Inheritance Tax Planning for Blended Families

Blended families are increasingly common in the UK, bringing together children and partners from previous relationships. While these families enrich our lives, they also introduce complexities in estate planning—especially when it comes to inheritance tax (IHT).

Without careful planning, your assets might not be distributed as intended, potentially leading to family disputes and unexpected tax liabilities. This guide explores the challenges and solutions for inheritance tax planning in blended families, ensuring your legacy supports all your loved ones fairly.

Understanding Inheritance Tax in the UK

Inheritance tax is levied on the estate of a deceased person. As of the 2024/25 tax year:

• Nil-Rate Band (NRB): £325,000 per individual
• Residence Nil-Rate Band (RNRB): An additional £175,000 when passing the family home to direct descendants
• Combined Allowance for Married Couples/Civil Partners: Up to £1 million when combining NRB and RNRB
• Tax Rate: 40% on the value of the estate exceeding the applicable thresholds

Stepchildren are not automatically considered direct descendants unless legally adopted, which can affect eligibility for the RNRB.

Challenges Faced by Blended Families

1. Exclusion of Stepchildren

Under intestacy laws, stepchildren have no automatic right to inherit. Without a valid will, they may be unintentionally left out of the estate.

2. Unintended Asset Distribution

Leaving everything to a new spouse in the hope that they’ll provide for your children from a previous relationship can be risky. The surviving partner may change their will, remarry, or unintentionally exclude your children.

3. Tax Inefficiencies

Without strategic planning, your estate could face higher inheritance tax liabilities, reducing the value passed on to all beneficiaries.

Strategies for Effective Inheritance Tax Planning

1. Draft a Comprehensive Will

A well-structured will is essential. It allows you to clearly specify how your estate should be divided—ensuring all your children, including stepchildren, are provided for. Without one, UK intestacy laws will dictate distribution, which often doesn’t account for modern family dynamics.

2. Use Trusts to Protect Beneficiaries

Trusts can ensure assets are managed and distributed according to your wishes. For example, a Life Interest Trust can provide for your current partner during their lifetime, then pass remaining assets to your children.

This structure can also help manage IHT liabilities and protect assets from being redirected through remarriage or poor financial decisions.

3. Make Use of Lifetime Gifts

You can reduce the size of your taxable estate by gifting money or assets during your lifetime. Gifts made more than seven years before your death are usually exempt from inheritance tax.

Be mindful of the annual gift allowance (£3,000) and small gift exemptions, and consider gifting directly to children or stepchildren to support them sooner.

4. Consider Professional Advice

Inheritance tax and estate planning for blended families can be complex. A qualified solicitor or tax adviser can help you:

• Understand your IHT exposure
• Structure your estate efficiently
• Draft a watertight will that accounts for your entire family
• They can also help clarify stepchild eligibility for tax allowances and ensure you use available reliefs wisely.

5. Keep Plans Updated

Family dynamics change. Revisit your will and estate plan after major life events—such as a marriage, divorce, birth of a grandchild, or death in the family. This ensures your intentions stay current and legally sound.

How Level Can Help

At Level, we understand the emotional and financial strain that can come with probate—especially for blended families. If you’re expecting an inheritance but need access sooner, our Inheritance Advance can provide up to 60% of your future share—before probate is complete.

If you’re acting as an executor and need help covering inheritance tax or estate costs, our Estate Advance provides funding directly to the estate—so you’re not left paying out of pocket.

We work quickly, with empathy and clarity—helping you manage difficult moments with less financial stress.

Final Thoughts

Blended families deserve estate plans that reflect their realities—with fairness, foresight and clarity. Without proper planning, your intentions may be lost to tax rules or family friction.

By writing a valid will, using trusts, and seeking expert advice, you can ensure your estate is distributed as you wish—safeguarding your legacy for everyone you care about.