Inheritance Tax Planning in London: How to Protect Your Wealth in the Capital
- Belgravia Capital
- Jun 1
- 5 min read
London is one of the most prosperous and property-rich cities in the world, but that success comes at a price when it comes to inheritance tax (IHT).
With soaring house values, widespread property ownership, and a growing number of affluent professionals, many London families are unknowingly caught in the inheritance tax net.
Even modest estates in the capital now breach the £325,000 inheritance tax threshold. Without careful planning, your estate could face a 40% tax bill - putting pressure on your loved ones and potentially forcing the sale of property or assets to settle what’s owed to HMRC.
At Belgravia Capital Wealth Management, we specialise in guiding high-net-worth individuals and families in London through the complexities of IHT.
This blog explains why inheritance tax is a major issue in the capital, and how you can plan effectively to protect your estate and preserve your legacy.
Why Inheritance Tax Is a Bigger Issue in London
Property Prices Far Exceed the IHT Threshold
The UK’s standard inheritance tax threshold, known as the nil-rate band, has been frozen at £325,000 since 2009.
Yet the average house price in London is now well over £500,000, and in some boroughs like Kensington, Hampstead, or Westminster, it’s £1 million+.
This means that property alone can push a London estate into IHT territory, even before you add in savings, pensions, investments, or life insurance.
Double Inheritance Hits for Professionals and Entrepreneurs
London is home to many successful professionals, business owners, and investors. The more wealth you accumulate - especially through private companies, shares, or property portfolios - the more your estate risks falling into the 40% IHT bracket if not properly structured.
Families Are Caught Off Guard
Many Londoners believe that inheritance tax is a “wealthy person’s problem”. In reality, it affects thousands of ordinary families simply because their home is worth more than the IHT threshold.
Without planning, your children or spouse could end up paying tax they didn’t expect.
Understanding the Basics of Inheritance Tax
Let’s recap how inheritance tax works in the UK:
The first £325,000 of your estate is tax-free (nil-rate band)
You may also qualify for a £175,000 residence nil-rate band if you leave your main home to children or grandchildren
Everything above these thresholds is taxed at 40%
Married couples and civil partners can combine allowances to pass on up to £1 million tax-free
Anything above that is taxed unless you plan ahead.
How Inheritance Tax Affects London Estates: An Example
Let’s say you own a £1.5 million home in Fulham, along with:
£200,000 in savings
£300,000 in investments
£150,000 in a pension not in trust
Your total estate is £2.15 million. With full allowances, your family could inherit up to £1 million tax-free. But the remaining £1.15 million could face a 40% tax charge - that’s £460,000 payable to HMRC.
Key Inheritance Tax Planning Strategies for London Residents
Use the Residence Nil-Rate Band Wisely
If you leave your main home to direct descendants (children, stepchildren, grandchildren), you can claim an additional £175,000 exemption, known as the residence nil-rate band.
This boosts your tax-free threshold from £325,000 to £500,000. For couples, this becomes £1 million. But if your estate exceeds £2 million, this extra allowance is tapered down and eventually lost.
This makes wealth reduction planning especially important for high-value London estates.
Gift Assets During Your Lifetime
Gifting is one of the most effective ways to reduce IHT liability.
You can gift up to £3,000 per year tax-free (plus unused allowance from the previous year)
Gifts to a spouse or civil partner are completely tax-free
Gifts to others fall outside your estate if you survive for 7 years
Consider gifting excess income, property, or investment assets to children or a trust. This removes value from your estate while supporting your family sooner.
Use Trusts to Pass On Wealth
Trusts can allow you to pass on assets to the next generation while retaining some control and reducing IHT exposure. Common types include:
Discretionary trusts for flexibility
Interest in possession trusts for income beneficiaries
Bare trusts for outright gifts to children
Trust planning requires expert advice, especially with complex London estates or foreign property involved, but it can provide powerful protection.
Put Life Insurance in Trust
A common mistake is holding life insurance outside of a trust. If you do this, the payout becomes part of your estate - potentially increasing your IHT bill.
Instead, placing your policy in trust ensures the money goes directly to your beneficiaries - outside your estate and IHT-free. It can also provide liquidity to help cover the tax bill.
Business Property and Agricultural Relief
If you’re a London-based entrepreneur or investor, certain business and agricultural assets may qualify for up to 100% IHT relief, including:
Shares in unlisted companies (e.g. AIM-listed stocks)
Business interests or partnerships
Farming assets (less common in the capital but may apply to land holdings elsewhere)
We help clients structure their business ownership to preserve relief and pass shares down efficiently.
Make Use of Pension Allowances
Pensions are not usually subject to inheritance tax if they’re in defined contribution schemes and held in trust.
With proper nomination forms, you can pass a pension tax-free to your spouse or children. This makes pensions a highly efficient inheritance tool, far better than ISAs or investment accounts from an IHT perspective.
Inheritance Tax Planning Checklist for London Families
Get an up-to-date valuation of your home and assets
Review your will and ensure it’s IHT efficient
Use your nil-rate and residence nil-rate bands
Consider lifetime gifts or trust structures
Review business ownership and possible IHT reliefs
Put insurance policies in trust
Keep clear records of gifts, trusts and asset transfers
Speak to a professional about your long-term objectives
Why Inheritance Tax Planning Needs to Start Early
Inheritance tax planning is most effective when it begins well before death. Many strategies, such as gifts, business restructuring, or pension nominations, need years to take full effect.
In London, where property values keep rising and estates become more complex, waiting until retirement or old age can result in missed opportunities and higher tax exposure.
Starting early gives you more control, more flexibility, and more options to pass your wealth down safely.
How Belgravia Capital Wealth Management Can Help with IHT Planning
Based in the heart of London, Belgravia Capital Wealth Management provides tailored inheritance tax planning for:
High-net-worth individuals and families
Professionals and senior executives
Property owners
Entrepreneurs and business owners
Trustees and beneficiaries of London estates
Our approach includes:
Estate valuation and IHT forecasting
Tax-efficient wills and gifting strategies
Trust and life insurance structuring
Business and property succession planning
Collaborations with solicitors and accountants to handle the legal process
Whether you’re planning to protect your family or preparing to receive an inheritance, our team provides clarity, confidentiality, and expert solutions.
Conclusion: London Requires a Smarter Approach to Inheritance Tax
With rising property prices, strict tax thresholds, and complex estates, Londoners face a unique inheritance tax challenge.
But with the right advice and early planning, it’s possible to minimise the burden, protect your family’s wealth, and pass on your legacy without a 40% tax bite.
Don’t wait for probate to find out your family owes more than expected. The earlier you act, the more we can help you save.
Contact Belgravia Capital Wealth Management at
for a personalised inheritance tax planning consultation.
