IHT Planning After Receiving an Inheritance UK: What to Do When Your Estate Grows (2026)
Inheriting significant wealth can push your own estate over the IHT threshold for the first time — or sharply increase an existing liability. The key lever is speed: a deed of variation within two years can redirect the inheritance before it enters your estate. Beyond that, immediate PET gifting, AIM shares (BPR after 2 years), and the pre-April 2027 pension window are the priority actions.
| Action | Timing | IHT Benefit | Key Requirement |
|---|---|---|---|
| Deed of variation to charity/other beneficiary | Within 2yr of death | Full (never in your estate) | Written deed, signed by varying beneficiary, within 2yr of death |
| Immediate PET gifts to children | Now | Exempt after 7yr; taper from yr 3 | Survive 7 years (taper benefit from year 3) |
| AIM BPR portfolio investment | Now (qualifying after 2yr) | 100% BPR after 2yr (£1m cap) | 2-year holding in qualifying AIM shares |
| Pension contributions (pre-2027 window) | Before 5 April 2027 | Outside IHT estate (until April 2027) | Must have earnings; annual allowance £60k |
| Annual exemption (£3,000/yr) | Each tax year | Immediate | Gifts to individuals; no 7yr requirement |
| Normal expenditure from income (s21 IHTA) | Ongoing | Immediate, uncapped | Regular, from income, retaining standard of living |
IHT Planning After Receiving an Inheritance: Complete Guide
How receiving an inheritance affects your own IHT position
When you inherit a significant sum of money, property, or other assets, your own estate increases by the inherited value. This may: (1) Push your estate over the NRB (£325,000) for the first time — exposing it to 40% IHT for the first time; (2) Increase an already-taxable estate, adding £400 in IHT for every £1,000 inherited above the NRB; (3) Increase the estate above £2,000,000, triggering the RNRB taper (loss of up to £175,000 RNRB, costing up to £70,000 in additional IHT). The IHT tax on your inherited money is not limited to the IHT already paid on the deceased's estate — you effectively pay IHT twice on the same wealth if you die with it still in your estate. This is why estate planning action immediately after receiving an inheritance is so valuable: the sooner planning is implemented, the more time there is for seven-year gift clocks to run, for AIM shares to qualify for BPR, and for the estate to be reduced before your own death.
Deed of variation: redirect the inheritance before it enters your estate
The most powerful option — if you act quickly — is a deed of variation (s142 IHTA 1984). Within two years of the deceased's date of death, you can redirect part or all of your inheritance to other beneficiaries or charities. The deed of variation is treated as if the deceased had made the gift directly: (1) If you redirect to a charity: the redirected amount is exempt from IHT on the deceased's estate AND exempt on your own (it never entered your estate); if the redirected amount reaches 10% of the deceased's net estate, the 36% reduced IHT rate may apply on the deceased's estate; (2) If you redirect to your children or grandchildren: the gift is treated as made from the deceased directly to them — no PET clock runs for you; the gift is simply not in your estate; (3) If you redirect to a trust: the gift is treated as made by the deceased to the trust — potentially attracting different IHT treatment. Deadline: exactly two years from the deceased's date of death. This window is precious — if you inherit from a parent who died on 1 June 2026, you have until 1 June 2028 to execute a deed of variation. Any amount you do not vary passes to you as an ordinary inheritance and becomes part of your estate.
Immediate PETs: start the seven-year clock on gifts to children
Once the inheritance money is in your estate (past the deed of variation window, or on amounts you choose to keep), the most straightforward strategy is to make Potentially Exempt Transfers (PETs — s3A IHTA 1984) as soon as possible. Every day you wait is a day less of the seven-year clock. If you receive £200,000 and immediately make a PET of £200,000 to your children: the clock starts on the date of the gift; if you survive seven years, the gift is outside the IHT estate completely; taper relief applies from year 3 (reducing the IHT from 40% at year 3 to 32%, 24%, 16%, 8%). The inherited money should not sit in your bank account for months while you decide what to do — every month of delay is a month lost on the seven-year clock. Consider making the gifts with a formal deed of gift (or at least a clear written record of date, amount, and recipient) to establish the gift date clearly. If you make several gifts over time, each one starts its own seven-year clock.
AIM shares: BPR-qualifying after two years — faster than the 7-year PET clock
Investing inherited cash in a portfolio of AIM-listed shares that qualify for Business Property Relief (BPR — s105(1)(bb) IHTA 1984) achieves IHT exemption after only two years — faster than the seven-year PET clock. The AIM shares remain in your estate (you can access them during life) but qualify as 100% BPR-exempt after two years (up to the £1,000,000 combined BPR/APR cap from April 2026; above £1m: 50% BPR, effective 20% IHT rate). This is particularly valuable where health issues or age make seven-year survival uncertain. Caveats: AIM shares are higher risk than cash; not all AIM shares qualify for BPR (investment companies, property companies do not); the qualifying status must be checked at the date of death, not at the date of investment. Use a specialist AIM BPR portfolio manager to ensure the investments qualify. An AIM ISA combines income tax and CGT efficiency during life with IHT exemption on qualifying shares after two years.
