Inheritance tax (IHT) affects a small minority of estates, but that could change in the coming years.
Currently, around 4% of UK deaths result in a charge. But frozen tax thresholds, rising house prices and upcoming pension rule changes mean more estates will likely be drawn into the net.
The Office for Budget Responsibility (OBR) estimates that the proportion of deaths subject to IHT could rise to around 10% by 2030-31, with a £189,300 average bill.
Many Which? members already expect to be affected. In a February 2026 survey of 1,091 Which? members, more than half said they believe their estate will be liable after their death. Among those, nearly a third said the planned changes to pension rules are likely to affect their inheritance plans.
IHT rules are complicated, and the choices you make when planning your estate can make a difference. Here we explain five common mistakes and pitfalls – and how to avoid them.
1. Not using up gift allowances
Everyone has a tax-free inheritance allowance worth £325,000, known as the nil-rate band. If your estate exceeds this threshold, inheritance tax is normally charged at 40% on anything above it.
The rate can fall to 36% if at least 10% of your net estate (the amount above your allowance) is left to charity.
One way to reduce the size of your estate is to give money away during your lifetime. Two in five Which? members who expect their estate to face IHT told us they use the annual gifting allowance, which lets you give away up to £3,000 each tax year without it counting towards your estate.
IHT liability is expected to spike when pensions fall into its scope
Many don’t realise you can also carry forward any unused allowance from the previous tax year, allowing you to give away up to £6,000 tax-free.
Around one in five told us they make gifts of more than £3,000. Gifts outside of your allowance are known as ‘potentially exempt transfers’ (PETs).
If you survive for seven years after making the gift, no IHT is due. If you die within that time, the gift may still be taken into account when your estate is taxed. PETs are usually applied to your £325,000 allowance first.
If you have no allowance left, the tax is tapered so less is due the longer you survive after making the gift.
Certain other gifts are also tax-free – you can make smaller gifts up to £250 and you can give £5,000 to your child for their wedding.
Gifts made from surplus income can also be exempt from inheritance tax. They must be made regularly, come from your normal income rather than savings, and not affect your standard of living. Examples include paying a child’s rent or university fees.
Gifts to family and friends were mentioned several times by members during our survey. One told us: ‘We decided that a good strategy would be to gift money while we can see our children enjoy it.’
- Find out more: Inheritance tax: thresholds, rates and who pays
2. Using gifts with reservation
If you give something away but still continue to benefit from it, then it will still count towards the value of your estate. This is known as a ‘gift with reservation’.
A common example involves property. If you give your home to a family member but continue to live there rent-free, you will normally still be treated as the beneficial owner.
This means the property could still be counted as part of your estate when you die. To avoid this, you would usually need to pay the new owner a full market rent for living in the property.
Importantly, it does not matter when the gift was made. If you are still benefiting from the asset when you die, it can still be treated as part of your estate for inheritance tax.
These rules can also apply to other assets that you give away but continue to use, such as vehicles, jewellery, investments or other valuables.
There is an exception for those who give away their home, but later have to return due to an unforeseen change in circumstances owing to old age or infirmity.
- Find out more: Inheritance tax planning and tax-free gifts
3. Not planning as a couple
Assets left to a spouse or civil partner are exempt from inheritance tax, provided both partners are domiciled in the UK. Unused allowances can be transferred to the surviving partner.
The residence nil-rate band (RNRB) is an additional allowance worth up to £175,000 if you leave your main home to direct descendants such as children or grandchildren.
Combined with the standard allowance, this means an individual could pass on £500,000 tax-free. When a surviving partner inherits unused allowances, a couple could pass on up to £1m before inheritance tax is due.
If your estate is worth more than £2m, the RNRB tapers away, falling by £1 for every £2 above the threshold. This means that if your estate is worth £2.4m, the residence nil-rate band would be lost entirely.
Anastasia* 71, from Chester, lost her husband eight years ago. Since then she has been trying to reduce the size of her estate by treating her family to regular trips abroad.
I spend my savings on expensive holidays, taking my nieces and nephews with me. At my age I need help when I’m travelling, so my family helps care for me when we’re on holiday.
It’s important to note that paying for family trips abroad may still be liable for IHT unless you need help from them when travelling.
