Inheritance Tax Planning in Kensington: Protecting Your Legacy in One of London’s Wealthiest Districts

Belgravia Capital
Jun 19
5 min read

Updated: Jul 2

Kensington is home to royalty, diplomats, global business leaders, and multigenerational families who have lived in the area for decades.

Its leafy avenues, stucco-fronted mansions, and elegant garden squares are more than just prestigious addresses - they are powerful symbols of legacy, success, and permanence.

But even in a place of such privilege, there is a persistent and growing financial threat: inheritance tax.

For families who own property or hold assets in Kensington, inheritance tax is no longer a remote possibility; it’s a looming and often substantial liability.

At Belgravia Capital Wealth Management, we specialise in helping London based clients mitigate inheritance tax risks and preserve their wealth for future generations.

This guide outlines the key risks and strategies for residents of Kensington and why timely planning is essential.

Why Inheritance Tax is a Critical Issue in Kensington

Inheritance tax (IHT) is charged at 40% on the value of your estate above the available thresholds:

£325,000 nil-rate band per person
£175,000 residence nil-rate band (if you leave your home to a direct descendant)
Spouses and civil partners can combine these for up to £1 million

However, if your estate exceeds £2 million, the residence nil-rate band starts to taper and is completely removed once your estate reaches £2.35 million.

This makes IHT almost unavoidable in Kensington, where even modest flats can exceed the taper threshold:

Townhouses on Victoria Road and Palace Gardens Terrace: often worth £10–£30 million
Apartments in Phillimore Gardens or Kensington Court: easily command £3–£5 million
Mansions near Kensington Palace: some of the most valuable private homes in Europe

Add in other assets (pensions, investments, artwork, family business interests) and the total estate can quickly reach £10 million or more.

Real-World Example: A Kensington Estate and IHT

A married couple owns a £12 million home in Kensington Palace Gardens. They also hold:

£2 million in pensions
£1.5 million in offshore investments
£1 million in antiques and jewellery
£500,000 in cash and other assets

Total estate: £17 million

Because their estate exceeds £2.35 million, the residence nil-rate band is lost. Only the £650,000 combined nil-rate band remains.

Taxable estate: £16.35 million

IHT liability at 40%: £6.54 million

Without forward planning, a significant portion of the estate would be lost to tax, potentially forcing heirs to sell key assets to meet HMRC’s demand.

Why Families in Kensington Must Take Action Now to Mitigate Inheritance Tax

Inheritance tax is no longer just a problem for the “super wealthy.” It’s now a mainstream issue for any family in Kensington holding:

Prime real estate
Large pensions
Overseas holdings
Art, cars, or collectables

And because the nil-rate bands have been frozen since 2017, while asset prices have risen dramatically, the number of estates caught in the IHT net is only increasing.

Proactive planning today can help avoid:

Unnecessary asset sales
Family disputes over tax burdens
Delays in probate and administration
A preventable erosion of family wealth

Effective Inheritance Tax Planning Strategies for Kensington Families

Gifting During Lifetime

Making gifts during your lifetime is one of the simplest ways to reduce your taxable estate.

You can give away £3,000 per year tax-free
Small gifts under £250 per person (per year) are exempt
Larger gifts fall under potentially exempt transfers (PETs) - if you live for 7 years, they’re tax-free

We regularly help clients gift:

Excess income to children and grandchildren
Shares in family companies
Property interests
Cash from investments

In Kensington, where many clients are financially secure well into retirement, structured gifting can significantly reduce estate value while still supporting family members.

Trusts for Control and Protection

Trusts allow you to pass on wealth while still retaining some control over how it is used.

Common options include:

Discretionary trusts - give trustees the flexibility to distribute funds as they see fit
Interest-in-possession trusts - provide income to a beneficiary while preserving the capital
Bare trusts - often used for gifts to young adults

Trusts are highly effective for:

Protecting family homes or property portfolios
Passing on wealth across generations
Managing risk in blended families
Preserving valuable assets like art or shares

Trusts also allow you to remove assets from your estate (after 7 years or immediately for certain trusts) and can shield wealth from future claims.

Whole-of-Life Insurance

A whole-of-life policy, written in trust, can be used to cover future IHT liabilities. The payout is tax-free and not included in your estate.

Benefits include:

Immediate access to funds by beneficiaries
Avoiding the need to sell property or valuables
Certainty of coverage for a known cost

In Kensington, where estates often include illiquid assets, this can be one of the most practical ways to fund the tax bill without disruption.

Pensions as an IHT Shield

Defined contribution pensions are not part of your taxable estate.

If you die before age 75, beneficiaries can inherit tax-free
After age 75, they only pay income tax on withdrawals

This makes pensions an excellent vehicle for preserving intergenerational wealth, especially when used in tandem with gifting or trust strategies.

We help clients:

Optimise pension contributions and drawdown strategies
Align pension beneficiaries with estate planning goals
Ensure nominations are correctly structured

Business Property Relief (BPR)

If you own qualifying business assets, you may benefit from Business Property Relief, which can exempt up to 100% of their value from IHT.

Eligible assets may include:

Family businesses
Certain AIM-listed shares
Furnished holiday lets

However, recent political changes are likely to cap BPR relief from 2026, making it essential to plan now.

The Role of International Tax Planning in Kensington

Kensington’s population includes a significant number of:

Non-domiciled UK residents
Overseas property owners
Families with global beneficiaries
Dual nationals or expats

Inheritance tax planning in these cases may involve:

Domicile assessments
Exclusions or inclusions of offshore assets
Double-taxation treaty applications
Structuring assets through international trusts

At Belgravia Capital, we coordinate with UK and international tax advisers to ensure your global estate is managed effectively and tax efficiently.

Common Inheritance Tax Pitfalls in Kensington

Failing to update your will

Modern family structures and global assets require bespoke will drafting.
Holding insurance outside of trust

This adds value to your estate unnecessarily.
Underestimating asset values

Especially artwork, pensions, and jointly owned assets.
Ignoring the taper threshold

Estates above £2 million begin to lose crucial tax reliefs.
Leaving it too late

Trusts, insurance, and gifting often take time to become effective.

Why Local, Discreet IHT Advice Matters

At Belgravia Capital, we understand that Kensington families want:

Discretion
Expertise
Long-term perspective
Bespoke planning based on real assets and real lives

We take the time to understand your family values, your wealth structure, and your succession goals - not just your numbers.

From Kensington Palace Gardens to Abingdon Villas, our clients trust us to guide them through complex estate planning in a calm, thoughtful, and tax-efficient way.

Next Steps for Kensington Families when IHT Planning

If your estate includes:

Property worth more than £2 million
Substantial pensions or investment portfolios
Collectables or heirlooms
International or cross-border assets

…then now is the time to act.

We recommend:

Reviewing your estate’s full value
Exploring the benefits of lifetime gifting
Updating your will and trust arrangements
Optimising your pension and life insurance
Speaking to a local expert in IHT and wealth structuring

Conclusion: Preserve Your Legacy from Inheritance Tax

You’ve built something worth protecting, now it’s time to ensure your family can benefit from it fully.

With the right advice, inheritance tax doesn’t have to erode your legacy. At Belgravia Capital Wealth Management, we help Kensington families plan with clarity, confidence, and discretion.

www.belgravia-capital.co.uk

contact@belgravia-capital.co.uk

020 3916 5954