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Ask The Expert: How Do I Plan For Inheritance Tax?

Written by
Tom Lamb
Time to read
3 minutes, 52 seconds

One of the biggest mistakes an investor can make is to overlook the impact of Inheritance Tax. Death can be a taboo subject and something you don’t like to think about it, but the reality is you must be prepared for any eventuality in your life.

Did you know, families have paid an extra £600 million in death duties after missing out on tax reliefs? The Government were expected to have raised a record breaking £6.7 billion in 2022 from Inheritance Tax.

Being tax efficient around potential Inheritance Tax is something that investors should considered and potentially plan out in advance alongside a financial adviser.

The Inheritance Tax rate is 40% and each individual has a nil rate allowance of £325,000 – anything over that is liable to Inheritance Tax. However, under current 2023/24 tax rules, most individuals also have a further allowance which can be offset against your main residence, this is called the Residence Nil Rate Band.

The Residence Nil Rate Band (RNRB) is an allowance which reduces the amount of Inheritance Tax an individual might pay when passing on a qualifying residence to a direct descendent. In the current 2023/24 tax year, the Residence Nil Rate Band is currently £175,000 and is in addition to the Nil Rate Band.

Your circumstances will be unique to you, and it is worth speaking with a financial adviser. You may be in a position where the 40% Inheritance Tax rate could affect your estate, especially later in life as you accumulate wealth.

If you died tomorrow, do you know how much of your hard-earned money would end up with the taxman rather than your beneficiaries?

As part of our Ask the expert series, we sat down with Neil Rayner, Head of Central Advice at True Potential Wealth Management.

Neil reveals his expert insights into how to protect your wealth, and how naming beneficiaries could help pass on more of your money to the next generation.


What is Inheritance Tax?

Inheritance Tax is a tax levied on your estate after your death. Each individual in the United Kingdom has a personal allowance for Inheritance Tax of £325,000.

Anything over £325,000 upon death is normally levied on your estate. The advantage of a Pension is that money within the Pension isn’t included as part of your estate.

With this in mind, it could be wise to keep money in your Pension to protect it from Inheritance Tax. Anything that goes over the £325,000 per individual is levied at 40%. That’s quite a high amount of tax for you to consider.

You will also have the Residence Nil Rate Band, the allowance which reduces the amount of Inheritance Tax you might pay when passing on a qualifying residence to a direct descendent. In the current 2023/24 tax year ,the Residence Nil Rate Band is currently £175,000 and is in addition to the Nil Rate Band.


What do investors need to know about Inheritance Tax and beneficiaries?

The advantages of having a pension is that the funds within this type of tax wrapper can normally be passed down to your loved ones free of Inheritance Tax.


How many beneficiaries can you name?

You can name as many beneficiaries as you want within an expression of wish in your Pension account. You can also express the percentage that you wish to give to each individual.

A beneficiary could be your partner, spouse, your children or anyone you wish to name – including trusts and charities. You can have as many beneficiaries as you want and your pension may be split accordingly to the percentage that you put down on your expression of wish. Any payments to beneficiaries are made at the Pension Trustees’ discretion, with the Expression of Wish assisting this process.


How can clients name beneficiaries with True Potential?

If you wish to name the beneficiaries for your pension, you can quickly log on to your account or the True Potential app.

There is an expression of wish form which you can complete which allows you to name beneficiaries with the desired percentage that you wish to allocate to them in the event of your death.

Do more with your money today. Consider who you would want as a beneficiary in your Pension and update your expression of wish. What other subjects would you like to see covered in our Ask the expert series? Ask your questions on our Twitter page @TruePotential_


With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Pension eligibility and Tax rules apply. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time.

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