Inheritance Tax (IHT) planning is often viewed as something to consider in later life. However, without early planning and a clear strategy, IHT can significantly reduce the value of an estate passed on to loved ones.
This was particularly significant for one of our wealth management clients, where a long-term relationship between the clients and their Chartered Financial Planner, Joe Tucci, evolved into a comprehensive intergenerational planning strategy that saved the family £640,000 in Inheritance Tax.
This case study showcases how early engagement, ongoing advice and a clear understanding of a clients’ wider family objectives has supported not just one couple, but three generations of the same family over a decade, helping to protect the family’s wealth and legacy, while enabling access and control when needed.
Establishing the client’s situation and objectives
The clients were an older married couple seeking professional guidance following growing concerns around a significant Inheritance Tax (IHT) liability and the declining health of one of the spouses.
Joe explains:
“I first began working with the clients in 2016 after meeting them at an Inheritance Tax seminar, where they later arranged a no-obligation review to better understand their circumstances and available options.
At this time, their estate was valued at approximately £2.5 million and consisted of residential property, investment properties, savings and investments.
Based on the value of their estate and the allowances available at this time, the clients faced a potential Inheritance Tax liability of approximately £740,000 if appropriate planning was not put in place.”
| Value of the client’s estate | £2.5 million |
| Nil Rate Band (NRB) allowance (IHT exempt) | £650,000 (£325,000 per person) |
| Taxable estate after NRB allowance | £1.85 million |
| IHT rate on taxable estate | 40% |
| IHT liability (40% x £1.85 million) | £740,000 |
This liability was a significant concern for the clients, as they wanted to preserve their wealth for future generations without restricting their own financial security or access to funds during their lifetime.
“From the outset, the clients’ priorities were clear. They wanted to reduce their £740,000 Inheritance Tax liability while ensuring that the surviving spouse retained full access and control of the estate should the funds ever be needed.
Longer term, they also wanted their wealth to be structured in a tax-efficient way that would support their wider family, known as intergenerational planning.”
The strategy
A key consideration in this case was ensuring the clients retained access to their wealth, while addressing their Inheritance Tax exposure.
Rather than placing funds into a traditional trust at the outset, Joe recommended a Business Relief Investment strategy.
“Some trust investments and forms of gifting may be subject to the seven-year rule and access to funds may be restricted.
In contrast, the Business Relief Investment falls outside of an individual’s estate for Inheritance Tax purposes after two years from when the initial investment was made, while still allowing full access and control of the invested funds.
This investment can also be set up jointly for married couples and civil partners, meaning if one spouse passes away within the two-year survival period, the investment will be transferred to the surviving spouse and will still sit outside of your taxable estate for Inheritance Tax purposes, provided they survive for the full two years.
This made it a suitable option for the clients as they were in declining health so didn’t need to worry about the seven-year survival period typically associated with other trust investments and it aligned with their priorities around access and control.”
An initial investment of £1 million was made on set-up which has gradually increased to around £1.6 million through a combination of investment growth and additional capital being invested from the clients’ downsizing their property.
Over time, the strategy increased the overall value of the clients’ estate from £2.5 million to £2.6 million. Although this increase does not appear significant initially, this increase was gained despite expensive care costs and the usual taxes and costs involved in moving properties.
Following this, by 2024 the estate was made up of:
- £1.6 million in the Business Relief Investment.
- £1 million in property and savings.
A couple of years after the investment was made one of the spouses sadly passed away. But, due to the set-up of the investment, it was transferred Inheritance Tax free and without disruption to the surviving spouse.
Understanding their tax position
How planning reduced the client’s IHT liability
In 2024, the surviving spouse also passed away, meaning the estate was set to be inherited by the clients’ children.
The clients each had a Nil Rate Band (NRB) allowance of £325,000 available, providing a combined Inheritance Tax-free allowance of £650,000. By the time of the second death, they were also eligible for the Residence Nil Rate Band (RNRB), which was introduced in April 2017.
The RNRB currently provides an additional allowance of up to £175,000 per person (a combined £350,000 for married couples) when passing on a qualifying residential property to direct descendants. However, the RNRB has a £2 million threshold, meaning that once an estate exceeds this amount, the allowance is tapered by £1 for every £2 above the threshold.
This threshold had a significant impact on the client’s available RNRB allowance due to the overall value of their estate being £2.6 million. Joe explains:
“Each person qualifies for the RNRB allowance provided that their home is worth at least £350,000 and is being passed on to a direct descendant, such as children or grandchildren.
In this case, the clients qualified for the Residence Nil Rate Band allowance. However, their estate was now valued at £2.6 million which exceeded the £2 million threshold, resulting in their RNRB allowance of £350,000 being significantly reduced to £50,000.”
