Most families don’t set out to get inheritance tax wrong. The mistakes aren’t usually the result of carelessness. They’re the result of not knowing the rules well enough, acting on half-remembered advice, or simply putting things off until the options have narrowed.
These are the seven mistakes that come up most often, and what you can do differently.
Most families have at least two or three of them. Some have all seven. The starting point for inheritance tax planning is usually identifying which of these gaps actually exist in your specific situation, because not every fix applies to every estate.
1. Leaving everything directly to children without considering trust structures
A lot of people write a will that says “everything to my children” and consider the job done. The problem is that assets left directly to children form part of their estates, which could create IHT issues further down the line. If a child is going through a divorce, has creditors, or dies before spending the inheritance, things get complicated.
Discretionary trusts can keep assets outside of children’s estates while still making them accessible. They’re not as complicated as they sound, and for larger estates they’re often one of the first things a professional will recommend.
2. Not using the annual gift allowance
HMRC allows every individual to give away £3,000 per year completely free of inheritance tax. Married couples can give £6,000 between them. These allowances don’t carry a seven-year clock; they’re just gone from the estate immediately.
Most families don’t use them consistently. Over 10 years, a couple who uses both allowances every year has shifted £60,000 out of their taxable estate. That’s £24,000 in saved tax at the 40% rate.
You can also carry forward one unused year’s allowance. Worth knowing.
3. Misunderstanding the seven-year rule
The seven-year rule applies to potentially exempt transfers (PETs): gifts to individuals that become fully exempt from IHT if the donor survives seven years after making them. This is a powerful planning tool, but it’s commonly misunderstood.
The misconception: people think any gift disappears from the estate immediately. It doesn’t. If you die within seven years of making a significant gift, it can still be brought back into your estate for IHT purposes. The tax tapers off the longer you survive, but it doesn’t vanish until year seven.
The practical lesson: start making gifts as early as possible, and keep records of what you’ve given and when.
4. Having an outdated will
A will written before marriage may be automatically invalidated by the marriage in some circumstances. A will written before children were born may not reflect your current wishes. A will written when your estate was smaller may not account for assets you’ve since acquired.
A surprising number of families rely on wills that are 15 or 20 years old. Tax rules change, family circumstances change, asset values change. A will that made sense in 2005 may not serve your family well in 2025.
Review your will after any major life event: marriage, divorce, birth of a child or grandchild, significant change in assets.
5. Assuming the residence nil rate band applies automatically
The residence nil rate band (RNRB) gives an extra £175,000 threshold when a property is left to a direct descendant. For a married couple, this can combine with other allowances to give an effective threshold of £1,000,000.
But it doesn’t apply in all circumstances. The property has to be left to a direct descendant. It tapers off for estates above £2,000,000. If the property has already been sold (for example, to fund care costs), it may still apply under certain conditions, but only if the right paperwork is in place.
A lot of families assume they’ll get this relief without checking whether the structure of their estate and will actually qualifies for it.
6. Not writing life insurance in trust
If you have a life insurance policy and it pays out to your estate, the payout forms part of your taxable estate and gets hit with the 40% tax.
Writing the policy in trust is a simple fix that takes the payout outside of your estate entirely. It passes directly to your named beneficiaries without going through probate, which also means they get access to it faster.
This is one of those adjustments that costs almost nothing to make but can save a significant amount. Most insurers will help you set this up. Many people have never been told it’s an option.
7. Waiting too long to get advice
The biggest mistake, and the one that makes all the others worse, is leaving it too late.
Every planning tool available has a time component. Potentially exempt transfers need seven years to fully clear. Trusts need to be set up before they’re needed. Wills need to be written before someone loses capacity.
Families who start planning in their 50s have far more options than families who start in their 70s. And families who don’t start until someone has died have almost none.
The conversation is uncomfortable. The admin feels tedious. But the cost of delay is real and measurable. Getting a clear picture of your current exposure and what could be done about it is a reasonable first step, even if you’re not ready to do anything immediatel.
