Estate Planning Guide UK (2026): Will, LPA, IHT and the Complete Checklist

Estate planning is the process of organising your financial and personal affairs so that when you die (or if you lose capacity during your lifetime), your wishes are carried out, your family is protected, and as little value as possible is lost to inheritance tax, probate fees, or avoidable disputes. A complete estate plan in England and Wales has five main components: (1) A VALID WILL: a formally executed will (signed and witnessed by two independent adults under WA 1837 s.9) that specifies your executor, guardian for minor children, and how your estate is to be distributed. Without a will, the intestacy rules (Administration of Estates Act 1925) govern distribution — which may not reflect your wishes and will leave cohabiting partners, stepchildren, and friends with nothing; (2) A PROPERTY AND FINANCIAL AFFAIRS LPA: a registered LP1F authorising a trusted person to manage your bank accounts, investments, property, and finances if you lose mental capacity. Without an LPA, a Court of Protection deputyship takes 6–12 months and costs £3,000–£6,000+ to obtain; (3) A HEALTH AND WELFARE LPA: a registered LP1H authorising a trusted person to make decisions about your medical care, daily routines, and end-of-life wishes if you lose capacity. Without it, no one has authority to override medical or care decisions — not even a spouse; (4) PENSION NOMINATIONS UP TO DATE: an expression of wishes with each pension scheme directing death benefits to the right people. Pension death benefits pass outside the estate (until April 2027 when Finance Act 2024 brings them into IHT); correct nominations ensure they go where you intend; (5) LIFE INSURANCE WRITTEN IN TRUST: any life insurance not written in trust enters your estate and is subject to IHT. Policies written in trust pay directly to beneficiaries outside the estate, without waiting for probate. Writing a policy in trust is free with most insurers. These five components work together — a will without an LPA leaves your family unprotected during incapacity; an LPA without a will leaves your estate unplanned. All five should be reviewed together as a package.

Inheritance tax (IHT) is charged at 40% on the value of an estate above the available nil-rate band at death. Key thresholds and reliefs for 2026: (1) NIL-RATE BAND (NRB): every individual has a NRB of £325,000 (IHTA 1984 s.7). Assets up to £325,000 are exempt from IHT. The NRB is frozen until April 2030. IHT at 40% applies to the taxable estate above the NRB; (2) RESIDENCE NIL-RATE BAND (RNRB): an additional £175,000 per person where a qualifying residential property passes to direct descendants (children, stepchildren, adopted/foster children, grandchildren). The combined NRB + RNRB per person = £500,000; (3) TRANSFERABLE NRB AND RNRB: when the first spouse dies and leaves everything to the survivor, the first spouse's unused NRB and RNRB percentage transfers to the survivor's estate. Maximum combined threshold for qualifying couple: £650,000 NRB + £350,000 RNRB = £1,000,000; (4) SPOUSE EXEMPTION (IHTA 1984 S.18): gifts between legally married spouses or civil partners — whether during lifetime or on death — are completely exempt from IHT (where the recipient is UK-domiciled). Does NOT apply to cohabiting partners; (5) 40% RATE: applies to the taxable estate (value above all available NRB/RNRB/exemptions). The rate reduces to 36% if at least 10% of the net estate passes to charity (Finance Act 2012, Schedule 1A); (6) IMPORTANT: the IHT calculation adds back gifts made within 7 years of death (potentially exempt transfers — PETs). Gifts that survive 7 years are fully exempt. Taper relief reduces the IHT rate on gifts made 3–7 years before death; (7) APRIL 2027 CHANGE: unused DC pension funds will enter the IHT estate from 6 April 2027 (Finance Act 2024). Currently DC pension pots pass outside the estate. Review estate value including pension to understand whether IHT will be due from April 2027.

IHT planning should begin years before death — the most effective strategies require time. In rough order of applicability and impact: (1) MAKE SURE BOTH SPOUSES USE THEIR NRB AND RNRB: a surviving spouse can claim the deceased spouse's unused NRB and RNRB (IHT402 and IHT436). For a couple with a qualifying home, the combined threshold can reach £1,000,000. Many estates pay IHT unnecessarily simply because the transferable NRB is not claimed; (2) ANNUAL GIFT EXEMPTION: £3,000 per person per year (s.19 IHTA 1984); carry forward one year if unused. Two spouses: £6,000/year. Over 10 years: up to £60,000 extracted IHT-free; (3) NORMAL EXPENDITURE OUT OF INCOME (S.21 IHTA 1984): unlimited regular gifts from surplus income — no annual cap, no 7-year rule. Must be habitual, from income (not capital), and leave the donor with adequate income for their own needs. For people with large pension income relative to expenditure, this can save significant IHT; (4) SEVEN-YEAR GIFTING (PETs): outright gifts to individuals are potentially exempt — IHT-free if the donor survives 7 years. Taper relief reduces the rate between years 3–7. Start early; the 7-year clock begins on the date of each gift; (5) WRITE ALL LIFE INSURANCE IN TRUST: a simple trust declaration at the time of taking out the policy ensures the payout goes directly to beneficiaries outside the estate. For a couple, each should write their policy in trust for the other (and children on second death); (6) ENSURE PENSION NOMINATIONS ARE CORRECT: DC pensions currently pass outside the estate to nominated beneficiaries. After April 2027, they will be subject to IHT — but correct nominations still ensure they go to the right person; (7) CHARITABLE LEGACY IN WILL: leaving at least 10% of the net estate to charity reduces the IHT rate from 40% to 36% on the remainder. On a large estate, this saving can exceed the value of the charitable gift; (8) BUSINESS PROPERTY RELIEF: 100% BPR on qualifying trading company shares (2yr holding), sole trader businesses, and partnership interests. The April 2026 cap limits combined BPR+APR at the full rate to £1 million — but significant relief remains available; (9) WILL TRUSTS (NRB DISCRETIONARY TRUST; LIFE INTEREST TRUST): structured will trusts use the first death's NRB efficiently, protect the family home, and reduce the taxable estate on second death. Essential for estates over £1 million or blended families.

