Having children is one of life’s most fulfilling experiences, but it inevitably puts quite a dent in the family finances.
From baby essentials and daily expenses to long-term aims like university savings, the cost of raising a child in the UK rises each year.
According to the Child Poverty Action Group, the basic cost of raising a child to age 18 now exceeds £260,000 for couples and £290,000 for single parents.
As living costs and childcare fees increase, it can be difficult to keep family finances on an even keel.
Here we outline how early planning, careful budgeting and exploring support options can help you cope financially with the many changes children bring.
Preparing for a baby involves both budgeting and excitement. Besides prams, cots, and nappies, a significant hidden expense comes from reduced income during parental leave.
This is why it’s a good idea to review your household finances early, including potential income changes during maternity or paternity leave. Doing this will let you know what you’ll have to work with in terms of money. This will help you to set a baby budget to account for one-off purchases and ongoing costs.
Building a small savings buffer is another wise step. Having funds to cover several months of expenses can reduce stress during those initial sleepless months. Many parents find it helpful to break costs into stages, from pregnancy to school age, so spending feels manageable and planned.
Working with a financial adviser can help you prepare your family finances for the new arrival, from immediate concerns like loans and mortgages to future considerations such as the impact on pension contributions.
Government support can significantly benefit new parents. Statutory maternity pay offers up to 39 weeks of payments, with the first six weeks at 90% of average weekly earnings and the remaining period at a lower rate.
Paternity leave provides up to two weeks of paid leave, while self-employed parents may be eligible for a maternity allowance based on their National Insurance contributions.
You may be able to take extended maternity and/or paternity leave by negotiating with your employer, although you’ll need to figure out how to cope with the shortfall in income.
Once your child arrives, child benefit can help with ongoing cost. Current rates are currently £26.05 a week for the first child and £17.25 for each additional child so make sure you register for the benefit.
Even if higher earners face a partial or full clawback through the High Income Child Benefit Charge, claiming still provides National Insurance credits for non-working parents, protecting future state pension rights. The payments can be turned off if the claimant knows there will be a full clawback.
It is also important to recognise that these benefits and the rules surrounding them can change.
Childcare is one of the largest expenses families encounter. Often, fees for nurseries or childminders can be as high as a mortgage.
Through the government’s Tax-Free Childcare scheme, eligible working parents can claim up to £500 every three months (up to £2,000 a year) for each child to help with childcare costs. This amount increases to £1,000 every three months if a child is disabled (up to £4,000 a year), and parents of disabled children can receive double that amount.
As of September 2025, parents in England with children under five have been able to access up to 30 hours of free childcare per week, matching schemes already available in Scotland and Wales.
These schemes can considerably reduce household costs, although availability and eligibility vary by region.
Family support, whether through shared care or financial assistance from grandparents, remains a crucial yet often overlooked factor in alleviating childcare pressures.
It is important to note that childcare vouchers are subject to income. If you or your partner earns over £100,000 a year, in most circumstances you will not receive them.
It is in situations like this that getting expert financial advice can really pay off. Your financial adviser will be able to help you plan the most tax-advantageous approach to maximising the benefits you can claim.
For example, if you earn £120,000 a year, you could decide to sacrifice £20,000 of that into your pension for the three years your child is in nursery. This will boost your pension pot by £60,000 and will mean you won’t miss out on childcare vouchers to help you pay those nursery fees.
While raising a child inevitably shifts priorities, it’s important not to neglect your own financial future. And on occasions, the two can complement each other really well.
It’s vital to continue your pension contributions, even if you’re finding it tough and drop to a lower level.
Your greatest ally in building up your pension pot is time so don’t miss out on years of contributions.
It’s a good idea to maintain a separate household emergency fund to cover unexpected expenses, such as home repairs or healthcare costs. This means you’ll be able to dip into the fund without upsetting your monthly budget.
Protecting your family against unforeseen events is another essential step. Life insurance, critical illness cover, and income protection can safeguard your household if illness or loss of income occurs. Updating your Will ensures that your children are cared for and your assets are distributed according to your wishes.
Unmarried couples, in particular, should seek professional advice to make sure their arrangements are recognised.
Your financial adviser can map out how changes in your pension contributions could affect your retirement plans. They can also source the most competitive and comprehensive insurance and protection policies to ensure your family will be well looked after should the unexpected happen.
Looking further ahead, you’re likely to want to make provisions for your child’s education and future.
With private school fees now attracting VAT, the cost of giving your child an independent school education has spiralled. Careful planning – and potentially help from other family members – could be needed if this is something you want for your child.
Going to university is also not cheap. There’s rent, food, entertainment and travel costs on top of the tuition fees paid.
And when it comes to your child setting up their own home, putting together the money required for a first house could mean them looking towards the bank of mum and dad.
From ways of financing school fees to property acquisition, your financial adviser can help you at every stage as your child grows.
Whether it’s gifting, loans, saving or investing, your adviser will not only look out for your offspring, they will also be making sure your own financial wellbeing isn’t sacrificed.
Starting a family is a major life event. Expert advice from a financial adviser can help you put a practical plan to meet every challenge along the way.
We can work with you to ensure your short-term priorities and long-term goals are both catered for and the best strategies are used to safeguard and grow your family’s wealth.
Get in touch today to begin your family finance journey.
Whole of life insurance is not new but it is gaining in popularity as a way to ensure your loved ones aren’t caught by the inheritance tax trap.
But what is whole of life insurance, what does it cost and how can it help beneficiaries deal with inheritance tax and other bills after you’re gone?
Here we break down the essentials for this piece of financial protection so you can see whether it could be right for you.
Whole of life insurance (also known as WOL or whole-life insurance) is a life insurance policy which provides life-long cover.
Unlike term life insurance or other kinds of life insurance, whole of life insurance does not have an end date.
With limited exceptions (see below), it guarantees a lump sum payment to beneficiaries of the policyholder upon their death.
