Why your family should discuss inheritance tax now

The inheritance tax net is likely to catch more people, so families should start talking about inheritance before it becomes urgent.

Death and taxes are the two certainties in life. For some families, they arrive together.

You earn money, and income tax takes a portion before National Insurance takes its own. Spend what remains and VAT claims another share. Buy a house, and there may be stamp duty; sell an asset that has risen in value, and capital gains tax applies. Even dividends from the company you built can be taxed. Then come fuel duty, vehicle tax, insurance premium tax, and council tax. Death brings one last charge from HMRC: beneficiaries may face inheritance tax at 40 percent on everything above the threshold.

Most taxes leave you with a way to respond: increase pension contributions, use your ISA allowance, time a disposal, or change how you draw income. Inheritance tax is different. The person you inherit from must take the steps that reduce the bill - and, with larger estates, those steps often need to happen years before death. Afterward, there is nothing you can do. The tax is paid from the estate, reducing what would otherwise have passed to you.

An inheritance tax bill can sometimes be reduced through available allowances and gifts made during a person's lifetime. Yet the real obstacle is often family communication, not tax planning. Research from law firm Irwin Mitchell found that only 30% of people over 55 had ever discussed inheritance with their children. Moneybox reported that 15% avoided the subject because it felt awkward, while 12% considered it rude. Still, a family's willingness to have that uncomfortable conversation can make the biggest difference to the eventual tax bill.

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How inheritance tax thresholds work

When someone dies, their estate usually gets a tax-free nil-rate band (NRB) of 325,000. The portion above that is generally taxed at 40%. There is also a residence nil-rate band (RNRB) worth 175,000 if the main home passes to children or grandchildren and the estate is worth less than 2 million. That gives one person up to 500,000 to pass on before HMRC takes anything. Transfers to a husband, wife, or civil partner are fully exempt. When the surviving partner later dies, they can inherit any unused part of the first person's allowances. Together, those allowances can give a married couple up to 1 million tax-free - though this isn't marriage advice.

The problem

The Institute for Fiscal Studies, a think tank, estimates that people born in the 1980s will probably wait until their mid-sixties to inherit. For about a third of them, the wait may extend into their seventies or beyond.

According to Interactive Investor's Great British Retirement Report 2026, which surveyed almost 8,000 UK savers, the average person expects to inherit 62,500. I don't know about you, but 60k would mean far more to me at 29 than at 64. Many high earners receive the money only after they've already covered a house deposit or paid their children's school fees.

Then comes the question of how much the taxman takes. HMRC data shows that inheritance tax is charged on roughly one in twenty UK deaths; in 2023/24, the average bill was 231,000. That number is likely to rise as fiscal drag brings more estates into the net. The NRB tax-free threshold has stayed at 325,000 since 2009 and is frozen until April 2031. If it had kept pace with inflation, AJ Bell estimates it would be worth nearly 555,000 by the end of this decade. The threshold remains fixed while property prices climb, pulling more families into inheritance tax.

From 6 April 2027, most unused pension pots will count as part of an estate when inheritance tax is assessed. HMRC estimates that about 10,500 estates will face the tax for the first time, while a further 38,500 will pay more than they would have otherwise - an average increase of roughly 34,000 each.

How talking can reduce an inheritance tax bill

Reframe the discussion. Instead of asking, "How can we reduce the inheritance tax bill?" ask, "When would giving this money away do the most good?" The people and the money stay the same, but the conversation changes completely. That shift often leads to lifetime gifting - which can also reduce the inheritance tax bill.

We want our parents with us for as long as possible. The money should help them while they're still here to benefit from it.

Inheritance tax has a headline rate of 40%, but estates paid an average effective rate of 13% in 2023/24. Exemptions, allowances and gifts explain the difference - and each was arranged by someone before they died.

The bottom line: speak to your family about inheritance

If you may inherit money, raise the subject with your family. Otherwise, part of what they worked for could end up going to the taxman. This matters especially if their estate is close to the relevant thresholds, with the pension change due in 2027. Need help? A financial adviser can explain the options; the cost of regulated advice may be little more than a rounding error beside an average bill of 231,000.

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