Mandy, 54, is a dedicated gastro pub owner who lives in Lincolnshire. She is single and has two children, aged 29 and 18. She rents a property and has £40,000 in savings. 

Having successfully built her business, currently valued just under £1 million, she’s concerned about the financial future of her children. As she contemplates her legacy, Mandy is particularly focused on avoiding inheritance tax (IHT) for her children in the event of her passing. 

Mandy’s main concern is that her children could face a hefty tax bill upon her death, potentially impacting their inheritance. “I want my children to benefit from what I’ve worked very hard to build,” she says. Whilst her children are both adults, her youngest child has just turned 18, and Mandy is aware that proper planning is essential. 

Kirsty Limacher, Legal Consultant at The Association of Lifetime Lawyers says:
Mandy is in a similar position to many small to medium sized business owners balancing a desire to provide financially for family whilst minimising the impact of IHT on their inheritance, all in the landscape of imminent changes to IHT rules.

In the UK, the basic position is that estates worth more than £325,000 are liable for IHT at a rate of 40% so Mandy is potentially facing a significant IHT liability; this threshold has been frozen until 2030. As Mandy rents her home, she won’t be eligible to claim the additional residence nil rate band allowance but may be eligible for business relief on the gastro pub business.

Under current rules, for her estate to qualify for 100% business relief, the business must be a trading business (not an investment or passive holding company), Mandy must have owned it for at least two years prior to her death, and it must be transferred on death or gifted (some lifetime transfers will qualify). However, even if the business is eligible, it may not be completely IHT exempt depending on its value at the date of Mandy’s death. From April 2026, business relief is being reformed with a limit of £1 million placed on the 100% relief; anything over this value will attract a 50% relief giving an effective rate of tax of 20% (50% of the standard tax rate of 40%).

Mandy should also be thinking about the impact of any private pensions she has as from April 2027, unused pension funds are set to become part of a person’s estate for IHT purposes. If she doesn’t yet have a private pension in place, this is something she should consider arranging.

Mandy also needs to consider succession planning for the business. Is it her intention that one or both of her children run the pub, or is it to be sold with the proceeds distributed between them? If only one of her children is interested in continuing with the business, how will she ensure fairness between them? And does she want her youngest child to inherit a large sum of money if she were to die in the near future—might a trust be more appropriate for their share?

There are options available to Mandy to mitigate the impact of IHT on her estate. She could consider gifting a share of the business now to the children but there are likely to be capital gains tax implications associated with this. 

She should also consider making use of her annual gift allowances:
• £3,000 per year (plus £250 small gifts)
• Wedding gift exemptions (£5,000 for children)
• Small gifts out of income

A whole-of-life policy written in trust to cover the estimated IHT liability would provide Mandy’s children with liquid funds to pay the tax without needing to sell the business assets, the proceeds of the policy will be outside her estate for tax purposes if structured correctly.

Mandy doesn’t only need to think about what will happen to her business and other assets after her death, she should also plan for how her affairs will be managed if she loses capacity during her lifetime. She needs advice on Lasting Powers of Attorney for both financial and health matters to ensure her wishes are followed if she can’t make decisions herself. It may be that a separate LPA for her business interests is appropriate.

Mandy needs to take a holistic approach to estate planning to ensure her family and business are protected both now and in the future. This will involve working with a lawyer and a financial adviser to ensure she receives advice tailored to her particular circumstances. 

Mandy’s priorities are:
• A comprehensive, up-to-date will
• Lasting Powers of Attorney
• Pension provision
• Life insurance

Tax and estate planning can be daunting and complex – it can be tempting to put it off. There are members of The Association of Lifetime Lawyers that are specialist tax and estate planning lawyers who can help you navigate this intricate landscape. To find an Accredited Lifetime Lawyer near you, click here.