The soaring numbers of bereaved families who are being hit with inheritance bills have become something of a national scandal – yet the situation if anything is about to get a whole lot worse.

Thousands more estates that would not have attracted a bill will be trapped in the inheritance tax net from April next year, when pensions start to be included in estates for tax calculations.

It means thousands more families will be dragged into paying death duty for the first time at a flat rate of 40 per cent.

Further changes could also be on the cards if new Prime Minister Andy Burnham goes ahead with plans he has previously mooted to introduce an estate tax to cover the cost of providing free social care.

Such a tax could be charged at 10 per cent on all estates on death.

It is not yet known whether this would replace the current inheritance tax or supplement it. However, it is unlikely that a government that has expressed an intention to increase taxes on wealth would substantially cut the overall take.

Furthermore, social care currently costs more than four times the amount raised by inheritance tax, so to cover the cost would require more – not less – in taxes.

Families paid £8.4billion in inheritance tax in 2024-25. But the total cost of adult social care was £34.5billion in England alone – and it rose by another 8 per cent in the past year.

It is too early to plan for any changes Mr Burnham makes to the current system. Families will need to be poised to act when they are announced.

However, there are steps you can take now to plan for the inheritance tax rules and upcoming changes that are already locked in.

Thousands more are set to be dragged into the inheritance tax net from next April, when pensions are included in the calculations

These range from the straightforward to the more advanced and complex. Therefore, we have asked inheritance planning experts for their ultimate inheritance tax to-do lists – what you should do when, and in what order, to slash your family’s bill.

Heather Rogers, founder of Aston Accountancy and tax columnist at our sister website This is Money, says: ‘The many changes in government over the last few years and continual changes in priorities, make families nervous about long-term decision making.

‘Don’t leave inheritance tax planning too late – take advice early. Put your own needs first, however.’

For those who think their estate may attract a large bill, or have affairs that are any less than straightforward, a good financial adviser can be helpful to get everything into line.

1. Work out if your family will be stung for inheritance tax

You shouldn’t lose sleep, let alone start working on elaborate avoidance tactics, unless you are certain you are rich enough for inheritance tax to become a problem.

Individuals can pass on up to £325,000 after death free of inheritance tax – this is known as the nil-rate band.

A married couple can hand over a combined £650,000 before their assets become liable for death duties. Inheritance tax is levied at 40 per cent on anything above this threshold.

Tax expert Heather Rogers says the main thing is not to leave planning too late

If you are passing on your home to direct descendants, such as a child or grandchild, your allowance increases to £500,000, or £1million for a couple – this is called the residence nil-rate band.

To work out if your estate could exceed the thresholds, add up the value of all of your savings and assets, including property, savings and investments.

Kam Singh, financial adviser at Mattioli Woods, says: ‘Many people are surprised to discover their estate is larger than they thought – particularly homeowners who bought decades ago and have seen property values rise significantly.’

Remember that pensions will be included in your total from next April. That will mean that your beneficiaries could face a ‘double tax’ trap.

This is because when someone is aged over 75 when they die their beneficiaries also have to pay their normal income tax rate of 20 per cent, 40 per cent or 45 per cent on withdrawals from an inherited pension.

For a higher rate taxpayer this represents a 64 per cent tax rate – 40 per cent is taken in inheritance tax and the remainder is then taxed at 40 per cent again.

Bear in mind that your assets are likely to reduce as you spend them down in retirement.

2. Work out what you can afford to give away

You can give away as much and as often as you like and those gifts are free of inheritance tax so long as you live for seven years after making them.

That means that if you start giving early you can reduce your inheritance tax liability.

However, you need to make sure you have as much wealth as you will need yourself without risking running out of money later in life. This needs to be based not just on your current expenditure, but also bills you may face in the future, for example if you need care.

Charlotte Ransom says it's a mistake to treat IHT planning as a tax exercise rather than a financial planning one

The best way to do this is a process called cash-flow modelling. This is where you look at all of your regular outgoings and upcoming costs and forecast how much you are likely to need yourself.

A good place to start is looking through your bank statements and working out what’s coming in and going out.

If you are not yet retired, think about how your costs will change after you stop work, or have paid off a mortgage.

‘Identify how much money you need yourself and therefore how much you can afford to increase your spending by or give away,’ says Ian Dyall, head of estate planning at Evelyn Partners.

A financial adviser can help to create a detailed cash flow plan to show how what you have got will change over time, what you can spend, and whether it will last.

Charlotte Ransom, chief executive of Netwealth, says one of the biggest mistakes people make is treating inheritance tax planning as a tax exercise rather than a financial planning one.

‘Cash-flow modelling can help establish what can realistically be gifted, spent or invested without compromising your future security.’

3. Make or review your will

This is a step that everyone should take whether or not they are worried about inheritance tax. It is the only way to ensure that your wealth is passed on to the people you intend it for.

Your wishes must be the priority. However, there are ways of passing on wealth that would reduce your bill.

For example, spouses can leave each other their assets free of inheritance tax but children and others – including lifelong partners – are liable. Therefore married couples may choose to leave wealth to each other tax-free and then pass what remains on to their children, rather than giving it to their children in the first place.

Mr Dyall says in one case his firm dealt with, an unmarried couple with children who had been together for decades became civil partners after one sadly got a terminal illness.

The surviving partner would have been forced to sell their home to meet a huge inheritance tax bill otherwise.

4. Check who you have chosen to receive any remaining pension or death benefits

Remember to consider the changes to the treatment of pensions from April next year. From that time, you will risk a tax bill if you leave a pension to anyone other than your partner if you are married or in a civil partnership.

Death benefits as well as pensions will be covered by inheritance tax, so you may wish to contact your schemes ahead of the change in April if you want to change your nominated beneficiaries.

