Inheritance Tax (IHT) can feel complex and intimidating. However, common assumptions about who pays it, how much it costs and when to begin planning can be misleading.
Myth 1: I will pay IHT of 40% of the value of my estate
The 40% headline rate does not reflect what families actually pay. There are several exemptions and reliefs for IHT, meaning your estate needs to reach a threshold amount before it is payable. This is at least £325,000 and, quite frequently, up to £1m.
HMRC’s most recent statistics on IHT provide some interesting points, including:
Less than 1 in 20 deaths result in a liability to IHT.
Of the estates liable to IHT, just over 5% were in Scotland.
For all estates subject to IHT, the average rate of tax paid was 13%, far lower than the 40% headline rate.
Myth 2: IHT is an important tax for the Treasury
A frequent assumption is that IHT is one of the keystones of tax collection in the UK. The reality is more modest: fiscally speaking, IHT is a very small part of overall government revenue.
Based on Office for Budget Responsibility figures, total tax receipts for 2025/26 were forecast at £1,103 billion. Of this, IHT was expected to contribute £8.5 billion, or less than 0.8% of the total. Even with the planned changes to bring some pensions within the scope of IHT from April 2027, IHT is still expected to raise less than 1% of overall tax receipts in the future.
None of this is intended to trivialise the impact of a future IHT bill for individual families. The point is that IHT is often more politically visible than fiscally important. That visibility makes it vulnerable to future reform, which is why personal planning — and regular reviews — remain important.
Myth 3: IHT is just around the corner
It can be surprising how IHT planning (which of course is a tax on death) very rarely considers life expectancy. The timing of IHT planning should reflect on your circumstances rather than assuming the worst is imminent.
For example, a healthy 70-year-old man currently has an average life expectancy of 86 and a decent (33.9%) chance of reaching 90. The life expectancy for women continues to outpace that of men. As such, there is likely to be more time than you think.
Acting too early can restrict your options. Waiting too long may reduce the strategies available. Good planning balances tax efficiency with financial security and quality of life.
For some people, the mid-70s can be a useful point to start serious IHT planning. By then, retirement spending patterns may be clearer, while average life expectancy can still leave enough time for thoughtful decisions to be made.
That is why IHT planning is best treated as an ongoing conversation rather than a one-off exercise. The right answer depends on the size of the estate, a family’s needs, health, life expectancy, spending patterns and the rules in force at the time.
A practical four-step approach to IHT planning
Quantify — estimate your potential liability and consider life expectancy.
Review wills and powers of attorney — these provide the foundation for effective IHT planning.
Spend thoughtfully — if time allows, put IHT on the backseat and enjoy the wealth you have worked to create.
Gift or insure — where appropriate, transfer wealth during your lifetime or consider insurance for any liability.
IHT planning is not simply about reducing tax. It is about retaining flexibility, protecting your lifestyle and passing wealth on according to your wishes. The aim is to make a lifetime of saving count.
If you would like to understand what IHT could mean for you and your family, please get in touch to discuss your circumstances.
Important information: This article is for information purposes only and does not constitute financial advice, which should be based on your individual circumstances. The Financial Conduct Authority (FCA) does not regulate Inheritance Tax Planning or Trust Advice.