WOL policies can be written on a guaranteed, balanced or maximum-cover basis.
Taking out a guaranteed policy will mean your premiums will never change.
If you take out a balanced policy, the sum assured may need to be increased in the future.
If you take out maximum cover, your premiums will be increased regularly – for example, every five years.
Whole of life plans can be taken out on a single and joint life second death basis, making them ideal for married couples.
You might want to take out a whole of life insurance policy to ensure your spouse or partner is financially secure when you are no longer around.
A whole of life policy could also be useful to help your loved ones with living expenses or to protect their lifestyle.
An increasingly popular reason for taking out whole of life insurance is to meet potential inheritance tax liabilities.
At the current moment in time, if the value of your estate after your death is more than £325,000, it could be liable for inheritance tax.
Even allowing for an additional £175,000 (known as the residence nil-rate band) if you’re passing your main home to children or grandchildren, that still makes a combined total of £500,000.
At a time when over 700,000 homes across Great Britain are worth more than £1 million, many more people are being drawn into the inheritance tax (IHT) net.
In addition, from 6 April 2027 unused defined contribution pension pots will be included when working out the value of your estate.
The combination of these two factors is leading more people to consider whole of life insurance as a way of mitigating their IHT liability.
On a simple level, after your death, your beneficiaries can use the pay-out from your whole of life plan to pay an IHT tax bill.
Depending on the level of cover you take out, the pay-out could cover the bill in part or in full.
However, it is important to note that while life insurance pay-outs are generally not subject to income tax or capital gains tax, they can be subject to IHT if the pay-out forms part of your estate.
To avoid this, a whole of life insurance policy can be written into a trust. This means the pay-out goes directly to your beneficiaries rather than becoming part of your estate. This keeps the pay-out outside the scope of IHT and leaves it open to be used to pay any IHT bill.
The other benefit to this strategy is that your loved ones will have fewer financial worries at a time of heightened emotional stress.
Not all deaths are covered a whole of life policy by life insurance, such as death resulting from illegal activities, such as drug overdose or criminal activity.
If you have a pre-existing medical condition that you did not disclose when taking out the policy, this could also result in your claim being denied.
In addition, some policies may have exclusions for certain high-risk activities, such as extreme sports or dangerous hobbies.
This is one of the reasons why getting expert advice and reading policy documents carefully is very important.
Because it offers a guaranteed pay-out, whole of life cover is usually more expensive than other kinds of life insurance.
The exact cost depends on a number of factors including:
As with most life insurance, in general the earlier you take out a whole of life policy, the cheaper the premiums will be.
Whole of life insurance can help provide for your family when you are no longer around.
This can help with all kinds of bills, including inheritance tax liabilities, but must be structured and set up correctly.
At Fairstone, we’re providing advice to an increasing number of clients on how WOL cover can help them and their families.
To find out more, get in touch with us today.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
The ‘bank of mum and dad’ is becoming a well-established term for parents subsidising their adult offspring.
But are you ready for the ‘bank of mum and dad mortgage’?
Helping your children take their first steps on the property ladder isn’t new.
But as research shows that in 2024 173,500 first time buyers had £9.6bn worth of help from their parents, what are the implications of being your child’s mortgage provider?
Here we take a look at how parents and grandparents can help their descendants buy a home – and the implications for all parties involved.
The rising cost of property, higher mortgage rates and a more stringent mortgage market have combined to make it increasingly challenging for young people to buy their first home.
With average house prices at almost £300,000 and minimum deposit requirements at between 5% and 10%, first time buyers need to scrape together at least £15,000 before they can even think of getting on the property ladder.
Many lenders ask for deposits of between 15% and 20% of a property’s value. This leaves buyers looking at the thick end of up to £60,000 as a deposit.
And all this is before lenders look at ongoing affordability criteria…
Faced with this kind of financial conundrum, it’s unsurprising that young people are turning to their parents for help.
So if you want to help your child or your grandchild out with their first property, what do you need to watch out for?
A key decision you will have to make as ‘the bank of mum and dad’ is on what terms you will give your assistance.
There are three main ways of helping out financially:
Gifting can be a good way to help out family as well as cut down on potential inheritance tax liabilities after you’re no longer around.
We deal with the issue in-depth in another guide but basically you could gift a substantial amount to your child (or grandchild) and, providing you live for a further seven years, no inheritance tax would be paid on that amount.
If you were to die before that seven years is up then inheritance tax could be charged on any amount over the £325,000 allowance (known as the nil rate band) on a sliding scale as follows:
| Time between gift and death | IHT rate on gift |
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
Instead of a one-off boost to your family member’s property purchase, you could help them with regular payments.
Known as ‘gifts from income’, these must be amounts that do not affect your standard of living and that are made on a regular basis e.g. every month or every year.
Such gifts from income will not count towards your estate for inheritance tax calculations, providing that you keep a record of them via a form available from HMRC – the IHT 403 form.
If you’d prefer to lending your child or grandchild money for a house purchase, an appropriate form of loan agreement is a must.
Clear evidence of the loan is important to ensure that the amount you are lending is protected from third party claims.
Any loan you make can be secured against the property by way of a second charge (the mortgage lender’s charge will take priority).
Normally, family loans are documented as interest free and repayable on demand, since this keeps the status of the loan simple from a tax perspective.
However, if you take this approach, you should be aware that the debt due to you counts as an asset of your estate for inheritance tax purposes. As a result, if you die before the loan is repaid, family members may end up effectively paying the debt twice.
You may wish to consider waiving the debt further down the line, although any such waiver has to be done by way of a deed.
Certain lenders in the market have the ability to factor in this loan agreement into the mortgage proposition but it should be noted that any repayments in the loan, will be factored into their affordability for a mortgage.
The final option is investing in a property with your family member.
This could give you an element of control in terms of where your money goes and gives you a prospect of some return on your investment.
However, you should be aware of the potential for tax downsides, including a stamp duty surcharge that will apply to the purchase price if you already own a property.
