What is Inheritance Tax?
Inheritance Tax is the tax charged on the value of your estate when you die, above certain thresholds set by HMRC. The current nil-rate band is £325,000, and a further residence nil-rate band of up to £175,000 is available where a home is left to children or grandchildren, so a married couple or civil partners could pass on up to £1 million between them before any tax is due.
It catches more people than it used to. House prices have risen while the nil-rate band has stayed the same for years, and from April 2027, undrawn pension funds will count towards your estate for the first time, pulling many more people into scope.
Assessing your position properly means looking at everything you own, not just the obvious assets, and understanding which reliefs and exemptions genuinely apply to your circumstances. That's really what inheritance tax planning is, an honest valuation, including foreign assets, followed by a clear look at what can be done. A modest estate can cross the inheritance tax threshold once a pension is added in.
What Counts Towards Your Estate
When we assess your Inheritance Tax position, we look at everything, including:
- Your home and any other UK property
- Property you own abroad
- Savings and current accounts
- Investments and shares
- Pensions, including undrawn pension funds from April 2027
- Life insurance policies not written in trust
- Business and agricultural assets
- Personal possessions, including cars
Gifts made in the seven years before death - Money owed to you
- Business assets, which may qualify for
- Business Relief
- Agricultural property, which may qualify for Agricultural Property Relief
Whatever your estate is made up of, we can help you work out its true taxable value and what, if anything, you're likely to owe.
Do I Need Inheritance Tax Advice?
You'll likely benefit from advice if any of the following apply:
- Your assets, including property and pension, total more than £325,000
- You want to make lifetime gifts without risking a tax bill for your family
Many people underestimate what they actually have. Property values, pension pots and investments held separately can add up to a taxable estate long before anyone expects it, particularly once a family home and an undrawn pension are both counted in.
Getting it right means understanding how the two nil-rate bands interact, which gifts are genuinely outside your estate and which aren't, and how family circumstances, marriage, children, grandchildren, change the calculation from one household to the next.
Getting it wrong can mean a tax bill your family wasn't expecting, or a gift caught by rules the person making it didn't know applied, leaving beneficiaries to cover a liability they hadn't planned or budgeted for.
Most people only find this out once, usually after a death, when it's too late to plan around it properly. This is where proper legal advice matters. Children and grandchildren are sometimes called lineal descendants in the legislation.
Common Inheritance Tax Mistakes We See
Assuming the Full £500,000 Allowance Always Applies
There was a lot of coverage when the nil-rate band effectively rose to £500,000 for some estates. What's less understood is that the core £325,000 band hasn't moved, and the additional £175,000 residence nil-rate band only applies if your home is left to children, grandchildren or other direct descendants. Leave it elsewhere and that extra allowance doesn't apply. Business Relief, once called business property relief, is a valuable tax relief many estates miss simply by not meeting the conditions.
Believing a Gift Is Immediately Safe
Putting a house in a child's name doesn't remove it from your estate if you carry on living there without paying market rent. Gifting has to be unconditional to count. If you keep the benefit, HMRC still treats it as yours. In tax law, this kind of gift is called a Potentially Exempt Transfer, and it only becomes exempt under what's often called the seven year rule, once you've survived seven years from the date you made it.
Not Realising Gifts Can Fall on Your Family
If you die within seven years of making a significant gift, that gift uses up your nil-rate band first, which can leave your other beneficiaries facing a tax bill they didn't expect. Gifting without advice can shift the burden onto the people you meant to protect. Getting proper legal advice on lifetime gifting before you act is what protects the people you're trying to help.
Underestimating What's Actually in the Estate
It's easy to add up savings and investments and assume you're comfortably under the threshold, then discover the family home alone takes you well over it. A proper valuation, not a guess, is what tells you where you actually stand. HM Revenue and Customs doesn't take your word for it either, so a figure that looks light can be queried later.
Leaving Pensions Out of the Calculation
Pensions have sat outside most people's Inheritance Tax thinking for years, and plenty of estate calculations still leave them out altogether. From April 2027, undrawn pension funds count towards your estate for the first time, which will bring a significant number of people into scope who wouldn't previously have needed to worry. It's worth reviewing this as part of wider retirement planning conversations, not as an afterthought.
How Much Inheritance Tax Will I Pay?
Inheritance Tax is charged at 40% on the value of your estate above your available nil-rate bands, though reliefs and exemptions can reduce this considerably depending on what you own and who you're leaving it to.
The starting point for most people is the £325,000 nil-rate band. A further £175,000 residence nil-rate band applies where a home passes to direct descendants, meaning a married couple or civil partners with children could have up to £1 million to pass on tax-free between them.
