Emergency IHT Planning When Health Is Failing: What Can — and Cannot — Be Done

The death of a family member is not the time to discover that straightforward planning — which could have been done years earlier — was never put in place. Yet the reality is that many families only face these questions when someone is already seriously ill. This guide is written for those in that position: it sets out what is still possible when time is genuinely short, and is equally clear about what does not work and why.

Inheritance Tax planning close to death is a sensitive area. HMRC is vigilant about arrangements made in the final weeks or months of someone's life, and some strategies that appear effective on paper carry significant risk of challenge. Professional advice from a specialist solicitor and tax adviser is essential before acting.

What Can Still Be Done

Accelerated Gifting Using Available Exemptions

Certain gifts are exempt from IHT immediately, regardless of when the donor dies. Making use of these in the final months of life is legitimate planning.

Annual exemption: every individual has a £3,000 annual gifting exemption. Unused allowance from the prior tax year can also be used — bringing the total available to £6,000 if the prior year's exemption was untouched. These gifts are immediately outside the estate.

Small gifts exemption: gifts of up to £250 per recipient per tax year are exempt, to any number of recipients. This is modest in value but can be used to distribute funds to a large number of beneficiaries quickly.

Wedding and civil partnership gifts: if a wedding is imminent, parents can give up to £5,000 to a child (£2,500 to a grandchild, £1,000 to others) free of IHT. This must be given before or at the time of the marriage.

Normal expenditure out of income: this exemption is frequently overlooked and potentially very valuable. Gifts that are made out of income — not capital — and form part of the donor's habitual pattern of expenditure, leaving them with sufficient income for their own needs, are immediately exempt regardless of when the donor dies. Even in a final illness, if someone continues to receive significant income from investments, pensions or rents, regular gifts from that income can qualify. HMRC requires evidence of a pattern of giving; one large gift shortly before death is harder to substantiate.

Potentially Exempt Transfers: Starting the Clock

Potentially Exempt Transfers (PETs) — broadly, outright gifts to individuals — are outside the estate for IHT if the donor survives seven years from the date of the gift. If the donor does not survive seven years, the gift becomes chargeable, but taper relief reduces the rate of tax:

• Three to four years before death: 80% of the standard IHT rate (20% on the excess over the nil rate band).
• Four to five years: 60%.
• Five to six years: 40%.
• Six to seven years: 20%.

Making PETs close to death starts the seven-year clock. The statistical reality is that a 75-year-old has an average life expectancy of approximately 12 years. Even a modest taper — surviving three years — reduces the tax on that gift by 20%. A gift made now costs nothing extra; it simply restructures where the tax burden falls and gives the clock a chance to run.

Caveat: this is only sensible if the donor has genuinely relinquished the asset. See "gifts with reservation" below.

Deathbed Will Changes

Making or amending a will when someone is terminally ill is legally valid, provided the testator has testamentary capacity — the legal requirement that they understand what they are doing, what property they have, and who might reasonably expect to benefit from their estate.

A will that maximises IHT efficiency includes:

• Charitable legacies. Gifts to UK registered charities are fully exempt from IHT, and if at least 10% of the net estate is left to charity, the IHT rate on the remainder falls from 40% to 36%. For larger estates, this can be a meaningful saving.
• Appropriate use of the nil rate band and residence nil rate band. The will should ensure these thresholds are not wasted — for example, leaving everything to a surviving spouse uses the spousal exemption but wastes the nil rate band (though it can be transferred to the surviving spouse's estate on second death via the transferable nil rate band).
• Legacies structured for tax efficiency. Specific assets with IHT reliefs — such as shares in qualifying unlisted trading businesses (eligible for up to 100% BPR within the £2.5 million cap) or AIM-listed companies qualifying for Business Property Relief (50% relief from 6 April 2026) — can be directed to beneficiaries who would otherwise be subject to IHT, preserving the reliefs.

Deed of Variation: Acting After Death

If the will — or intestacy — produces an inefficient outcome, a deed of variation (sometimes called a "disclaimer") allows beneficiaries to redirect their inheritance within two years of the date of death, as if the original testator had left the estate in that way. The variation is treated for IHT and CGT purposes as if made by the deceased.

This is not planning done by the deceased, but it is critically important for the family to know about it. Common uses include redirecting assets to a surviving spouse to use the spousal exemption, directing charitable legacies to reduce the IHT rate, and skipping a generation to avoid double IHT on the same assets.

Business Property Relief: Check Before Death

Where the estate includes shares in an unlisted trading company held for at least two years, or interests in a trading partnership, Business Property Relief (BPR) provides relief from IHT. Agricultural Property Relief (APR) provides similar relief for qualifying agricultural property.

Relief rates from 6 April 2026: 100% BPR and APR applies to the first £2.5 million of combined qualifying business and agricultural assets per individual (spouses and civil partners each have a separate £2.5 million allowance). Assets above £2.5 million attract 50% relief, resulting in an effective IHT rate of 20% on the excess. AIM-listed and other listed shares that qualify for BPR receive only 50% relief regardless of value — they do not benefit from the £2.5 million 100% cap. Pre-6 April 2026, qualifying unlisted shares attracted 100% BPR without a cap; the cap is a new restriction.

BPR can be lost if the company is not genuinely trading — for example, if it has accumulated significant investment assets. A review of the company's balance sheet and activity shortly before death may identify steps to take to ensure qualifying status is maintained or restored.

What Does Not Work

Gifts with Reservation of Benefit

This is the most important restriction to understand. A gift that leaves the donor with a benefit in the asset does not reduce their estate for IHT purposes. If a parent gives their home to a child but continues to live in it, the property remains in the parent's estate as a gift with reservation — regardless of how long ago the gift was made.

HMRC challenges these arrangements vigorously, and the rules apply even where the benefit is informal or has no monetary value attached to it. Deathbed transfers of property, investments or business interests where the donor will clearly continue to use or benefit from them have no IHT benefit.

Creating Trusts at This Stage

Setting up new trusts close to death attracts intense HMRC scrutiny. A transfer into a discretionary trust is an immediate chargeable lifetime transfer (CLT), subject to IHT at 20% on the amount above the nil rate band at the time of transfer. If the settlor dies within seven years of creating the trust, further IHT may be charged. Trusts created in the final weeks of life by a terminally ill person are frequently challenged on the grounds of capacity, or as a deliberate attempt to evade tax.

Deprivation of Assets

Deliberate deprivation of assets with the intention of reducing an estate is not effective: HMRC may bring a challenge and the assets may be brought back into charge. In the context of means-tested care funding, local authorities also have power to challenge deliberate deprivation. Anti-avoidance rules apply under the Disclosure of Tax Avoidance Schemes (DOTAS) regime and under general GAAR principles where arrangements lack genuine commercial substance.

A Note on Capacity

All planning measures require the person concerned to have mental capacity. As health deteriorates, capacity becomes a genuine issue. Acting early — while capacity is unambiguous — avoids expensive disputes after death. If there is any doubt about capacity at the time of a gift, trust or will change, it should be formally assessed by a specialist medical professional and documented contemporaneously.

How Global Investments Can Help

Global Investments works with families navigating the most difficult financial and estate planning questions. Our advisers can help you identify what legitimate planning is still available when time is short, and coordinate with specialist estate planning solicitors and tax advisers to implement it quickly and properly. We are experienced in managing these conversations with the sensitivity and urgency they require. Please contact us in confidence.