If you inherit your partner’s allowances and later remarry, you won’t also inherit your new spouse’s allowances if they die before you.
You’re only allowed to benefit from a maximum of two full IHT allowances. To retain allowances from both pre-deceased spouses, you would both need to structure your assets and wills to achieve this.
- Find out more: inheritance tax on property
4. Not getting advice on trusts
Trusts are legal arrangements where assets are held by one person for the benefit of someone else. But they are complicated, and it’s a misconception that assets placed in trust are exempt from IHT.
Also, they won’t protect your home from care home fees. Local authorities can still take assets into account if they believe money or property was given away deliberately to avoid paying for care.
They’re not popular among Which? members, with just 11% of those expecting to face an IHT charge telling us they use a trust as part of their estate planning.
Most trusts have their own tax rules. For example, in some cases you may pay IHT of up to 20% when assets placed in certain trusts exceed the nil-rate band.
Depending on the type of trust, you may also face 10-yearly charges up to a maximum of 6%, plus there may be exit charges.
In some cases a trust can be worth considering – for example, for leaving money to children under 18. But think carefully before going down this route and only deal with firms that belong to professional bodies such as STEP or TACT. Consider taking professional advice.
- Find out more: inheritance tax and trusts
5. Not keeping records
Executors – the people responsible for dealing with your estate after you die – will need to track down details of your finances, including information about gifts you made in the seven years before your death that exceed the usual gifting allowances.
This might involve going through bank statements, speaking to family members and checking any records you left behind.
It’s important they get things right, because HMRC may investigate if it spots inconsistencies or missing information, even if these are the result of honest mistakes.
Make an executor’s job much easier by leaving clear records of any gifts you’ve made. One easy way to do this is to keep records of bank statements as they show both income and expenditure.
It’s a good idea to have early conversations with your executors so they know where to find all of your important documents. There’s no need to keep a record of gifts that fall within your annual gifting allowances.
Which? member Lynne Byers keeps notes of the gifts she makes.
I’ve given money to family in excess of the annual allowances, so I keep a spreadsheet with all the information. That way the relevant forms can be easily completed upon my death.
If you act as executor for someone’s estate, you’ll need to estimate its value to determine whether IHT is due. A rough figure is fine, but if any tax is due you’ll need more accurate valuations.
In this case, you’ll need to submit an IHT400 form to HMRC detailing the estate’s value as well as any debts.
It’s sensible to get a professional valuation for items worth more than about £1,500. Everyday household items can be estimated, as can cheaper items such as electrical goods and jewellery (use online marketplaces to help work out their value).
IHT generally needs to be paid within six months of the end of the month in which the person died, so good record keeping can make meeting the deadline much easier.
- Find out more: ways to avoid inheritance tax
How to plan for care home fees
Ray Hopewell, 79, and his wife, from Gillingham, are both enjoying their retirement, but the spectre of inheritance tax has caused a disagreement between the pair.
Ray is keen to spend some of the couple’s savings on gifts and enjoying their later years, which would help to reduce the size of their estate.
However, his wife is concerned that they may need to hold on to most of their savings, in case they need to put them towards future care home fees.
He said: ‘I’ve suggested we try to reduce our tax liability but my wife is worried because my mother was in a care home for her last years. Should the worst happen, we don’t want to depend on the local authority, but the fees at some of the private homes we looked at were more than £1,000 a week.’
Indeed, last year Which? found that care home fees averaged nearly £1,400 a week.
He added: ‘And so that would quickly eat into any savings that we have. But at the same time we’re quite generous when it comes to gifts and birthday presents, but that worry has stopped us from giving lots away.’
Samantha Galloway, Which? Money 1-to-1 guidance expert, says:
It sounds like Ray and his wife should be taking a balanced approach to this.
Passing on wealth now has advantages in reducing future IHT liabilities, as long as you survive at least seven years after making any gifts that fall outside of your allowance.
If one partner dies, it’s likely that the other may have some sort of spousal pension to boost their income – this could help to reduce any shortfall gap for care provision to be met.
This may be enough to allow them to retain and pass on their home to their heirs, but seeking tailored professional advice may be beneficial.
*not her real name
