Discussing inheritance tax – our guide for parents and children

Death is not a subject that anyone really wants to talk about. The polite British style is to simply bury our heads in the sand, maintain a stiff upper lip, keep calm and carry on. As something of a jedi master in the ostrich approach to life, I completely understand why this will seem like the best approach. However, when it comes to inheritance tax planning this can have significant unintended consequences for all involved.

In 2022-23 tax year bereaved families paid £6.1 billion in inheritance tax, the largest single-year rise since 2015-16.¹ With record receipts, it's never been more important to lift the lid on inheritance tax and start a conversation.

So why should you talk to your family?

Some moons ago, my dad (a well educated, avid Telegraph reader and engineer by trade) heard that we were running an inheritance tax seminar at York Railway museum and looked surprisingly excited. On reflection, I suspect this was more to do with the rather splendid engine collection the museum holds, and less to do with inheritance tax! But given it was a topic I had of course avoided discussing for years (the tax, not the trains), I invited him along.

My dad and stepmother like many clients, are astute and knowledgeable when it comes to their finances. They take time to research and had some knowledge on the topic of inheritance tax, though not necessarily the extent of a potential bill or that there were solutions to reduce, remove or freeze a bill. At seminars it always makes me smile when you see the lightbulb moment happen across the room. The realization within the audience when they learn the extent of their liability, and that there are ways to try and mitigate it. Often the first step to moving the situation forward is to help your family understand your circumstances and what can be done.

I consider myself fortunate that by attending that seminar, we started a family conversation. It meant that my dad and stepmother felt comfortable to ask more questions, talk through ideas and begin to think about what they want going forwards. I accept that for my family this is in some respects easier, given inheritance tax is one of my favorite topics but it also had an impact on my plans.

By discussing their finances, I then felt equally comfortable talking to them about mine. Financial advice for me is like a busman's holiday or a builder doing his own DIY, its always last in queue. Caroline and I spend all day looking at everyone else's finances which means we have little time to focus on our own. It's embarrassing to admit but for many years I had just assumed that if I predeceased my dad, then he would inherit from me and he would "just sort it out". I know I am not the only one to think like this, as many clients over the years have said similar things when they have no children to leave their estates to.

Understanding the potential impact of Dad predeceasing me, meant I could plan accordingly. It also meant that as a family we could make a financial plan to support each other and maximize our estates.

No time like the present

Not everyone will be as lucky as me. Starting that discussion is hard and it can be a really emotive discussion for all involved. Aside from the obvious having to think about when a person is not around anymore, money can also bring out the best and sadly the worst in people. It can also be quite complex, especially in blended families.

Whether you are the parent thinking about talking to your children or an adult thinking about talking to your parent the challenges are very similar. The key is to get on with it and start the conversation.

Understanding wishes

By discussing inheritance tax, you can each gain insights into the situation, as well as what your families' goals and preferences are.

Understanding everyone's wishes regarding the distribution of their assets can avoid conflict, long-drawn out legal battles and large tax bills.

Ultimately every family is different and having that frank conversation can be tough particularly if it will impact some more negatively than they might expect, but that doesn't make it any less important. Having an honest discussion ensures that everyone's opinions and wishes are heard and can help avoid confusion or disputes among family members in the future.

Tax Planning

Inheritance tax can be complex. Talking about estates and potential tax liabilities can help make informed decisions about tax planning strategies, such as setting up trusts or making gifts during lifetimes to minimise tax obligations.

Ultimately this is the part that aims to give as much benefit to your family as possible, with only what's really necessary going to HMRC.

Harmony

Open communication about financial matters, including inheritance tax, can promote transparency and trust within the family. By discussing these topics openly, you can help ensure that everyone understands the reasons behind certain decisions and feels included in the planning process. It can help other family members to make different decisions which will better support the family, as was the case with myself and my Will for example.

Legal Considerations

Inheritance tax planning often involves legal considerations, such as drafting Wills, establishing trusts, or designating beneficiaries. Discussing these matters with your family means you can ensure that estate planning documents are up to date and reflect your current wishes. It can also promote financial literacy as it is opportunity to educate family about financial matters, including taxation and estate planning. It helps them understand the implications of wealth transfer and the responsibilities associated with managing assets.

Practical Preparations

Talking about inheritance tax can also prompt discussions about other practical aspects of estate planning, such as organising important documents, identifying key contacts (e.g., solicitors, accountants and financial advisers), and outlining plans for managing assets in the event of incapacity or death. For children, it helps to prepare them for their future roles as beneficiaries and potential executors of your estate. It gives them an opportunity to ask questions, express concerns, and become familiar with the practical aspects of estate administration.

Where to start

This is perhaps the trickiest question of all. My discussion came out of the blue and is not particularly easy to replicate - although we will keep you posted if we get a sudden urge to have a seminar at the York Railway Museum again!

In the meantime, choosing the right time and environment is vital. Trying to talk about things with distractions and a house full is never going to be ideal. Start the conversation by explaining why you want to discuss inheritance tax and the importance of planning ahead. Be transparent about your intentions and invite your family members to share their perspectives and questions.

Often having a financial adviser in the room can help the conversation go more smoothly. As advisers we have experienced a variety of different discussions over the years. Our skill comes from understanding the complex area that is inheritance tax planning but also understanding how emotional the topic can be. We can be there to support your discussions and explain the technical aspects in a more understandable way. We can provide expert guidance and help facilitate the conversation in a neutral and objective manner.

Not having the conversation, could leave your family feeling overwhelmed and confused at a time when they are grieving your loss. So, if you are struggling to start the conversation may be start with that, and how you want them to be prepared and in control when the worst does happen. As much as it's a conversation no one wants to have, I'm pretty sure they will thank you later.

For more help and advice or to receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Yorkshire Financial Planning on 01482 275540 or complete our contact form here.

¹Inheritance Tax statistics: commentary - GOV.UK (www.gov.uk), accessed 25 April 2024

The levels and bases of taxation, and reliefs from taxation, can change at any time.  The value of any tax relief is dependent on individual circumstances.

The writing of a Will involves the referral to a service that is separate and distinct from those offered by St. James's Place. Wills along with trusts are not regulated by the Financial Conduct Authority.

SJP approved 07/02/2025