Ian Dyall is head of estate planning at wealth management firm Evelyn Partners.

It is often said that inheritance tax is hated by the many and paid by the few. But the few have been growing in number and facing bigger bills.

This trend will accelerate following the inclusion of unspent pension assets in estates from April next year.

That significant change is expected to catch about 31,200 more estates by 2030, while about 121,500 estates will face an increase in their inheritance tax liabilities.

More people are therefore becoming concerned about the inheritance tax risk hanging over the carefully saved assets they hope to leave to their loved ones.

But the danger is that in trying to side-step this, they come a bit of a cropper.

We see a lot of mistakes made by people who have not thought about inheritance tax or tried to take DIY steps to mitigate a future bill.

The rules can be difficult and confusing, so we always recommend that anyone who thinks their estate faces a substantial inheritance bill - or has a complex range of assets or distinct family circumstances - seeks professional advice before they start making any big moves.

Here are some of the common pitfalls around the passing on of wealth during lifetime or at death.

1. Failure to make or update wills properly

It is essential to review and update wills and trusts regularly, particularly after major life events such as divorce, marriage, or the death of a beneficiary.

Failing to do so can result in assets passing to unintended beneficiaries and may also create unnecessary tax liabilities.

Making a will can prevent unnecessary stress and even disputes for the administrators and beneficiaries of an estate.

It is crucial for unmarried couples in long-term relationships, and for blended families where uncertainty and misunderstanding can arise, as the intestacy rules could lead to an unwelcome distribution of assets at death.

Where the family home is not jointly owned, that could also create issues at death, and couples should consider how their property is owned at the same time as looking at wills (more on this below).

Even where wills are in place, make sure that they still do what you want them to, and that new tax rules do not require a rethink.

Lots of older ones won’t take account of the significant changes to inheritance in recent years.

For example, the introduction of the residential nil rate band in 2017 is still catching people out because it only applies if a home is left to a direct descendant such as a child or grandchild.

The rules can extend this definition to step-children, adopted and even fostered children, but it’s evident that care needs to be taken in drawing up wills and trusts so that the £175,000 allowance is used effectively.

The value of each spouse’s estate is also important to consider, because if either spouse is worth over £2million on their death, their nil-rate band will be tapered away and cannot be used, or transferred to their surviving spouse.

If all the assets are in one spouse’s name, rearranging them may lead to a tax saving of up to £140,000.

For families who own businesses, the recent cap on business and agricultural property relief, which has been in effect since the start of this financial year in April, could demand a major rethink of how business assets are left at death to take most advantage of the available reliefs.

Another note on paperwork - pension savers should check the expression of wishes, or death benefit nomination, they have made on their workplace and personal pensions.

Unused pension assets will be included in inheritance tax calculations from next April, but the 'spousal exemption' means husbands, wives and civil partners don't pay it.

In many cases it will make sense, from an inheritance perspective at least, to have the spouse as the nominated beneficiary rather than children.

2. Over and under-estimating IHT – and forgetting your own needs

Before anyone starts giving money away with an eye on reducing or eliminating a future inheritance tax bill, they should do their homework or take advice on what allowances and exemptions they are entitled to, as the potential liability might not be as great as feared.

Fundamentally, they need to be comfortable that they can afford to give assets away without jeopardising their own future financial security.

This can be a tricky calculation, and professional cash-flow modelling can show the impact of making gifts now on future retirement income.

People also need to make sure they are not paying excess tax by gifting, for example higher income tax on pension withdrawals or capital gains tax on selling investments.

After death, valuation issues can become paramount. The number of investigations by HMRC has increased recently, with a focus on undervaluation of high-value assets, particularly property.

So, personal representatives - official jargon for executors of wills, or administrators if someone dies intestate - need to be more careful than ever that calculations are based on a reasonably accurate estimate of an estate’s value.

For instance, for a property, seek two independent valuations.

When calculating the value of the estate it is normally the open market value on the date of death, net of any debts, that should be used.

Most debts – including outstanding mortgages - are deductible for inheritance tax purposes provided they are repaid on death.

If the value of listed shares or property reduces whilst the estate is being administered, then relief against inheritance tax can be claimed on the reduced value - within 12 months for shares and three years for property.

Gifts can also cause issues at the valuation stage as personal representatives need to consider the impact of any outright gifts or transfers to a trust in the seven years prior to death, and records are not always complete.

These gifts will be deducted from the nil rate band allowance of £325,000 for each individual, leading potentially to a higher inheritance tax liability on the rest of the estate.

If the gifts in the last seven years exceed the NRB, then the recipients of the later gifts may have a liability on what they received.

One final complication that can catch out personal representatives, and lead them to underestimate inheritance tax, is the RNRB taper.

This reduces the RNRB allowance by £1 for every £2 if the net value of an estate exceeds £2 million. It reduces the available RNRB to zero for individuals with estates worth over £2.35million, or £2.7million for couples.

3. Gifting blunders and not keeping records

Gifting is probably the area where casual efforts to reduce an inheritance tax liability without taking professional advice most often backfires.

