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6 inheritance tax mistakes and how to avoid them

6 inheritance tax mistakes and how to avoid them

There are several straightforward ways to reduce a potential IHT bill.

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Melanie Wright

Published: August 24, 2026 at 3:40 PM

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No one likes thinking about inheritance tax (IHT), but putting off planning could mean your loved ones receive far less of your estate than you intended when you die.

With property prices rising and many estates exceeding frozen inheritance tax thresholds, more families are being affected by IHT. According to the latest HMRC data, 4.72% of UK deaths resulted in an IHT charge in 2023/24, the highest proportion since 2006/07. The number of estates liable for IHT is forecast to rise from around 40,000 in the current tax year to more than 66,000 by 2030.

Neil Jones, tax and wealth planning specialist at Standard Life, said: "Frozen IHT thresholds, rising asset values and future policy changes are creating a 'perfect storm', leaving more families potentially exposed to a liability they may not have planned for.”

Fortunately, there are several straightforward ways to reduce a potential IHT bill. Here are six of the most frequent pitfalls and how you can avoid them.

1. Not updating your will

Regularly reviewing your will is an important part of inheritance tax planning, as it determines who inherits your estate and how tax exemptions are used. An up-to-date will helps ensure your wishes are carried out in the most tax-efficient way possible.

2. Leaving IHT planning too late

The earlier you start thinking about IHT planning, the more options you have.

For example, you’re more likely to be able to make Potentially Exempt Transfers (PET), which are gifts that become exempt from inheritance tax if the donor survives for seven years. Waiting until you’re in poor health or old age can limit your choices and means you can’t make the most of all the exemptions that are available.

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3. Not making gifts regularly

Giving money away during your lifetime can be one of the simplest ways to reduce the value of your estate, reducing any potential IHT bill.

There are several allowances available which enable you to make financial gifts free from inheritance tax. Gifts between spouses or civil partners are generally exempt, as are charitable gifts.

You can also give away up to £3,000 each tax year without the gift being added to the value of your estate for IHT purposes. If you do not use this allowance in one tax year, you can carry it forward to the following tax year only, allowing you to give up to £6,000. You can also make gifts of up to £250 per person each tax year to as many individuals as you wish, if you haven’t also given them your £3,000 allowance.

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4. Forgetting you can make gifts from surplus income

One of the most valuable, but often overlooked, exemptions allows you to make regular gifts from your surplus income. These gifts are immediately exempt from inheritance tax as long as they form part of your normal spending pattern, are made from your income rather than capital, and making these gifts doesn’t affect your standard of living.

It’s always a good idea to keep clear records of any gifts you make, as this can make life much easier for your executors.

5. Not writing your life insurance policy in trust

If you have a life insurance policy, the payout may form part of your estate for IHT purposes if the policy isn't written in trust. According to analysis of the latest HMRC figures, over 7,000 families paid inheritance tax on life insurance policies in the 2023/24 tax year, but many would have escaped a bill if their policy had been written in trust.

Writing a policy in trust can mean the proceeds are paid directly to your chosen beneficiaries rather than into your estate, potentially reducing IHT, and avoiding delays while probate is being completed.

Sean McCann, chartered financial planner at NFU Mutual, said: “Putting life insurance policies into trust is relatively straightforward. If you have life insurance and it isn’t in trust, phone your provider and ask for a trust form.

“Provided you’re in good health when you put it into trust, there are normally no inheritance tax implications, as in most cases the policy has no value.”

6. Ignoring your pension

Pensions are often one of the most tax-efficient assets you own, and under current rules, pension savings can often be passed on outside your estate for IHT purposes. However, from April next year, most unused pension funds are expected to become subject to inheritance tax under planned rule changes.

Maike Currie, VP personal finance at PensionBee, said: “One simple but important thing people can do now is ensure their expression of wish forms detailing their beneficiaries are up to date with all pension providers. Clear beneficiary information and accurate records could significantly reduce delays, confusion and stress for loved ones later on.”