Holly Jolly Inheritance: Everything You Need to Know About Passing on Your Wealth

You spend a lifetime building your wealth, so naturally you want to be certain that it is distributed according to your wishes. During the festive season in particular, you may be thinking more about your loved ones and how you can best provide for them moving forward.

While it’s not always the easiest topic to discuss, being prepared, understanding the legalities, and planning for your family’s future will give you peace of mind so you can enjoy your time together in the present.

Preparing a will

Your will is the cornerstone of your succession planning. Not only will this document ensure that your assets get passed on to your chosen beneficiaries, but also that this happens in a way that is sensible and practical to protect your loved ones in the future.

A will is always advised, but is particularly important if you are in a relationship that is not legally recognised, as the law does not give unmarried partners the same rights as a spouse or civil partner. Without a will, your long-term partner could be left with nothing.

What happens if I don’t have a will?

If you pass away and have not left a will, your estate will automatically be distributed, in accordance with the rules of intestacy; therefore it is best to be prepared. While you don’t necessarily need a solicitor to write a will, it is advisable to get it checked to ensure all of your wishes are met and your loved ones are cared for.

Why does inheritance tax matter?

Inheritance tax is the tax on your estate, which can end up costing your loved ones a large sum if not organised in advance. Inheritance Tax is charged at 40% on estates worth more than £325,000 (or up to £500,000 if you leave your home to children or grandchildren). While gifts during your lifetime can reduce the size of your estate, some may still count towards this threshold if you pass away within seven years of giving them. That’s where the exemptions come in.

Choosing the right option for you

The good news? HMRC allows several tax-free allowances for gifts, and many are perfect for Christmas:

Small Gifts Exemption: You can give up to £250 per person each tax year without worrying about IHT. So, if you’re handing out envelopes of cash or vouchers to family and friends, this rule covers most festive gestures.

Annual Exemption: Each tax year, you can give away £3,000 in total without it being added to your estate. If you didn’t use last year’s allowance, you can carry it forward—meaning you could gift £6,000 this Christmas completely tax-free.

Gifts from Surplus Income: If you regularly give from your normal income—say, a yearly Christmas gift—and it doesn’t affect your standard of living, these gifts are immediately exempt from IHT. This is ideal for those who want to make Christmas giving a tradition.

Gifts

While making gifts to loved ones is a gesture that will undoubtedly be met with much gratitude to those set to benefit, the process isn’t always straightforward.

Considering the complexities involved and the strict laws that govern such processes is imperative, so it’s important to speak to your trusted solicitor about gifting the family home to ensure your children or grandchildren get the maximum benefit from your property or indeed when gifting any asset.

An individual must have the mental capacity to prepare a will or make a gift. However, where an individual is assessed as lacking the capacity to prepare a will, it may still be possible to apply to the Court of Protection to authorise making gifts which can be helpful for estate planning.

Trusts

Trusts can take many forms –a fully flexible discretionary trust or cascading life interests, for example.

Trusts can be created during your lifetime or through your will to take effect on your death. Remember, leaving a gift to a child will pass to them when they are 18 years old if you do not specify a later age.

Wills with the appropriate trust provisions included can give peace of mind to a parent wanting to provide for their children. A letter of wishes can outline when the trustees should consider appointing wealth to a child to assist in property purchase, education or other milestone events.

Pensions

Pensions are one of the most tax-efficient ways to pass on your wealth. The money you save into them is not normally classed as part of your estate, and they are not normally subject to inheritance tax.

Business Relief

Some investments qualify for business relief, allowing your shares or other business assets to be exempt from inheritance tax after two years. A large benefit of this means you can remain in full control of your assets, and can sell your portfolio if your circumstances change. It is however a valuable relief, so you should consult your adviser, if you were considering selling or gifting such assets.

Other exemptions worth knowing

Unlimited gifts to your spouse or civil partner (if they’re UK domiciled). Charitable donations are always tax-free. Wedding gifts have their own allowances, but that’s for another celebration!

The seven-year rule

Larger gifts outside these exemptions are called Potentially Exempt Transfers (PETs). They only escape IHT if you live for seven years after making them. If you pass away sooner, they may be taxed—but taper relief can reduce the bill after three years.

Top tips for a tax-savvy Christmas

• Keep records of what you give and when—especially if you’re using the surplus income exemption.
• Plan ahead: combine your annual exemption with small gifts for maximum impact.
• If you’re unsure, speak to a professional for tailored advice.

Christmas is the perfect time to share your wealth without worrying about tax. With these exemptions, you can spread festive cheer and keep your estate planning on track. However you wish to pass on your wealth to the next generation, we are here to help guide you through the process to ensure your loved ones are taken care of and your wishes are expressed clearly.