These thresholds have stayed largely the same for years while property values have risen, and pension rules are changing from April 2027. Both mean more people are affected than in the past, even where nothing about their own finances has changed.
There are other reliefs and allowances too, and whether they apply depends on your circumstances, so it's worth checking rather than assuming. The pension change takes effect from the 2027/28 tax year. Charity donations written into your Will can reduce the rate you pay too.
How We Can Help
Inheritance Tax rarely comes with a simple answer, and getting it wrong can cost your family more than the advice would ever have done. We can:
- Value your estate and assess your true tax position
- Explain which nil-rate bands apply to your circumstances
- Advise on lifetime gifting and the seven-year rule
- Build Inheritance Tax planning into your Will from the outset
- Advise on trusts where they genuinely help your position
- Flag where pension changes affect your estate
- Introduce you to a trusted financial adviser where needed
- Sit alongside your financial adviser to cover the legal side of their advice
Most of our Inheritance Tax advice happens as a natural part of writing or updating a Will, not as a separate appointment, so you get one clear picture of your estate rather than pieces of advice from different directions.
Where financial products or investment strategy come into it, we're not able to advise on those directly, but we work with financial advisers we know and trust across our office network, and we're happy to sit in on those conversations so the legal and financial advice line up.
If your circumstances are more complex, cross-border assets, business interests, or a recent change in residency, we'll tell you plainly where our advice ends and a specialist's begins.
Where it's relevant, we'll also check whether you or your family have Powers of Attorney in place, since the two conversations often go together. We'll flag tax mitigation options that suit your circumstances, and this often ties into wider estate administration after death, structured to be inheritance tax-efficient along the way.
Frequently Asked Questions
There's no wrong time to ask. Most clients raise it naturally when they come in to write or update a Will, and we'll value your estate and flag any concern at that point. If your assets, including your home and pension, could realistically total more than £325,000, it's worth a conversation sooner rather than later.
The core nil-rate band is £325,000. A further £175,000 residence nil-rate band applies if your home passes to children or grandchildren, so a married couple or civil partners could have up to £1 million to pass on tax-free between them, depending on circumstances.
Not automatically. It only applies where your home, or its value, is left to direct descendants such as children or grandchildren. Leave it elsewhere and that additional £175,000 allowance doesn't apply, which catches a lot of people by surprise. This is also written out in full as the Residence Nil Rate Band Allowance.
Only if the gift is unconditional. If you continue living there without paying rent at market value, HMRC still treats it as part of your estate. Gifting property while keeping the benefit of it doesn't remove it from your Inheritance Tax position.
The gift uses up your nil-rate band before anything else, which can leave your remaining beneficiaries with a larger tax bill than they expected. It's a common misconception that a gift is immediately outside your estate once it's made.
Not currently, but from April 2027, undrawn pension funds will count towards your estate for Inheritance Tax purposes for the first time. This is a significant change, and combined with rising property values, it's expected to bring a lot more people into scope than in the past. This applies from the 2027/28 tax year onwards.
Yes. Over the years we've built relationships with financial advisers we know and trust across our office network, and we're happy to make an introduction or sit alongside your existing adviser so your legal and financial advice line up rather than working in isolation. For particularly complex positions, we can also point you toward chartered tax advisers.
Broadly, just a sense of what's in your estate: property, savings, investments, pensions, and whether you have children or grandchildren. You don't need exact figures at this stage. We'll help you work out the detail and the true taxable value together.
Why choose Drummond Miller?
Our private client team builds Inheritance Tax advice into the work we already do with you on your Will and wider estate planning, with offerings such as:
- Inheritance Tax planning built into your Will
- Trusted relationships with independent financial advisers
- One named point of contact throughout
- Advice explained plainly, without unnecessary jargon
- 8 offices across the central belt
- Full in-house service, including estate agency
Wherever you're based in the central belt, you'll find a private client team nearby who can sit down with you and talk through your estate face to face, not just over the phone.
We know most people come to this worried about a figure rather than curious about the law. Our job is to tell you honestly where you stand, and what, if anything, you can do about it. As estate planning solicitors, we bring legal expertise and straightforward, honest advice to a conversation that often starts with worry rather than curiosity. That in-house, multi-disciplinary team means tax planning, property and family law advice can all sit under one roof.
Speak to Our Inheritance Tax Solicitors
If you're not sure where you stand on Inheritance Tax, or you want to plan ahead properly, we can help you find out. Get in touch to arrange a conversation with our private client team.
- Call us on 0131 226 5151