Paula and Simon had a concern that I hear regularly.

Their family home had been passed down through generations and held far more than financial value.

It was where children had grown up, family gatherings had taken place, and memories had been made over decades.

The property was now worth approximately £1.5 million.

In addition, they had savings of around £250,000.

Like many couples, they weren’t worried about having enough money during their lifetime.

Their concern was what would happen after they were gone.

More specifically, they wanted to know:

“Will our children have to sell the family home to pay the inheritance tax bill?”

The Hidden Problem

Based on their current circumstances, I estimated that their estate could face an inheritance tax liability of around £300,000 on the second death.

For many families, this presents a significant challenge.

Inheritance Tax is generally due within six months of the end of the month in which death occurs.

The tax must usually be settled before probate can be completed and before beneficiaries can gain full access to the estate.

This can create a difficult situation where a large tax bill exists, but much of the wealth is tied up in property rather than cash.

As a result, families often fear they may have no option but to sell a cherished family home to raise the funds.

Fortunately, there are a number of planning options that may help.

Option 1: Life Insurance Written in Trust

One of the simplest solutions can be life insurance.

A suitable whole-of-life insurance policy can be arranged to provide funds specifically designed to cover an anticipated inheritance tax liability.

The key point is that the policy should usually be written into trust.

When structured correctly:

• The insurance proceeds sit outside the estate
• Funds can be paid quickly after death
• Beneficiaries have immediate access to cash
• The inheritance tax bill can be settled without needing to sell assets

In Paula and Simon’s case, a policy designed to provide approximately £300,000 could potentially provide the liquidity needed to preserve the family home.

For many families, this is one of the most straightforward solutions.

Option 2: Using Trusts During Lifetime

For some families, trusts may form part of a wider inheritance tax strategy.

Depending on circumstances, assets can sometimes be transferred into trust during lifetime to help reduce future inheritance tax exposure.

Trust planning can also provide:

• Asset protection
• Control over future beneficiaries
• Succession planning flexibility
• Potential tax efficiencies

However, trusts are not suitable for every family and require careful consideration of tax, control, and access to assets.

Professional advice is essential before taking this route.

Option 3: Strategic Gifting

Some families choose to reduce the size of their estate through gifting.

Where gifts are made and the donor survives the relevant period, the value transferred may fall outside the estate for inheritance tax purposes.

For couples who have surplus assets and no expectation of needing them later in life, gifting can be a highly effective planning tool.

However, many people are understandably reluctant to part with assets they may need in the future.

The right balance between tax planning and financial security is crucial.

Option 4: Borrowing Against the Property

This option often surprises people.

Rather than selling the property, beneficiaries may be able to borrow against it.

For example:

• A mortgage could potentially be secured against the inherited property
• Funds could be used to settle the inheritance tax liability
• The family retains ownership of the property

This can provide breathing space and allow beneficiaries to decide what they want to do long term rather than being forced into a quick sale.

While borrowing is not appropriate in every case, it can be an effective solution where preserving a property is a priority.

Option 5: Paying Inheritance Tax by Instalments

Many people are unaware that inheritance tax relating to property can often be paid by instalments over a number of years.

This can reduce the immediate financial pressure on beneficiaries and provide additional time to arrange funding.

Whilst interest may apply, the availability of instalment payments can be a valuable option when dealing with large property-based estates.

The Best Solution Is Often a Combination

In reality, there is rarely a single answer.

For Paula and Simon, the most effective approach may involve a combination of:

• Reviewing their Wills
• Considering lifetime gifting opportunities
• Exploring trust planning
• Using life insurance to create liquidity
• Understanding borrowing and instalment options available to their children

The right strategy depends on family circumstances, health, age, financial needs, and long-term objectives.

The Real Question

When people talk about inheritance tax, they often focus on the amount of tax that may be due.

But in situations like Paula and Simon’s, the real issue isn’t necessarily the tax itself.

It’s liquidity.

The estate may be valuable on paper, but if most of that wealth is tied up in property, finding the cash to settle the liability can be challenging.

Good estate planning isn’t simply about reducing tax.

It’s about ensuring beneficiaries have choices.

Final Thoughts

Paula and Simon’s greatest fear wasn’t the inheritance tax bill.

It was the possibility that their children would be forced to sell a family home that had been in the family for generations.

The good news is that, with proper planning, families often have more options than they realise.

Whether through life insurance, trusts, gifting strategies, borrowing arrangements, or a combination of approaches, there are often ways to ensure that a valuable family asset can be preserved for future generations.

The key is starting the conversation early.

Because when it comes to inheritance tax planning, the best opportunities are usually available long before they are needed.

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