Pension contributions: the pre-2027 window
If you are still earning (or have earnings in the tax year of inheritance), pension contributions reduce the income on which income tax is paid AND the pension fund is currently outside the IHT estate (until 6 April 2027 when Budget 2024 changes take effect). If you use inherited cash to fund living expenses and increase your pension contributions from salary, the pension fund grows (outside the IHT estate) while your bank/investment accounts are funded by the inheritance. Annual pension contribution allowance (2025–26): up to 100% of earnings or £60,000/year, whichever is lower. Carry-forward: unused pension allowances from the previous three years can be used in a single year (potentially up to £200,000+ in one year if fully unused for three years). After April 2027, this pension IHT advantage will be substantially reduced — the window to act closes on 5 April 2027.
Reviewing your will and pension nominations after inheritance
Receiving a significant inheritance changes your estate — your existing will may not reflect your new wishes or optimise your IHT position. Review the will: (1) Does the will still direct assets as you intend? The beneficiaries you named when your estate was £300,000 may not be who you would choose now the estate is £700,000; (2) Does the will maximise the RNRB? If the estate has grown above £2,000,000, the RNRB begins to taper — restructuring gifts in the will may preserve more RNRB; (3) Does the will include a charitable legacy (for the 36% reduced IHT rate)? Now the estate is larger, this is more valuable; (4) Does the will include a discretionary NRB trust or similar structure? Review pension nominations: the inherited money may change who should receive your pension on death. If you had previously nominated a charity or friend, reconsider whether a family member makes more sense now. Ensure LPA is in place: if you have recently inherited and are now managing a significantly larger estate, a Lasting Power of Attorney (Property & Financial Affairs) is essential — without it, attorneys cannot manage the estate or make IHT-motivated gifts on your behalf if capacity is lost.
Frequently Asked Questions
What should I do about IHT if I receive a large inheritance?
Act quickly — time is your most valuable asset for IHT planning. Key steps: (1) Check whether a deed of variation (s142 IHTA 1984) can redirect part of the inheritance within two years of the deceased's date of death — this is the most powerful option as it prevents the assets entering your estate at all; (2) Make PETs (gifts to individuals) immediately to start the seven-year clock; (3) Invest in AIM BPR-qualifying shares (IHT-exempt after 2 years); (4) Maximise pension contributions before April 2027 (pensions currently outside IHT estate); (5) Use the annual exemption (£3,000) and normal expenditure from income (s21 IHTA 1984); (6) Review your will and pension nominations — your estate has changed significantly.
Can I redirect an inheritance to avoid inheritance tax on my own estate?
Yes — via a deed of variation (s142 IHTA 1984). Within two years of the deceased's date of death, you can redirect all or part of your inheritance to another beneficiary or charity. The redirected gift is treated as if made directly from the deceased — it does not enter your estate and does not count as a PET from you. If you redirect to a charity, the 36% reduced IHT rate may apply on the deceased's estate (if the redirected amount is 10%+ of the net estate). If you redirect to children or grandchildren, they receive the assets directly from the deceased with no IHT in between.
How long do I have to redirect an inheritance using a deed of variation?
Exactly two years from the deceased's date of death. This is a strict deadline — there is no extension. The deed must be in writing, identify the redirected legacy, state that s142 IHTA 1984 applies, and be signed by the varying beneficiary. If you receive an inheritance and are considering a deed of variation, take advice immediately — waiting diminishes the options.
What is the IHT impact if I inherit money and leave it in my bank account?
Inherited cash sitting in a bank account is in your IHT estate at face value. When you die, it is taxed at 40% above your NRB (£325,000 + RNRB if applicable). There is no exemption for inherited money — it is treated the same as money you earned or saved. The sooner you take action (gifts, AIM shares, pension contributions, deed of variation), the more of the inherited wealth can be removed from the IHT estate.
Should I update my will after receiving a large inheritance?
Yes — immediately. A significant inheritance changes your estate substantially and your existing will may: (1) Not reflect how you now want your enlarged estate distributed; (2) Fail to maximise the RNRB (if the estate has grown above £2m, restructuring gifts may preserve RNRB); (3) Miss the charitable 36% reduced IHT rate opportunity (now more valuable with a larger estate); (4) Not use a NRB discretionary trust appropriately for your new estate size. Also update pension nominations and check your LPA is registered — the inherited estate now requires careful management.
Update Your Will — Your Estate Has Changed
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