Estate planning is a fundamental part of financial planning. Not only can it help to ensure that your loved ones will be taken care of when you’re no longer around, but it can also help to minimise Inheritance Tax (IHT).
While estate planning is an important process for everyone, it is particularly important for those on high incomes. This is because those in the top tax brackets typically who have a lot of assets to protect. With that in mind, here is some estate planning information for high earners.
What is estate planning?
Estate planning is the process of organising your estate to support your family during your lifetime and after you’ve gone. For high earners, a key part of this is understanding your Inheritance Tax (IHT) position. Without proper planning, HMRC could become the largest beneficiary of your estate.
Many people don’t realise that IHT is, often in many ways, a voluntary tax. With the right strategy in place, you could reduce your liability – sometimes significantly. It may be possible to retain control of some assets during your lifetime while also keeping them outside your estate for IHT purposes.
Putting an estate plan in place has a number of benefits, including:
- Peace of mind: By clearly detailing your wishes in an estate plan, you can rest assured that your assets will go to the people who matter the most to you.
- Orderly transfer of assets: An estate plan can help to ensure that your assets are transferred to others in an orderly manner. It also makes sure that probate is taken care of effectively after you pass away. Probate will not be granted until all IHT is settled which can be incredibly stressful for your family.
- Mitigating Inheritance Tax (IHT) liabilities: Without a proper estate plan, HMRC could be the biggest beneficiary of your estate.
- Preservation of generational wealth: Putting a plan in place can help to ensure that wealth you have built up for future generations is preserved.
Key estate planning considerations
When putting an estate plan in place, one of the first things to consider is who you want your money to go to. Once you have determined this, you should consider putting the details into a will. This is a legal document that details how you would like your assets to be distributed in the event of your death. If you die without a will in place, there are rules that will dictate how your estate is distributed. This means you may not pass your wealth the way you envisioned.
Making a Lasting Power of Attorney (LPA) could also be a good idea. An LPA is a legal document that appoints one or more people to make decisions on your behalf. If you lose the mental capacity to manage your finances, a trusted LPA can provide peace of mind. When creating a will or LPA, it's wise to speak to an expert. Seeking legal advice helps ensure your estate plan is correctly structured.
Another consideration is the amount of money you will require in the years ahead. Here, you need to consider expenses such as school fees, retirement income, and care costs later in life. You’ll want to ensure that you can generate the required income from your assets. However, at the same time, you’ll want to ensure that much of your wealth is parked outside your estate from an IHT perspective. This is where trusts can be effective. With a Discounted Gift Trust (DGT), for example, one can effectively remove assets from their estate from an IHT perspective, while retaining the right to fixed regular payments. Any future growth within such a trust is also outside of the estate from an IHT perspective.
How estate planning can help high earners navigate Inheritance Tax
If not properly planned for, Inheritance Tax could cost your loved ones a lot of money. In the UK, the government collected £8.2 billion in IHT for the 2024/2025 tax year, up from £5.1 billion five years earlier[1]. While this surge in IHT receipts was partly due to higher asset prices, it may also be the result of a lack of financial planning.
By planning ahead, and considering various IHT minimisation strategies, high earners can ensure that more hard-earned wealth is retained by their family rather than being lost in inheritance tax. It’s worth noting that the IHT rate in the UK is a flat 40% charge on your taxable estate. This means that, without a plan, a high earner with an estate worth £10 million could be looking at an IHT liability of around £3.5 - 4 million, depending on eligible nil rate bands.
[1]UK Inheritance tax receipts 2025| Statista
Gifts and charitable donations
Another effective estate planning strategy is gifting. By gifting assets to younger generations while you’re still around, you could enjoy seeing your wealth put to good use, while simultaneously reducing your Inheritance Tax bill.
Individuals in the UK can currently give away assets or cash worth £3,000 per year as gifts without adding this amount to the value of their estate. However, under Potentially Exempt Transfer (PET) rules, gifts of unlimited value are exempt from IHT as long as the individual survives for a period of seven years after making the gift. So, gifting can potentially reduce the size of your estate significantly.
Similarly, charitable donations can help bring down the size of your estate. Donations are taken off the value of your estate before IHT is calculated. And if 10% or more of your estate is left to charity, the donations can reduce your IHT bill.
Of course, you don’t want to gift or donate too much and risk compromising your own financial security. This is where a proper financial plan becomes essential. Cash flow modelling can show what you can afford to gift, while still maintaining the lifestyle you want in the future.
Why it’s important to seek estate planning advice
Estate planning is a complex area of wealth management, especially for high earners. There are such significant opportunities to save on tax, that the help of a professional who has the potential to save you hundreds, if not millions of pounds, is a great investment in itself.
At Bowmore, we have decades of experience when it comes to estate planning for high earners. We understand the challenges you face in this area of financial planning, and we can assist you in tackling them.
Want to find out more about how we can help you with estate planning? Get in touch with us today.
Regulatory Information
- Bowmore Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority
- The Financial Conduct Authority does not regulate Estate Planning, Inheritance Tax Planning, or cash flow Planning.
- Bowmore Financial Planning Ltd is not regulated to provide tax advice
- The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance
- The tax treatment of certain products depends on the individual circumstances of each client and may be subject to change in future