You will also have to pay capital gains tax on any rise in the value of your share in the property if the property is sold in your lifetime.
An interesting proposition to overcome these tax issues is through a joint borrower – sole proprietor option, where parents (or relatives) can enter into a mortgage agreement but without being an owner of the property. This situation is particularly useful where there are shortfalls in affordability. This proposition is being offered increasingly by lenders across the market.
An alternative option for parents to help their offspring with property purchases is trust planning.
This is where parents set up and gift into a discretionary trust for the potential benefit of their adult children and future generations.
Although the parents must be excluded from receiving any benefit from the trust assets themselves, they can act as the trustees to decide when and how best to apply the trust funds for the benefit of their children.
Such a structure can help with the gifting process outlined above and can have added security benefits.
However, establishing and maintaining a trust requires specialist financial and legal advice so you will need to consult experts before moving ahead.
No-one wants to think about splitting up when they buy their first house. However, if you gift money to your child for a property then that money can be subject to claims by third parties.
This means that if your child moves in with a partner or marries and that relationship breaks down, their partner could make a claim for a share of the money you’ve given your child.
One way to avoid this is to have a declaration of trust created through a conveyancer. This will in essence “ring-fence” the deposit so that on sale, this will be returned to the person providing the deposit in the event of relationship breakdown.
While it’s not the most romantic thing to do, it is a practical measure to protect financial interests.
While most mortgage lenders are okay with parents financially supporting their offspring with property purchases, there are certain areas where a gifted deposit is not allowed by a lender.
This is often the case with high Loan to Value products where the lender insists as a trade-off for the high loan to value offering, that the deposit must come from the applicant’s own funds.
These products only make up a small proportion of the market, however.
Helping children or grandchildren with the financial side of owning a property is becoming more common and, in some cases, almost essential.
However, while your intentions may be laudable, it pays dividends to think carefully and take expert advice before turning those intentions into action.
Speak to us to today to find out how we can help make your child’s property dream a reality – without giving you a headache.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
Estate planning is essentially working out how you would like your assets to be managed and passed on after your death.
In this article, we look at the estate planning process, the financial and legal aspects and how estate planning solutions can help you and your family.
You don’t have to be rich or have extensive land and property holdings to benefit from estate planning.
In fact, with inheritance tax (IHT) allowances frozen until at least 2030, even people with moderate levels of assets could end up leaving their descendants with tax bills if they’ve not taken estate planning advice.
Getting expert advice on estate planning can:
On a basic level, estate planning starts with you adding up the value of all of your assets, from money to property.
When calculating your assets, it’s important to take into account any unused defined contribution pensions you have. This is because from April 2027, unused pensions will form part of your estate and will be subject to inheritance tax.
Once you’ve added up your assets, you need to subtract any liabilities you have, such as loans, mortgages and other payments. The resulting sum is your estate.
You now need to plan what to do with your estate after your death. This can include things like:
In order to make those wishes legally binding, you will need to make a will. Getting professional legal advice at an early stage will help to create, manage and safely store your will.
To make sure that everything in your estate goes to the right person, you will need to put together a full list of your assets and outline who will get what.
Your assets can include:
You should get your assets valued regularly so you always have an accurate picture of the total value of your estate.
All assets left to your spouse or civil partner – including property – will not attract inheritance tax upon your death due to something called the spousal exemption.
However, assets left after their death could attract inheritance tax, as detailed below.
With limited exceptions, inheritance tax (IHT) of 40% is charged on anything you leave after your death over £325,000. This amount is known as the ‘nil-rate band’.
If you leave your main home to your children or grandchildren, you may also get a residence nil-rate band of £175,000. This adds up to a maximum £500,000 before tax kicks in. Therefore, a couple who are married or in a civil partnership can potentially pass on up to £1m without their inheritors paying tax.
There are several strategies and estate planning solutions which can help you to cut down on inheritance tax bills which your loved ones may face.
These include things like gifting, trusts, life insurance and maximising allowances.
Check out our blog on inheritance tax planning to find out more.
While the basics of estate planning may sound straightforward, there is a lot of complexity involved in the process.
Getting expert advice from a financial adviser can help not just in putting together your estate plan and actioning it, but also in putting that plan in the context of your overall financial situation.
This way, not only will you have peace of mind for the future that your wishes will be carried out and your loved ones will be cared for after your death, but also that you will have confidence in your finances for your own life.
Estate planning is a vital part of helping your loved ones when you are no longer here and is becoming more important due to the increasing pressure of inheritance tax.
At Fairstone, we have a raft of estate planning experts who have helped hundreds of families face the future with confidence and ensure assets are passed on to the next generation.
To start your estate planning journey and find out more about estate planning solutions, get in touch today.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions. It is important to note that the value of investments and the income from them can go down as well as up and that you may get back less than the amount you invested.
Inheritance tax (IHT) is one of those subjects I see many families push to the back of their minds, until it suddenly becomes unavoidable.
The reality is that with house prices rising, tax-free allowances frozen, and new rule changes on the horizon, more families than ever will be affected.
Acting early isn’t just about protecting wealth; it’s a selfless step that puts your loved ones first, sparing them unnecessary stress and cost in the future.
Every family’s situation is unique, so it’s always important to seek professional advice before making any big decisions. That said, understanding the basics of inheritance tax can help you plan ahead and avoid being caught out.
Over the years, I’ve spoken with many clients who assumed IHT was just for the wealthy, only to discover that the value of their home alone pushed them over the tax threshold. The good news is there are straightforward steps you can take to reduce your liability for IHT.
This guide summarises many of the initial conversations I have with clients and their families. I hope that a quick walk-through of some of the high-level strategies will help you avoid paying more inheritance tax in the UK than you have to.
Inheritance tax used to be something only very wealthy families worried about, but that’s no longer the case.
House prices have increased dramatically and inheritance tax allowances haven’t kept up. That is leaving more people finding out that their family faces a large tax bill when they pass wealth on.
