Inheritance Tax Estate Planning Checklist UK 2026: 20 Steps to Reduce IHT, What to Do First, and What Most People Miss

Total all assets: property (current market value — RICS valuation if unsure), investments, savings, ISAs, business interests, life insurance NOT in trust, vehicles, household contents (approximate), digital assets (cryptocurrency, online businesses), pension death benefits (DC pensions currently outside estate — but check from April 2027). Deduct: mortgage outstanding; secured loans; trade debts; funeral costs (s172 IHTA). The net figure is your IHT estate.

Establishes your baseline — essential before any planning. Common mistakes: forgetting life insurance not in trust (can be a large asset); undervaluing property; not including gifts made in the last 7yr (failed PETs come back into the estate). The IHT400 (main return) uses this valuation.

NRB: £325k (frozen to April 2030 — s7 IHTA). RNRB: £175k if qualifying residential property (QRP) passes to direct descendants (s8D-8K IHTA; Finance Act 2016). tNRB: up to £325k if your spouse/CP has died and their NRB was unused — claim IHT402 (NOT automatic). tRNRB: up to £175k from deceased spouse's unused RNRB — claim IHT435 (NOT automatic). RNRB taper: s8E IHTA — £1 per £2 above £2m; zero at £2.35m (single) or £2.7m (widowed with full tNRB + tRNRB).

Single person: up to £500k threshold (NRB + RNRB). Married couple (widowed second death): up to £1m (NRB + tNRB + RNRB + tRNRB — if all claimed). Failure to claim IHT402 and IHT435 costs up to £200k in IHT savings.

Annual exemption: £3,000/yr (s19 IHTA) — can be carried forward 1yr (max £6,000 in one year if previous year was unused). Small gifts: £250 per person per year (s20 IHTA — unlimited number of recipients; cannot combine with annual exemption for same person). Normal expenditure out of income: gifts from regular income that (a) form a habitual pattern; (b) come from income not capital; (c) do not reduce the donor's standard of living (s21 IHTA). Wedding/civil partnership gifts: up to £5,000 from parent; £2,500 from grandparent; £1,000 from any other person (s22 IHTA). Maintenance of family: payments for the support of a spouse, minor children, or elderly relatives (s11 IHTA — exempt).

Annual exemption of £3,000/yr × 20yr = £60,000 removed from estate. At 40% IHT: £24,000 tax saving. Small gifts: gift £250 to each of 20 grandchildren/year = £5,000/yr; cumulative 20yr = £100,000; IHT saving = £40,000. s21 normal expenditure: no limit — a wealthy person with significant investment income can make very large exempt gifts regularly.

A life insurance policy NOT in trust falls into the deceased's estate and is subject to IHT at 40% on the excess above the NRB. A life insurance policy IN trust passes directly to the trust beneficiaries on death — it does NOT form part of the IHT estate. Writing into trust: use the insurer's standard trust form (usually a bare trust or flexible (discretionary) trust); sign the assignment; file with the insurer. CGT: no CGT on assigning a life insurance policy (s210 TCGA 1992 — policies are exempt). The trust assignment is not a CLT or PET (the policy has very low market value in most cases — the insurer's surrender value, often minimal). IHT benefit: the full policy payout (£250k, £500k, £1m) passes outside the estate.

A £500k life insurance policy NOT in trust: costs the estate £200k in IHT (£500k × 40%). Writing it into trust: saves £200k. The assignment form takes 30 minutes. This is the most cost-effective single action on this checklist — disproportionate benefit for trivial effort.

Potentially Exempt Transfers (PETs — s3A IHTA): gifts to individuals are PETs. No IHT if the donor survives 7yr. Taper relief (s7(4) IHTA) reduces the IHT rate after 3yr (taper reduces the RATE — not the value of the gift: 3-4yr: 80% of full rate; 4-5yr: 60%; 5-6yr: 40%; 6-7yr: 20%). The earlier you start the PET clock, the sooner the gift is completely outside the estate. Best assets to gift: those likely to appreciate (the future growth is outside the estate from the gift date). Retain: assets needed for income; assets with complex CGT positions; BPR-qualifying assets (they may already be IHT-exempt). Document all gifts: IHT403 (gifts form in the IHT400 — required for all gifts in the 7yr before death). Life assurance: a 7yr reducing term insurance policy written into trust can cover the IHT risk if the donor dies within 7yr.

£500k PET to children: if donor survives 7yr: £200k IHT saved (£500k × 40%). If donor dies after 5yr: IHT = £500k × 40% × 40% (taper) = £80k (saving £120k vs no gift). Starting the clock 7yr earlier than necessary is not possible — but procrastinating costs: every year of delay = 7yr from that point.

For married couples with combined estates above £500k: include an NRB Discretionary Trust (£325k) in the will for first death. The NRB DT: (a) keeps £325k outside the surviving spouse's estate; (b) can benefit the surviving spouse as a discretionary beneficiary (the trustees can loan/lend assets or make income payments to the spouse); (c) s144 IHTA — appointments within 2yr of death are treated as direct testamentary gifts; (d) on the second death: £325k (plus growth) passes to children outside the IHT calculation. Alternatively: a Deed of Variation (s142 IHTA) within 2yr of death can create the NRB DT post-death if the will did not include one.