An estate plan created once and never revisited quickly becomes outdated. Review and update after each of the following trigger events: (1) MAJOR LIFE EVENTS REQUIRING IMMEDIATE ACTION: (a) Marriage: marriage automatically revokes all previous wills (WA 1837 s.18) — make a new will immediately after getting married. If you get married without a new will, you die intestate; (b) Divorce: decree absolute automatically voids gifts to an ex-spouse in the will (WA 1837 s.18A) but does not revoke the will — make a new will to appoint a new residuary beneficiary; also revoke LPAs naming the ex-spouse as attorney; (c) Birth of a child or grandchild: update the will to appoint a guardian for any minor children; update residuary beneficiaries; consider adding a trust clause for minor beneficiaries; (d) Death of an executor, attorney, guardian, or beneficiary: update the will and/or LPA to name replacements; (2) FINANCIAL CHANGES: (a) Significant increase in estate value (through property appreciation, business growth, or inheritance) — the IHT calculation changes; (b) New assets acquired (overseas property, business interests, pension) — ensure covered in will and LPA; (c) Pension provider changed — update expression of wishes with new provider; (d) New life insurance policy — write in trust and update nomination; (3) LAW CHANGES: (a) IHT threshold changes (NRB frozen to April 2030; RNRB; BPR/APR cap April 2026; pension April 2027); (b) LPA registration changes; (c) Administration of Estates Act intestacy threshold updates; (4) PERIODIC REVIEW REGARDLESS OF EVENTS: review the complete estate plan every 3–5 years even without specific trigger events. People move, relationships change, assets shift, laws change. A 10-year-old will may be legal but functionally outdated; (5) HOW TO UPDATE: make a new will with a revocation clause (or a codicil for minor targeted changes); update LPA registration by revoking and remaking; update pension nomination forms with each provider; update life insurance trust deed if beneficiaries change.

Pensions and life insurance are two of the most valuable estate planning tools available in England and Wales — because they currently pass outside the estate and outside probate, directly to nominated beneficiaries: (1) PENSION DEATH BENEFITS — CURRENT POSITION (TO APRIL 2027): defined contribution pension pots (personal pensions, workplace pensions, SIPPs) pass to nominated beneficiaries outside the estate, outside IHT, and without waiting for probate. The pension scheme trustees have discretion over who receives the death benefits — guided by the member's expression of wishes form. Keep this form up to date with each pension provider. If there is no valid expression of wishes, the trustees decide independently — they may pay to the estate rather than to your preferred person. Note: fixed lifetime annuities and final salary pension guarantees are different — check individual scheme rules; (2) PENSION DEATH BENEFITS — FROM APRIL 2027 (FINANCE ACT 2024): from 6 April 2027, unused DC pension funds remaining on death will be included in the deceased's estate for IHT purposes. Pension scheme administrators will deduct IHT before paying death benefits to nominees. The spouse exemption still applies on first death. Correct nominations remain essential — but estates with large pension funds must now model combined estate + pension value against available NRB/RNRB/exemptions; (3) LIFE INSURANCE WRITTEN IN TRUST: life insurance policies not written in trust form part of the estate (subject to IHT and probate). Policies written in trust pay directly to the trustees for the named beneficiaries — outside the estate, within days of proof of death, without waiting for probate. Writing a policy in trust is a simple form completed with the insurer — usually free. The most common structures: (a) joint life second death whole-of-life policy in a discretionary trust to fund the IHT bill on the second death; (b) level term policy in a bare trust for a spouse; (c) relevant life policy for an employed director (a tax-efficient company-funded policy in trust, not in the employee's estate); (4) WHICH POLICIES ARE NOT WORTH WRITING IN TRUST: policies already in trust (employer group life/death in service); pension-linked life cover paid to the pension; policies owned by a company. Seek advice before assigning an existing policy into trust — this creates a PET (7-year rule).