In some parts of the country, especially London and the South East, house prices have soared. Over 700,000 homes across Great Britain are worth more than £1 million.
But it’s not just million-pound homes that are affected. The average UK house price is around £300,000 today, which means many ordinary family homes are close to or over the inheritance tax threshold.
The rules on how much you can pass on tax-free haven’t moved for years.
Right now, you can leave £325,000 tax-free (this is called the nil-rate band) and an extra £175,000 if you’re passing your home to children or grandchildren (this is the residence nil-rate band). That makes a combined total of £500,000.
The problem is these limits haven’t risen in years, even though the value of houses and savings has. If they had risen with inflation, families would have much more breathing room.
That’s why more families are now finding themselves caught by inheritance tax, often without realising it. As a result, I’m seeing more people take action early to protect their loved ones from an unnecessary tax burden in the future.
One of the simplest ways we reduce inheritance tax is by making full use of allowances.
These thresholds can make a significant difference, but many people don’t realise just how much protection they provide when combined.
Here is a quick summary of the key allowances to be aware of:
| Allowance | Amount | How it works |
| Nil-rate band | £325,000 | Every estate gets this basic threshold before IHT applies |
| Residence nil-rate band | £175,000 | Applies when passing your main home to your spouse, your children or grandchildren |
| Annual gift allowance | £3,000 | You can gift this amount each year without it counting towards IHT. If unused, the previous year’s allowance can be brought forward too |
| Small gifts exemption | £250 per person | Unlimited recipients, provided no other exemption is used |
For couples, these allowances can be combined, effectively doubling the protection. That means, with the right planning, you could pass on up to £1 million tax-free to your children or grandchildren. I often see families’ relief when they realise how effective these combined allowances can be.
Lifetime gifting is a popular way to reduce inheritance tax. The concept is straightforward: the more you give away during your lifetime, the smaller your taxable estate will be when you pass away.
There are a few ways to approach this:
The benefit here isn’t just tax efficiency, it’s also about seeing your loved ones enjoy the gift while you’re still around. I’ve seen clients experience real joy helping their children buy a first home or supporting grandchildren through university.
| Gift type | IHT treatment |
| Exempt transfers | Always tax free |
| Potentially exempt transfers | Tax-free if donor survives 7 years |
| Chargeable lifetime transfers | May be taxed if above nil-rate band |
| Time between gift and death | IHT rate on gift |
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
Trusts often sound complicated, but they’re simply a legal way of holding and managing assets on behalf of others.
They can be an effective tool for inheritance tax planning because they allow you to pass on assets while keeping some control over how they’re used.
Some common types of trust include:
Trusts can be useful if you want flexibility, protection from disputes, or reassurance that wealth is used responsibly. I’ve worked with families where trusts have been a lifeline, ensuring wealth is distributed fairly across generations.
Pensions have quietly been one of the best-kept secrets in inheritance tax planning. For now, most pension pots are outside your estate, which means they usually don’t trigger inheritance tax. That means:
But the bad news is that these rules are changing. Starting on 6 April 2027, unused pension funds will be counted as part of your estate for inheritance tax purposes. That means for the first time, your pension could be subject to inheritance tax, even if you die before drawing from it.
The government has confirmed that death-in-service benefits (like the pay-out from your employer’s scheme if you die while working) will remain exempt from IHT.
Another big change is who handles the paperwork and tax when someone dies. Originally, pension providers would have had to report and pay the inheritance tax. But now it’s going to be the personal representatives, the executors or family members managing your estate who are responsible.
What this means in real terms is that more estates, especially those with significant pension pots, will face inheritance tax, and families may have to deal with a lot more paperwork during a stressful time. That’s why I’m seeing a lot of people choosing to get ahead of this now.
Even with good planning, inheritance tax can still be a factor. That’s where life insurance comes in.
A policy written in trust can provide a lump sum to cover any IHT liability, ensuring your beneficiaries don’t need to sell property or other assets quickly to pay the tax bill.
For many, this can bring peace of mind, knowing their loved ones won’t face unnecessary financial stress.
The rules around IHT are under review, and changes may affect:
Many people are reviewing their plans now to take advantage of the current rules while they remain in place.
Inheritance tax planning doesn’t need to be overwhelming. By taking time to understand the allowances, gifting rules, and opportunities available, you can make informed decisions that protect your estate and support your family’s future.
I’ve helped many clients and families put these steps into practice, and the common theme is always peace of mind, knowing that wealth is protected and passed on in line with their wishes. If you’re concerned about inheritance tax or want to explore your options further, now is the time to act.
Get in touch with us today to discuss your estate planning.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
Yes, through effective estate planning. While estates over £325,000 are typically subject to Inheritance Tax (IHT) at 40%, there are several ways to reduce or eliminate this liability.
These include gifting assets during your lifetime, using trusts, leaving your estate to a spouse or civil partner, and making charitable donations.
The standard nil-rate band is £325,000. Anything above this is taxed at 40%. However, if you leave at least 10% of your estate to charity, the rate on the remaining taxable estate drops to 36%. If your estate qualifies for the residence nil-rate band, the threshold could increase to £500,000.
If you leave your estate to a spouse or civil partner, it’s entirely exempt from IHT. Additionally, your unused nil-rate band can be transferred to them, potentially doubling their threshold to £650,000. This exemption does not apply to divorced partners or those whose civil partnership has been dissolved.
Gifts made more than seven years before your death are generally exempt from IHT. If you die within seven years, the gift may be taxed, but the rate decreases the longer you live after making it. This is known as taper relief. The closer the gift is to your date of death, the higher the tax rate.
Gifts to registered charities are exempt from IHT. If you leave 10% or more of your net estate to charity, the IHT rate on the rest of your estate drops from 40% to 36%. In some cases, beneficiaries can top up charitable gifts to reach the 10% threshold and trigger the reduced rate.