This meant the client’s had:
- £700,000 available in allowances (£650,000 NRB + £50,000 RNRB).
- This reduced their taxable estate to £1.9 million from £2.6 million.
- The estate’s IHT liability was £760,000 (40% IHT rate x £1.9 million).
However, the Business Relief Investment of £1.6 million was no longer considered part of the taxable estate as the clients had lived longer than the two-year survival period.
This reduced the clients’ taxable estate further to £300,000 (£1.9 million – £1.6 million), resulting in their IHT liability reducing from £760,000 to £120,000 (40% x £300,000).
- This meant the total IHT saving was £640,000.
- The clients’ children inherited £2.48 million between them.
“Had no planning taken place, the estate would have needed to find an additional £640,000 to cover the tax liability, which is a substantial difference to what could ultimately be passed on to the family. This reinforces the importance of proactive planning and ongoing advice with clients as these results were achieved through a proactive strategy, ongoing monitoring of the investment and regular reviews.”
The next generation
Structuring wealth for future generations
With the client’s children now having inherited the estate, Joe’s focus shifted towards implementing the wishes set out in the clients’ will, which involved setting up a discretionary trust arrangement for the estate, intended for their grandchildren to inherit.
“As the children did not need the wealth themselves due to having their own Inheritance Tax liabilities, they wanted the entire estate to be set up within a trust for their children (the client’s grandchildren) and to be appointed as the trustees.
Following this, I spent time liaising with the solicitor to make sure everything was set up in line with the client’s instructions in their will and ensured that the client’s children (now the trustees) understood how the trust would work in practice.”
A key feature of this arrangement was that the grandchildren will not automatically receive full access to the funds immediately:
“With a discretionary trust, the funds are owned by the trust and are exempt from Inheritance Tax while they remain within the trust. However, the trustees are in control of the funds and can make withdrawals when needed, but the grandchildren will take ownership of their share at the age specified in the clients’ will.
This means the trust will be directly owned by the grandchildren as they come of age to inherit it. They will then be able to decide how the funds are used, including whether to retain the investment, draw an income, or make large lump sum withdrawals.”
This structure balances both flexibility, long-term control and protection for the estate and family:
- The trustees (clients’ children) can support their children earlier, where appropriate.
- Full ownership transfers at a predetermined age set by the clients in their will.
- Any funds that remain within the trust will not form part of the grandchildren’s future estates for IHT purposes (funds withdrawn and held as cash may be subject to IHT unless they are spent or reinvested in a wrapper that sits outside of your taxable estate).
- The funds are protected against potential divorce or insolvency settlements as they are owned by the trust.
- The client’s children have control over how and when the wealth is distributed up until their children inherit the funds (e.g. income, partial withdrawals or a lump sum).
This process not only supports the children and grandchildren but protects the wealth by ensuring it is used in the way that the clients intended, such as university fees, travelling, a house deposit or wedding.
Ongoing advice and support
Joe continues to work closely with the family, now supporting the client’s children with their own financial planning and the continuation of managing the discretionary trust for the grandchildren.
“We regularly review the investments to ensure they keep pace with inflation and are growing as well as the structure of the estate and any changes in the client’s circumstances to ensure everything remains aligned with the clients’ wishes in their will and their children’s objectives.”
This includes:
- Ongoing investment management.
- Regular reviews with the trustees.
- Adjusting the strategy where needed.
- Liaising with solicitors and third parties.
- Supporting wider financial planning as circumstances evolve.
“It is not just about putting something in place and leaving it. It is about reviewing it regularly and making sure it still works for the family.”
In this case, understanding the wider family network and the mechanics of who was going to inherit what enabled me to recommend suitable products from the beginning and evolve that into the right solution for the third generation.”
The value of early and holistic planning
This case demonstrates how starting the conversation early can have a lasting impact, not only for individuals but for their families.
What began as a seminar introduction and a no-obligation consultation developed into a long-term advisory relationship that:
- Spanned across multiple generations.
- Reduced a significant Inheritance Tax liability by £640,000.
- Preserved access and control for the clients and their children.
- Supported a smooth transition of wealth between generations.
- Established a structured trust arrangement to protect the estate ready for the grandchildren to inherit in the future.
“The key was taking the time to understand the client’s situation in its entirety, including what they wanted to achieve for themselves and their family. From there, we built a plan that supported those goals over the long term which helped preserve their wealth and protected their legacy.”
Final reflection
This case demonstrates that Inheritance Tax planning is not just about reducing a liability, but about shaping how wealth is passed on, protected and used across generations.
Through early engagement, ongoing advice and a clear understanding of family goals, the outcome extended far beyond a financial saving. It created a structured, flexible plan that not only supports the family today, but will continue to support future generations also.
With the right structure and guidance in place, financial planning can extend far beyond a single generation and create a lasting legacy for years to come.
