Dispelling the most common myths about Inheritance Tax

Inheritance Tax (IHT) has become one of the UK’s most talked‑about (and misunderstood) taxes. Headlines, rumour, and well‑meaning pub advice often blend into a cocktail of confusion. Yet, as Shorts Tax Partner Craig Walker points out, most people don’t realise how manageable inheritance tax can be with early planning.

Below, Craig unpacks the most persistent inheritance tax myths and what individuals and families should do instead to plan with confidence.

Myth 1: 'Inheritance Tax only affects the wealthy.'

With the nil‑rate band frozen at £325,000 since 2009, rising property prices have quietly pulled many ordinary households into the IHT net. When you factor in your home, savings, investments and even personal possessions, it’s increasingly common for estates to exceed this threshold.

In other words, IHT is a reality for many middle‑income families, too. Understanding your estate’s value is the first step in effective IHT planning.

Myth 2: 'A DIY Will is good enough.'

In theory, you can write your own Will legally. In practice, it’s one of the fastest ways to create costly problems.

DIY Wills often contain ambiguous language, errors in witnessing, or structures that accidentally trigger tax charges. A professionally drafted Will ensures your intentions are legally watertight and aligned with tax‑efficient estate planning. Think of it as an essential foundation: your wishes, clearly expressed, backed by a robust legal and tax framework.

Myth 3: 'Gifting assets removes them from my estate immediately.'

Gifting is a powerful part of reducing Inheritance Tax, but it must be done correctly. The well‑known Seven‑Year Rule applies to most gifts, meaning the asset only fully leaves your estate if you survive seven years after giving it away.

A few key points:

• If you continue to benefit from the gift (e.g., living in a house you’ve gifted), it still counts as part of your estate.
• Taper relief reduces the tax on larger gifts made 3-7 years before death, but not the gift’s value.
• Non‑cash gifts may create Capital Gains Tax liabilities, which many people overlook.

Good gifting strategy requires planning, documentation, and an understanding of how different taxes interact.

Myth 4: 'I can avoid IHT by putting assets offshore, into crypto or in my children’s names.'

This is one of the most common (and damaging) misconceptions.

If you're a UK resident, your worldwide assets are subject to Inheritance Tax, regardless of whether they’re held in offshore accounts or cryptocurrency wallets. Similarly, putting a property into your children’s names while continuing to live in it does not remove it from your estate unless you pay full market rent—an approach few people want to take.

Trusts can be useful, but they come with their own tax rules. In short: there are no loopholes, only legitimate planning opportunities.

Myth 5: 'There’s nothing I can do about Inheritance Tax, so there’s no point planning.'

In reality, there is almost always something you can do to reduce IHT, even if you can’t eliminate it entirely.

Common strategies include:

• Using your £3,000 annual gift exemption, plus unused allowance from the previous year.
• Making regular gifts from surplus income, which can be completely IHT‑free if properly documented.
• Taking advantage of wedding gift exemptions.
• Incorporating trusts to manage when and how beneficiaries receive assets.
• Reviewing business assets and understanding whether they qualify for relief.
• Preparing for the major change coming in April 2027, when many pensions will, for the first time, form part of an individual’s taxable estate.

The earlier you begin planning, the more flexibility your family retains.

Start planning early and don’t ignore the issue

Inheritance Tax can feel uncomfortable to think about, but delaying the conversation only reduces your options. Early conversations around estate planning allow you to structure your affairs, protect your assets, and ultimately give your family clarity and peace of mind.

Even if you can’t reduce the tax bill entirely, understanding your position means you can prepare for it, whether through restructuring assets or ensuring there’s adequate liquidity to pay any future IHT.

The Shorts Personal Tax Planning team sum it up perfectly: there’s always something you can do, but you have to start now.