There are three categories:
Yes. A whole-of-life insurance policy held in trust can be used to cover IHT liabilities. If properly structured, the payout won’t be considered part of your estate and won’t be taxed. It’s important to keep premiums up to date and ensure the policy value matches the expected IHT bill.
As at the date of this article, defined contribution pensions fall outside your estate and can be passed on IHT-free. However, from April 2027, Inheritance tax will be levied on unused pension funds after death.
For more on this topic, please read our dedicated blog on inheritance tax and pensions. In addition, if you’ve withdrawn funds and they remain in your bank account at death, they may be taxed. Defined benefit pensions have different rules, so it’s worth checking with your provider.
Additional reliefs include:
Even spending your wealth during your lifetime can reduce your estate’s value and IHT liability.
The truth is, inheritance tax is no longer just an issue for the very wealthy. Even families with an average-sized home, some savings and a pension can now find themselves above the threshold. For loved ones, that can mean facing an unexpected bill of thousands of pounds at an already stressful time.
Thinking ahead is not about beating the tax system. It is about making thoughtful choices so the people you care about most are not left with a burden.
Here is how the rules work today:
The issue is that these allowances have been frozen for years, while property and asset values have kept rising. That is why more estates are being drawn into inheritance tax each year.
At the moment, pensions are usually kept outside of your estate, so they are often passed on without IHT. From 6 April 2027, this will change. Unused pension pots will be included when working out the value of your estate.
That means:
For many households, pensions are one of the largest assets they own. This change alone could push more estates into the IHT net.
At present, you can give away:
There is speculation that these rules may be tightened. If that happens, families will have fewer ways of passing on wealth during their lifetime.
The nil-rate band of £325,000 and residence nil-rate band of £175,000 are both frozen until at least 2030. With the average house price in the UK now over £285,000, and closer to £500,000 in London, it is easy to see why more families are exceeding the threshold.
This freeze acts as a “stealth tax”, quietly pulling more estates into inheritance tax each year without any headline rise in rates.
Imagine a family who bought their home for £180,000 in the late 1990s. Today, it is worth £550,000. Add in a pension pot and some savings, and the estate could easily be over £1 million.
Under the current rules, pensions do not count. But from 2027, they will. This could mean a sizeable tax bill for their children, even though the parents may never have considered themselves wealthy.
This is why more people are paying attention. Inheritance tax is no longer something that only affects a small minority.
Having an up-to-date will is one of the simplest ways to protect your wishes and may help reduce tax.
If you have not updated who your pension should go to, the funds could end up inside your estate and taxed.
Making use of today’s gift allowances could be worthwhile, especially if the rules are tightened. Giving while you are alive also means you can enjoy seeing your loved ones benefit.
Trusts are not suitable for everyone, but they can be a useful tool for controlling how wealth is passed down.
The earlier you start thinking about inheritance tax, the more choices you will have. Leaving it until rules change may reduce your options.
I have spoken with many families who feel uncomfortable talking about inheritance tax. It is not always easy to think about what will happen after you are gone. But when people do take action, it is almost always out of care for those they love.
I have seen families avoid painful decisions because plans were made in good time, and I have seen the relief and peace of mind that brings. In my experience, planning ahead for inheritance tax is one of the most selfless steps you can take.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
The pension changes start on 6 April 2027. Other possible changes, such as to gift rules, have not yet been confirmed.
It is charged at 40% on the value of an estate above the tax-free thresholds.
Not always. It depends on the size of your estate. If your estate including your pension is below the inheritance tax thresholds, there will be no IHT.
Small gifts and annual allowances are currently exempt. Larger gifts are exempt if you live for seven years after giving them. Rules may change in the future.
We have written a full guide on avoiding inheritance tax which covers practical steps families can take. This article focuses on the changes arriving in 2027 and how they may affect you.
I’ve had many clients asking me how best to preserve what they leave for their children and grandchildren as a result of the change.
A key tool in your defence against inheritance tax charges is gifting.
Used carefully, gifting money to family can help provide a wide range of benefits both during your lifetime and for many years afterwards.
Here we break down some of the main ways you can make gifting work for you.
You can make one-off gifts of up to £3,000 in any tax year to any individual without attracting any tax charges.
You can also carry forward unused allowance from the previous year. So you could gift up to £6,000 in a tax year if you haven’t used the allowance in the previous year.
There are also special exemptions for weddings and civil partnerships.
You can gift an additional amount:
You can gift up to £250 per person per tax year if that person hasn’t received part of your £3,000 annual exemption.
But while one-off gifts are useful – particularly for special occasions – they are unlikely to have a lasting impact.
So what else can you do to help your family whilst cutting down on potential inheritance tax bills?
It is possible to make larger gifts in addition to those mentioned above without running up an inheritance tax bill.
However, these must be made during your lifetime. You will also need to survive for seven years after making the gift to avoid paying inheritance tax completely.
These gifts are known as Potentially Exempt Transfers – or PETs for short.
Gifts made during the last seven years will use your nil rate band. It is important that you understand this and discuss with your adviser how to manage this.
For example, if you made a gift of £200,000 and died within seven years then you would lose £200,000 of your nil rate. IHT would then be due on any assets over £125,000 (not taking into account the residential nil rate band).
For larger gifts made over the nil rate band, inheritance tax is charged (on the amount over the nil rate band) on a sliding scale as follows:
| Time between gift and death | IHT rate on gift |
| 0–3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
As an example of how this works, let’s look at a large gift of £400,000.
If you live for seven years or more after the gift has been given, your family will not have to pay inheritance tax on it.
If you die less than seven years after it has been given, your family will have to pay inheritance tax on £75,000 of that gift (the amount over the £325,000 nil rate band) at the rates above.
It is possible to protect the loss of these nil rate band allowances during a 7-year period via life assurance policies.
One of the most effective ways of reducing inheritance tax bills and making a big difference to your family is by regular giftings from income.
In this context, ‘income’ can be money earned from your job or money paid from a pension.