Ms Ransom says: ‘Even a well-designed inheritance tax strategy can be undermined by an outdated will or pension nomination. Ensure your wishes are clearly documented.’

5. Create an admin folder

A folder with details of what you own and how to access accounts can be an administrative boon for grieving relatives.

‘Most people have moved to electronic statements, which would be inaccessible to their executors, and some investments, such as bitcoin, are entirely virtual,’ says Mr Dyall.

‘If you have a financial adviser, providing a contact number for them can be valuable.’

6. Plan how inheritance tax bill will be paid

Families get just six months, kicking off from the last day of the month after a loved one’s death, to add up their assets, calculate what is owed and hand over any money due to the taxman.

Ian Dyall says you should calculate how much of your wealth you can afford to give away

Crucially, the bill must be paid upfront by the executor or administrator when they haven’t yet got access to the assets in the estate via probate – and that won’t be granted without HMRC’s sign-off that inheritance tax is sorted.

If the bill is paid late, interest is charged on the unpaid tax – 4 per cent plus the Bank of England base rate, currently 3.75 per cent. So, at present it is 7.75 per cent a year.

It is common for beneficiaries not to have the ready cash to cover the tax, and the usual remedies are borrowing to meet the bill, paying in instalments – though this is subject to interest at the rate above – or using cash in the deceased person’s bank accounts, savings and investments to pay HMRC directly.

However, if you plan in advance, you can get life assurance and put it in trust, so it isn’t in the estate for inheritance tax purposes, and your beneficiaries can use the money to pay the bill (more on this below).

7. Consider these inheritance tax quick wins

a) Put life assurance policies in trust: If you have existing cover and it is not in trust, it’s included in your estate so can be stung for inheritance tax.

Putting it into trust so that it is out of your estate is quite straightforward. Phone your provider and ask about the process, which typically involves filling in a form.

b) Consider deeds of variation: If you receive an inheritance you are wealthy enough not to need, this is a way to avoid making your own inheritance tax liability worse.

You can use a deed of variation to pass it on, in part or outright, to the next generation if you wish. Say, for example, you already have wealth that would exceed your inheritance tax allowances and you inherit a gift of £100,000 from your parents, which is liable for inheritance tax. If you kept the gift you would receive £60,000 after tax. If it then formed part of your estate and you passed it on to your children, it would be taxed again at 40 per cent, leaving them just £36,000. However, if you used a deed of variation to pass the £100,000 directly from your parents to your children, inheritance tax would only be charged once so they would receive £60,000.

There is a two-year deadline to get a deed of variation after a death.

8. Start reducing your estate by spending and giving away wealth

Spending is by far the easiest way of reducing your estate. After all, since you’ve earned it, why not enjoy it.

You can make gifts using annual allowances that mean there is no risk of a later inheritance tax bill – even if you die within seven years of making them.

You can give £3,000 a year, plus make unlimited small gifts of up to £250 free from inheritance tax. Wedding gift limits are up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else.

Financial adviser Kam Singh says many are surprised by the size of their estate

You can also make gifts of any size free of inheritance tax so long as you make them regularly and they don’t affect your own standard of living.

This is called the ‘gifts made as part of normal expenditure out of income’ rule. Before taking advantage of it, check the section on the IHT403 form for what information will be required as proof you could live without the money to make sure the gifts are eligible.

When making gifts it is important to keep a simple record of who received them, the date and the value.

Mr Singh says: ‘One client, a retired teacher in her early 70s, had been making ad hoc transfers to various family members for years.

‘The seven-year clock had been running on all of it, and bank statements would ultimately have evidenced the gifts.

‘But she had made different amounts to different people at different times, with no record of intent or categorisation. For any executor trying to piece it together, it would have been a significant administrative headache.’

9. Consider a trust

Setting up a trust is a popular way to beat inheritance tax, but it is not a catch-all inheritance tax dodge.

They allow you to set aside money, property or investments for someone else after you die.

If you choose the right trust, you can still exert control over how the money might be used. But you usually cannot continue to benefit yourself from what has gone into it, then still expect your beneficiaries to avoid inheritance tax.

There are many different kinds of trust, not to mention tax charges to consider. So, this is a complicated area and advice is essential.

Ms Rogers of Aston Accountancy says: ‘If you are planning to set up a trust make sure you understand what it will achieve and all the tax implications as well as reporting implications.

‘Beware of misselling with trusts - always use a solicitor, specialist accountant or a financial planner.’

10. Use specialist investments

There are some types of investment that offer inheritance tax incentives. They need only be considered if you are likely to exceed your allowances.

For example, to encourage investment in smaller business ventures, the Government gives people protection from inheritance tax if they hold shares in firms with business property relief status for at least two years.

The relief is 50 per cent for designated shares, which means an effective inheritance tax rate of 20 per cent.

But the investments are at the adventurous and therefore riskiest end of the spectrum.

Therefore they are only considered a suitable inheritance planning tool for wealthy people, who are either experienced investors themselves or can afford high-end financial advice, not the modestly well-off who can’t afford to risk a lot of their investment pot in this sector.

11. Get life assurance

This is a policy that pays out a pot of money to your loved ones on your death.

You could take out a policy that pays the amount of inheritance tax you expect your estate to attract on your death.

As explained above, if you put the policy into trust, it falls out of your estate for inheritance tax purposes.

It is also available to your beneficiaries before probate is granted, giving them access to your assets. That makes it easier for them to pay the inheritance tax bill, which must be settled before probate.

‘A whole-of-life policy written in trust won’t reduce the inheritance tax bill, but it funds it,’ says Mr Singh.

‘The cost of cover will depend on the level required, your age, and your health at the time of application, but it remains a consistently underused and practical solution.’

money@mailonsunday.co.uk