£325k × 40% = £130,000 IHT saved on the second death. For a couple with a £1m combined estate: the NRB DT on first death + tNRB + RNRB + tRNRB = potentially £1m total threshold = £0 IHT. Without NRB DT (everything to spouse): tNRB only £325k. Threshold = £650k (NRB + tNRB) + £350k (RNRB + tRNRB) = £1m — same threshold, but the NRB DT assets are also GROWING outside the estate and may be worth more than £325k by second death.

Business Property Relief (BPR — ss103-114 IHTA): 100% relief for: unlisted UK trading company shares; AIM shares (s105(1)(bb)); sole trader business assets; partnership interests. 50% relief for: listed controlling interest shares; land/buildings/machinery used in a qualifying business. Agricultural Property Relief (APR — ss115-124 IHTA): 100% relief for owner-occupied farmland and ATA 1995 let land. 50% for AHA 1986 let land. FINANCE ACT 2026 CHANGE (from 6 April 2026): combined BPR + APR relief capped at £1m at the 100% rate. Above £1m: 50% relief only (effective IHT rate: 20%). Critical implication: if your total BPR + APR assets exceed £1m, the relief above £1m is halved. Planning: ensure the most valuable qualifying assets are within the £1m cap; consider whether to accelerate business restructuring; take specialist business IHT advice.

Before FA 2026 cap: £3m AIM shares → 100% BPR → £0 IHT. After FA 2026 cap: £3m AIM shares → first £1m 100% BPR (0% IHT); next £2m × 50% BPR → effective rate 20% → £400k IHT. The cap has transformed large-estate BPR/APR planning.

Before April 2027: DC pensions (defined contribution) are OUTSIDE the IHT estate. The pension fund bypasses the estate and passes to nominated beneficiaries tax-free for IHT. This is being changed. From 6 April 2027 (Finance Act 2024): DC pensions INSIDE the IHT estate. The full pension fund value will be included in the deceased's estate for IHT. Planning before April 2027: if your DC pension is large, consider: (a) drawdown — drawing down the pension before death can reduce the DC pension fund (drawdown is income-taxed but then the cash can be PET'd or invested in IHT-exempt assets like BPR shares); (b) reviewing who is the nominated beneficiary — the nomination form determines who receives the pension (the trustees consider it but are not bound by it). After April 2027: pension planning becomes much more complex — IHT at 40% on the pension fund PLUS income tax on pension withdrawals = effective combined rate of up to 64% for higher rate taxpayers. DB pensions (defined benefit) are NOT brought into the estate — only DC pensions.

DC pension of £500k currently outside estate: IHT saving = £200k (£500k × 40%). From April 2027: £500k in estate. If estate > NRB: £200k additional IHT. Act before April 2027 — review pension drawdown strategy; use the pension outside-estate window while it lasts.

Section 36 IHTA 1984: if ≥10% of the 'baseline estate' (net estate after deducting NRB/tNRB and spousal/charity/other exemptions) is left to qualifying UK charities, the IHT rate on the rest of the estate reduces from 40% to 36%. The net cost of the charity legacy is often LESS than the IHT saving. Example: estate £1m widowed; tNRB+NRB = £650k. Baseline = £350k. 10% = £35k to charity. Rest: £315k × 36% = £113.4k IHT. Without charity: £350k × 40% = £140k IHT. Net saving from charity: £140k − £113.4k − £35k = −£8.4k (family is £8.4k 'worse off' in cash terms — but the charity gets £35k). For larger estates: the maths often favours the family (net cost well below zero — the family is BETTER OFF). The charitable legacy must be in a will or deed of variation (within 2yr of death).

10% to charity = effectively 4% IHT rate reduction on the remaining 90%. Net benefit increases as the chargeable estate grows. At £1m chargeable estate: £35k to charity saves £26.6k IHT — net cost £8.4k for £35k charitable benefit. At £2m chargeable: £70k to charity saves £52k IHT — net cost £18k for £70k charitable gift. For families charitably inclined, this is pure benefit.

Joint assets (property, bank accounts, investments) held as 'joint tenants' pass automatically to the surviving joint owner on death — by the rule of survivorship. The deceased's share does NOT pass under the will. This can destroy NRB DT planning: if the family home is held as joint tenants, the deceased spouse's share automatically passes to the surviving spouse (s18 IHTA — IHT-free). But: (a) the NRB is not used; (b) the property is now entirely in the surviving spouse's estate. Solution: sever the joint tenancy (both owners sign a notice of severance). After severance: the property is held as 'tenants in common' — each owner has a distinct share (usually 50/50) that CAN be left under the will to anyone (including the NRB DT). Registered property: file the notice of severance with the Land Registry (form SEV). Unregistered property: notify the other joint owner in writing. After severance: amend wills to leave the half-share to the NRB DT (not to the surviving spouse directly).

Family home £700k held as joint tenants → surviving spouse inherits 100% by survivorship → all £700k in surviving spouse's estate. Severed to tenants in common 50/50 → deceased's £350k left to NRB DT → £325k of it sheltered from IHT. Saving: £130k. Without severance: the NRB DT in the will is ineffective because the half-share never passes under the will.