The important part from a taxation point of view is that these regular gifts do not affect your standard of living and that you intend to make the gift on a regular basis.
HMRC define ‘regular’ as at least annually. You also need to make the gifts of a similar value in order to avoid inheritance tax on them.
For example, if you decide to gift your child £500 a month or £6,000 a year from your pension, this would be acceptable.
However, if you gifted £10,000 in one year, £500 the next year and then £8,000 the following year, this would not be regarded as regular gifting.
The gifts must also be at a level that you do not have to draw on your capital e.g. savings to supplement your standard of living.
A good way to maximise the regular gifting allowance is to pay the gifts into an Individual Savings Account (ISA).
Assuming this is done on a regular basis with similar amounts, this would qualify under the regular gifting rules.
And while you may have paid income tax on either your income or salary, your child or grandchild will not pay tax on gains made from their ISA. This applies whether that is a cash ISA or a stocks and shares ISA.
The range of ISAs available – including junior ISAs for under-18s and Lifetime ISAs for over-18s looking to get on the property ladder – means you are likely to find one which fits your family’s needs.
A common concern about regular gifting into an ISA or other account is that the money may be frittered away.
Not every young adult is careless with cash, but the temptation to spend may be too great for some to resist.
With that in mind, another way to use regular gifting money to family is to pay into a pension.
While it may seem too soon to start a pension, particularly for your grandchildren, the opposite is actually true.
If the pension is invested wisely, the earlier you start it, the more it will be worth by the time you can use it.
Also, under current legislation, your child or grandchild won’t have access to the pension fund until they’re at least 58. This ensures that you shouldn’t be too concerned about them drawing it out to spend.
You should not give away too much of your income such that you have to draw on your capital to supplement your standard of living.
Whatever way you decide to make gifts, keeping records of what you do is vital.
Not only does a correct record show compliance with HMRC rules, but it will also save your executors a lot of time and stress on paperwork after you have gone.
The way I recommend clients keep a record of this is via a form available from HMRC – the IHT 403 form.
Part of this form can be used to demonstrate the pattern of gifting and also proves to HMRC that these were from surplus income rather than capital.
I’ve worked with many clients on this aspect of gifting money to families and on a range of strategies to maximise what they pass on to their loved ones.
Gifting money to family is a great way to make a real difference to their lives while reducing the potential burden of inheritance tax.
For a gifting strategy which works well for you, get in touch with us today.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions. It is important to note that the value of investments and the income from them can go down as well as up and that you may get back less than the amount you invested.
But besides paying them well, how can you ensure that you bring on board and keep hold of talented staff?
I’ve been advising business owners for over 30 years and one thing which I’ve found time and again to be effective when it comes to recruitment and retention is employee benefits packages.
Don’t just take my word for it – recent research shows that 70% of employees are more likely to stay with a company that offers well-structured benefit packages while 65% of candidates say they consider employee benefits as a crucial factor in their job choice.
In this article, I’m going to run through some key employee benefits, how to put attractive incentive packages in place and what factors you need to consider as a business owner when you’re looking to reward employees.
Employee benefits come under a range of different headings and can cover everything from health insurance to Cycle To Work schemes.
They are incentives in addition to standard remuneration and statutory holidays. Just as every business is different, so is every employee within a business, so when considering what benefits to offer to your employees, it’s a good idea to try to provide a range of incentives covering different areas of life.
Let’s break down some of the main employee benefit categories with some examples of incentives you could offer.
Aside from a competitive salary, to help with your employees’ finances you might want to consider:
Also known as Private Medical Insurance, this is one of the most popular employee benefits in the UK. It can help your staff get quicker access to GPs or other health services such as physiotherapy and, depending on levels of cover, potentially a choice of specialists or hospitals. This benefit also has the added advantage to you as an employer of potentially cutting down the length of time staff need to be off work.
Also known as Death In Service benefit, this provides a financial safety net for employees’ families in case the worst should happen to them. Typical levels of cover are three to four times an insured employee’s annual salary.
Having advised business owners on a number of occasions over the years with employee life insurance claims, I know how valuable this kind of policy can be in providing a financial safety net for employees’ families in times of great distress.
In a similar way to company life insurance, disability insurance cover will provide income if any of your employees are unable to work due to illness or injury.
A number of companies offer employees discounted or free expert guidance and support for their financial wellbeing as part of a package of benefits.
In the UK, employers have to enrol eligible workers into a pension scheme and then pay into the scheme on their behalf. There are minimum contribution levels from employers and employees, but you can choose to provide more generous contributions as part of an employee benefits package. This subject is dealt with in more detail on our workplace pensions blog.
A healthy, happy workforce is invariably a more productive one. Health and well-being benefits you could consider for your employees include:
Benefits such as discounted or free gym memberships, health screenings or educational seminars can help promote health lifestyles across your workforce.
This can include things like access to confidential counselling services or advice lines, employee assistance programmes and resources to help your employees to manage stress.
Dental insurance plans insurance plans typically cover routine check-ups, fillings, and other necessary treatments while eyecare insurance helps cover the costs of eye tests and glasses.
Keeping your employees focused at work while enjoying their leisure time can be crucial. Benefits that can assist with this include:
In addition to statutory holidays for full-time workers, you could offer your employees extra holidays and/or the right to ‘buy’ additional leave as well as things like having their birthday off or an allotment of ‘personal’ days to recharge their batteries.
If your business is suitable for it, offering staff things like flexible start/finish times, compressed work weeks and remote working options can be attractive to new hires and existing employees alike.
Providing additional time off for new parents outside of statutory limits can help promote a family-friendly workplace, as can allowing staff time off for caring for family members such as elderly relatives.
Investing in your employees can bring dividends to your business as well as to your staff. Examples of career development benefits include:
Offering opportunities for employees to enhance their skills and knowledge – whether by in-house training or paid places on external courses – can upskill your workforce and improve staff retention rates.
Part or full payment for staff to embark on educational courses or degrees can enhance their personal development and your business.
