Inheritance Tax (IHT) planning

Summary

• Estates above the £325,000 nil-rate band are taxed at 40% on the amount above the threshold.
• An extra £175,000 residence nil-rate band applies when your home passes to direct descendants, and unused allowances transfer to a surviving spouse or civil partner — though it tapers away entirely for estates above £2 million.
• Scenarios models both nil-rate bands as permanently fixed, not inflating over time — a deliberately conservative assumption.
• Pensions are excluded from your taxable estate under current rules, and automatically included from tax year 2027/28 onward, matching the announced policy change.
• The IHT tool uses your existing plan data automatically, with nothing extra to set up.

How the nil-rate bands work

In the UK, everyone has a £325,000 nil-rate band (NRB) — the amount you can leave before Inheritance Tax applies. Above that, the estate is taxed at a flat 40%. An additional £175,000 residence nil-rate band (RNRB) may apply if you pass your home to direct descendants, giving a combined threshold of up to £500,000 per person (£1,000,000 for a couple, once unused allowances transfer to a surviving spouse or civil partner). The RNRB tapers away above a £2 million estate — it reduces by £1 for every £2 over that threshold, so very large estates may not benefit from it at all.

Why the thresholds don't grow over time

Scenarios models the nil-rate band and residence nil-rate band as fixed at £325,000 and £175,000 for the whole projection, however far into the future it runs. These are currently frozen by government policy through April 2030, and that freeze has a long history of being extended rather than lifted. Modelling them as permanently static, even beyond the known freeze date, is a deliberate, conservative choice: if the real thresholds are eventually increased, the projection will overstate a future IHT bill rather than understate it.

How Scenarios models this

The tool models your projected estate value at different ages based on your plan, then shows the estimated IHT bill and what your beneficiaries would receive. You can explore the impact of gifting strategies, pension structuring (pensions are outside your estate until the April 2027 change takes effect), and trust arrangements.

Access the IHT tool from the dashboard under the Tax & Estate section. It uses your existing plan data — accounts, property, and projected growth — so there's nothing extra to set up.

Frequently asked questions

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