation about it now, you could take meaningful steps that make a difficult time less complicated for your loved ones.

In my role as Senior Financial Adviser at Skipton Building Society, I speak to a lot of customers about this subject. I always say that we’ll take it slowly. That I’m here to offer reassurance and consider their individual situation. Because by thinking about the unthinkable together, I can help my customers make plans to support their family and gain peace of mind about the legacy they leave behind.

I could do the same for you.

Why thinking about your legacy is so important

You’ve worked hard over your life. You’ve built up a certain level of wealth, including assets like the home you live in. One day, it will become an inheritance for someone else. And that’s where planning ahead is really important.

When the time comes, there will be all sorts of legal procedures your loved ones need to follow. Without clear plans in place, it can be messy and complicated. What’s more, the inheritance might not be passed on in the way you want it to be. There might also be tax implications. More on that later.

In short, it could get stressful and confusing, when it doesn’t need to be.

If you’re avoiding talking about your legacy and making arrangements, you’re in good company. November 2024 research by Canada Life found:

• One in two UK adults (51%), have not discussed their end-of-life wishes with their loved ones.
• 44% have not written a Will, or even started to.
• 26% don’t believe they have enough assets and wealth to warrant a Will.

As I said at the start, this stuff isn’t easy. But if you don’t have a plan – and you don’t have a plan on paper – you could unintentionally cause headaches for your loved ones.

You might also need to think about inheritance tax

Inheritance tax has been in the news a lot over recent months. In last November’s Autumn Budget, Labour announced rule changes to inheritance tax that caused a stir and even sparked protests. The upshot is more families are set to pay inheritance tax in the future. And it’s worth checking if your family might be one of them.

This is what happens. When you pass away, an assessment is carried out on the value of your assets (which is known as your estate). If the collective value of your estate is above a certain limit, your loved ones would usually have to pay inheritance tax at a rate of 40%. For example, if the estate is £50,000 above the limit, the tax bill would be £20,000.

We each have a personal threshold of £325,000 before inheritance tax applies. If you’re married, in a civil partnership or widowed, you have £650,000. And if you plan to leave your home to a direct descendent, you could each get an extra £175,000 allowance before inheritance tax applies.

It sounds like a lot, doesn’t it? But when you total up the value of the assets that make up your estate, you might be surprised how much it all adds up to.

Your estate is everything you own, minus any debts like a mortgage. So your home, your car, your savings and investments, all the way through to items of notable value. Antiques, jewellery – even your home furniture.

And following the Autumn Budget, that’s not all.

Why more families will face an inheritance tax liability

The chancellor Rachel Reeves made three key inheritance tax announcements in the Budget.

1. Current thresholds will stay unchanged for an extra two years, taking us to 2030.
2. From April 2026, agricultural assets worth more than £1 million, like a farm, will be subject to inheritance tax at a rate of 20%.
3. From April 2027, unused pensions will be subject to inheritance tax rules.

That last announcement is especially key. Up until now, your pension isn’t part of your estate. That will change. The value of your pension could take you above your personal threshold – and mean you have an inheritance tax liability.

The figures bear out the growing inheritance tax problem:

• Before the Budget, the Office for Budget Responsibility was forecasting £42.1 billion will be raised in inheritance tax between now and April 2029.
• These changes mean that billions more pounds could be collected. For example, when unused pensions start to form part of estates, an extra £3.5 billion is expected to be raised between 2027 and 2030.
• By 2029/30, the Office for Budget Responsibility forecasts the number of deaths subject to inheritance tax will double. At this point, 1 in 10 estates will pay inheritance tax.

This all comes after a record £7.5 billion inheritance tax was collected for the 2023/24 tax year. That’s a 120% rise compared to a decade earlier.

I could be here all day quoting figures. The point is inheritance tax has grown to become a more widespread problem over the past 15 years.

And now, it’s only going to become even more significant.

What can you do about inheritance tax?

If all this has left you feeling a bit helpless, please don’t despair. That’s because there are ways you could address, reduce and maybe even eliminate a potential inheritance tax liability. It requires a bit of planning. And it isn’t something to put off. The longer you wait, the fewer options there might be and the higher the potential costs.

This is where a conversation could be worth having. At Skipton, we have a team of financial advisers who can explore your situation, including checking if inheritance tax is something you need to consider.

We could research and present options for managing your wealth. Everyone’s situation is different, and we will treat you that way. It’s about giving you recommendations you would be comfortable considering. This might include making/updating a Will, gifting money to loved ones, setting up special trusts, or insuring yourself against a potential tax bill.

Best of all, there’s no upfront fee to hear our personalised advice, or any pressure to act. We’ll give you the facts and your options, so you can make informed decisions. You won’t pay a penny unless you decide to take up a recommendation.

To start you off, we offer a free initial consultation

You just need to provide a few details about your situation. We’ll be able to give you an indication of whether inheritance tax is something you need to consider. At the end of this free chat, you can decide if you want to arrange a no-obligation financial advice meeting.

Even if it’s good news and your estate should be okay, we can discuss ways an adviser can help you plan your wealth – and the legacy you want to leave your family.

An opportunity to make stronger plans, and gain peace of mind about looking after your loved ones – that’s a conversation worth having.