Paying for sessions with professional vocational coaches has the potential to develop employees’ skills and competencies in the workplace, giving you a more efficient and more productive workforce.
From little touches which make your business a nicer place to be to ways of saving staff money on everyday purchases, there are lots of perks you can put in place including:
From money off goods and services you provide to discounts from leading retailers, many workplace benefits packages offer savings just for being a member of staff.
Whether it’s free fruit on Fridays or access to a subsidised canteen, providing staff with food and drink benefits invariably prove popular.
Something usually offered to senior staff, company cars can be a benefit which people find hard to give up, although it is important to fully investigate and understand the various tax implications involved in company car schemes.
Many public transport providers offer corporate membership for help with staff commuting to their place of work, giving employees access to discounted travel costs.
Under this government initiative, employees can save money on the purchase of a bicycle and cycling equipment through salary sacrifice. Essentially, employees can lease a bike and accessories from their employer, paying for it through monthly deductions from their pre-tax salary, resulting in tax and National Insurance savings.
As you can see from the wide range of different employee benefits available, costs associated with such schemes vary to a similar degree.
When considering which schemes to put in place, it is important to bear in mind not just how much it will cost your business, but also how it will affect your tax situation and the tax and National Insurance situation of your employees.
In many cases, this is not an easy thing to work out. Thjs is just one of the reasons why consulting a financial adviser is an important first step in your employee benefits scheme journey.
Working with your business accountants, a financial adviser can provide detailed advice on new employee benefits and ongoing support.
A financial adviser can also provide forecasts to help you plan for the future and change employee benefits as and when needed as part of your overall corporate financial planning.
Over the years, I have helped many clients to put in place and maintain successful employee benefits programmes which have reaped dividends for their business and their staff alike.
For more details, please get in touch.
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Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
Inheritance tax will be levied on unused pension funds after death from April 2027.
This change has major implications for people looking to leave money to their loved ones.
Here we take a look at how to cope with the new regime and maximise what you can leave your family.
With limited exceptions, inheritance tax (IHT) of 40% is charged on anything you leave after your death over £325,000. This amount is known as the ‘nil-rate band’.
If you leave your main home to your children or grandchildren, you may also get a residence nil-rate band of £175,000. This adds up to a maximum £500,000 before tax kicks in. Therefore a couple who are married or in a civil partnership can potentially pass on up to £1m without their inheritors paying tax.
While this may not sound too bad at first, when you look a little closer then alarm bells may well start to ring.
For example, as of March 2025, the average UK house price was £271,000, a 6.4% increase on the same month in 2024. In 15 years at that annual growth rate, your house would be worth over £531,000.
But with annual house price growth over the last 10 years estimated at 12.1% (by estate agency Zoopla), then after 15 years your home could actually be worth more than £762,000.
With the nil-rate band frozen until 5th April 2030 and higher house prices in certain parts of the country, people even on fairly modest means are now falling into the IHT trap.
At the moment, defined contribution pensions – those where you build up a pot of money to give you an income when you retire – don’t form part of your estate when you die. Consequently, your family doesn’t currently have to pay inheritance tax on any unused defined contribution pensions after your death.
However, from April 2027, any unused defined contribution pensions will be treated as part of your estate for IHT purposes.
Including pension funds in IHT calculations could mean that your estate surpasses the IHT threshold. The rise in house prices and the freeze on tax thresholds makes this even more likely.
Anything above the threshold will be liable for tax at a current rate of 40%. This could have significant financial consequences for your beneficiaries, especially with many people currently using their defined contribution pensions to help pass on assets to the next generation.
As well as potentially paying more in tax, bringing pensions under the IHT umbrella will also cause delays. With HMRC assessing pension funds as part of the overall estate, beneficiaries may face months of waiting for the probate process to be completed. This process could take even longer for more complex estates.
Pension scheme administrators will have to determine the value of any unused pension funds at the time of death and include these in the calculation for IHT. Again, this could lead to significant delays.
With this major change less than two years away, you should take stock of your current situation and evaluate the total value of your assets.
Add up the current worth of your pensions, properties and investments to see where you stand. You should also check you have all appropriate documentation in place. Once you have a comprehensive picture of your financial position, you can start to look at ways of tax-efficient planning.
Careful planning and expert help from a financial adviser can help you to preserve as much as possible of your estate. It can also avoid leaving your family facing major financial headaches.
Here are some options to consider for cutting down on potential inheritance tax liabilities:
As a retiree after being careful with incomes and outgoings for many years, this can be easier said than done. However, it is one sure way of reducing your taxable estate.
You can give away up to £3,000 in any tax year without it counting towards IHT. You can also carry forward unused allowance from the previous year. As a result, you could gift up to £6,000 if you haven’t used it previously.
You can gift additional amounts for weddings and civil partnerships. This can be up to £5,000 to a child, up to £2,500 to a grandchild or great-grandchild and up to £1,000 for anyone else.
Also, you can gift up to £250 per person per tax year, if that person hasn’t received part of your £3,000 annual exemption.
Gifts above these amounts are called Potentially Exempt Transfers (PETs). If you live for seven years after giving the gift, it won’t be taxed. If you don’t, then IHT is charged on a sliding scale as follows:
| Years between gift and death | IHT on gifts over allowance |
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
A Trust is a legal structure that lets you set aside assets for your loved ones while keeping some control over how and when they receive them.
Some trusts are taxed at lower rates or even avoid IHT entirely, depending on how they’re set up. For example:
However, Trusts are complex. A financial adviser or an estate planning expert can ensure they are set up correctly and carry out your wishes.
Many people assume that life insurance policies are only there to help families in the event of an untimely death.
However, you can take out a life insurance policy to cover the anticipated cost of an inheritance tax bill. These policies can be taken out at later stages in life.
If the policy is written in trust, then the payout doesn’t count as part of your estate and won’t be taxed. You should get professional advice since such policies do not come cheap and need careful handling to be effective.
You could consider using some funds to make an investment that qualifies for Business or Agricultural Relief.
From April 2026, any assets worth up to £1m and which you have held for at least two years will get 100% relief from inheritance tax. Assets above that level will qualify for 50% relief from IHT, effectively taxing them at 20% rather than the standard 40%.
Qualifying quoted but unlisted shares (such as those on the Alternative Investment Market) will attract 50% relief from inheritance tax.
This is a complicated area so take expert investment advice and taxation advice before progressing with any plan.
If your defined benefit pension fund is left to your spouse or civil partner, they will not have to pay any inheritance tax.
Nonetheless, when they die, that pension could still attract IHT. The same principle applies when it comes to property.
A financial adviser or estate planning expert can help you put in place joint plans to help maximise benefits.
For example, a joint lives second death policy in trust for the beneficiaries of your estate may help to cover the IHT bill.
Inheritance Tax on pensions will make it harder for people to pass on assets without attracting increased tax bills. This especially the case when you consider rising house prices and frozen tax allowances.
Careful planning with financial and estate planning advisers can create useful solutions to ensure you maximise what you leave behind.
To find out more, why not get in touch with one of our experts by clicking the link below.
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Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
That’s where financial protection comes in. Think of it as a practical way to build confidence in your financial future. Whether it’s illness, job loss, or unexpected events, having the right protection in place means your home and family stay secure, giving you invaluable peace of mind.
Here we break down everything you need to know: what financial protection is, how it works, and how to find the best fit for your life and budget.
A financial protection policy can support you with things such as maintaining mortgage payments or clearing the debt in the case of unexpected events like serious illness, loss of income, or death. These policies are designed to protect your home and your loved ones from financial strain.
While it’s not a legal requirement, a financial protection policy can provide much-needed peace of mind, especially if you’re the main earner in your household.
In moments of crisis, the last thing any family should be dealing with is financial uncertainty, especially when it’s preventable. That’s why having the right cover isn’t just about numbers, it’s about being able to say, “we’ve done what we can”. It’s the kind of situation where no-one wants to be thinking “if only…”
There are different types of policies designed to protect mortgage balances, mortgage repayments, and even a portion of an individual’s earnings. Each type of policy offers a different level of coverage and different terms. Let’s look at them in turn, starting with mortgage protection.
Think of mortgage protection as like life insurance for your home. If you die before your mortgage is paid off, a mortgage protection policy can be used to pay off the remaining balance, ensuring your loved ones can stay in the home without financial worry.
There are two main types of mortgage protection insurance:
A joint life insurance policy covers two people but pays out for just one and is designed to protect the financial future of the remaining partner.
Protection usually comes in the form of a lump sum payment, which can be used to pay off a mortgage, or cover other debts and financial commitments.
Some options will give you a discount in the early years of the policy to make it cheaper at the beginning.
A critical illness policy is very commonly sold alongside a life insurance policy, perhaps when taking out a mortgage. The policy will pay out a lump sum if you are unfortunate enough to suffer from a serious illness or injury. Once you have made a claim on a critical illness policy, the cover will usually cease, meaning you can only claim once on the policy.
A critical illness policy can be used to pay off a mortgage, pay for medical treatment and/or make home modifications following a debilitating illness or injury (e.g. fitting a walk-in shower or stair lift).
i) The amount the policy will pay you
The sum assured is the amount of cover for which you are applying. For example, if you have a mortgage of £150,000 then you may decide to take a critical illness policy of £150,000.
ii) Whether the level of cover changes over time
With regard to your level of cover, you have three main options:
iii) How long your policy will last
The term of the policy is how long the policy will last. This could be the term of your mortgage, or all the way up to your retirement age. Most insurers will limit the policy to a maximum age.
If you’re unable to work due to illness or injury, this insurance replaces a portion of your income – typically up to 65% of your salary – until you’re back on your feet or reach the end of the policy term. You can choose the length of time you need to wait before the benefit starts to be paid, and there are options for long and short term polices.
This form of financial protection is particularly useful for people who are self-employed or those without employer sick pay.
Instead of paying out a lump sum, this policy provides tax-free monthly payments to your family if you die during the policy term. It helps cover everyday living costs and mortgage payments, keeping your loved ones financially secure.
This is a short-term policy that usually pays out for a year to cover your mortgage payments and other associated bills. The policy renews every year in the same way your buildings and contents insurance does. Some policies include redundancy cover to allow you to maintain payments until you get back into work.
Whether or not you feel you need financial protection depends on your personal circumstances. However, it’s essential if you’re the main earner and have dependents, especially when you have a mortgage.
Financial protection may also be useful for you in other scenarios, such as protecting your investable assets, funeral planning or to support your inheritance tax planning. An adviser will help you understand what is available and take you through the best options.
The cost varies based on factors like:
When selecting a financial protection policy, consider:
Policy Exclusions – Check what’s covered and what’s not.
Flexibility – Can you adjust the policy if your mortgage changes?
Combined Cover – Bundling life insurance, critical illness, and income protection may save money.
Does it pay out? – Protection providers publish their claims statistics annually. Traditionally, an extremely high portion of claims are paid – in 2023, UK insurers disbursed a record £7.34 billion in protection claims, offering crucial support to individuals and families during challenging times. This equates to approximately £20.1 million paid out daily.
Here’s how these payouts were distributed:
And these were the average payouts:
No. While your mortgage provider may offer a variety of financial protection products, you are not tied to using their services. Therefore you can shop around to get the best package for you and your family.
Setting up financial protection doesn’t have to be complicated.
You can get in touch with me or any of our mortgage and protection advisers. We can assess your needs and requirements and recommend the best policy to suit your family and your budget. We can also provide advice and look to save cost by recommending multi-benefit policies.
From experience, one thing I would advise is to consider financial protection at an early stage in your home owning journey. By doing so, you can get better value for money – and the reassurance that your home and your family will be provided for should the unexpected occur.
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.