If you gift cash or assets above the quite limited annual gifting exemptions it is usually treated as a 'potentially exempt transfer'.

That means provided you live for seven years after making the gift, it will no longer form part of your estate, and so be clear of inheritance tax.

However, if you continue to use the asset, or the gift can be taken back if you choose to do so, then HMRC will deem there to be a 'reservation of benefit' and the gift will continue to form part of your estate indefinitely.

It is possible to make the gift effective by paying for the use of it, but it must be at the market rate rather than a nominal payment.

Many people believe that they can solve their inheritance tax liability simply by putting the family home in their children’s name and continuing to live in it as they did before.

If they do that, the property will never leave their estate for inheritance tax purposes, and its value will be subject to a 40 per cent levy on their death.

Unfortunately, for capital gains tax purposes the children will be seen as the owners and any gains made between when it was gifted to them and when they sell it will be subject to CGT of up to 24 per cent for higher and additional rate taxpayers.

To make the gift of the property effective in reducing their inheritance tax liability, parents will either need to move out or pay a market rent to their children.

The children would then be liable to income tax on the rent.

If your children live with you, it is possible to give them a reasonable share of the property (not all of it) and provided you pay at least your share of the running costs, the gift should reduce your inheritance tax liability.

However, for both parent and child, this is not often a realistic or palatable option for simply mitigating tax.

Some people have tried to avoid the rule by selling their home, and giving the money to the children to buy a new home which the parents then live in.

This potentially may avoid the reservation of benefit rules, as the parents never owned the new home, but if it does it is likely to be caught by another piece of anti-avoidance legislation called 'pre-owned asset tax'.

Most people who fall foul of the legislation are simply oblivious of the rule that you cannot continue to benefit from an asset you have given away.

It doesn’t just apply to property. Assets gifted but held in trust could still be subject to inheritance tax if the donor (the gifter) is named in the trust as a potential beneficiary, as that constitutes a reservation of benefit.

Finally, anyone gifting with an eye on mitigating inheritance tax should keep good records showing the date and value of gifts, and who received them – not least because this will make life a lot easier for their personal representatives.

This is especially the case with more complex gifting strategies like the 'normal expenditure out of income' exemption which is sometimes used by grandparents paying private school fees.

4. Confusion over ‘potentially exempt transfers’ and taper relief

Taper relief for gifts made within the seven-year period of a PET is not quite as straightforward, or generous, as it may sound.

A common misconception is that taper relief automatically reduces the tax bill on any gift if the donor survives for three to seven years, under PET rules.

Taper relief only applies to the portion of gifts that exceed the available NRB. If cumulative lifetime gifts, over the last 7 years, remain within the NRB, taper relief does not apply.

As explained above, when calculating inheritance tax, gifts made within seven years of death are deducted from the NRB first, which can reduce the allowance available to offset the rest of the estate.

If the gifts put together exceed the NRB then taper relief can apply, which reduces the tax paid on older gifts.

If there were three to four years between date of gift and death, the inheritance tax rate lowers to 32 per cent, while at six to seven years the rate falls to just 8 per cent.

All of this means that large gifts exceeding the NRB can moderate inheritance tax liability even if the donor does not survive for seven years.

Plus, PETs and failed gifts can leave a surprise for beneficiaries who find that they owe tax on it if the donor does die within seven years.

If a gift above the NRB does become liable for inheritance tax, it is the recipient who will have to pay the bill.

Even though they might get taper relief, they may not have the resources to meet the tax bill, possibly having spent the money.

If a gift is below the NRB, and the donor dies within seven years, then all the beneficiaries of the estate could share the liability on the lifetime gift received by one person, which could cause friction.

So, when making sizeable gifts to multiple children, try to ensure that they receive the gifts on the same day – which could well be Christmas Day or thereabouts.

This is because gifts use exemptions and allowances in the order they are made, so if they are made on different days to different children, the earlier gifts get the benefits of all the allowances and the later gifts suffer the tax.

5. Forgetting you’re not married

Long-term, unmarried co-habitees can suffer some really unwelcome consequences if one of them dies before they have given proper thought to the inheritance tax rules.

They do not have the privilege of the spousal exemption - or the spousal transfer of the NRB or RNRB.

Therefore their only protection against inheritance tax is a single person’s £325,000 NRB. Where valuable homes are concerned this can cause real problems.

The worst situation is where the home is in the name solely of the deceased, which means the whole value will be included in the estate.

For a fully paid-up £1million property that will mean the surviving partner will have to find a minimum (before any other assets are considered) of £270,000 to pay the inheritance tax bill – 40 per cent of £675,000.

It is not uncommon for the surviving partner to be forced into selling the home in these circumstances.

Even where the home is jointly owned, a co-habiting couple might not realise that – as they are unmarried - the share of the property that is left to the surviving partner will deplete or wipe out their NRB on its own, leaving all other assets exposed to inheritance tax.

Marriage and civil partnership have certain tax benefits in the UK, but the spousal exemption from inheritance tax at death is probably the most powerful, and that will be even more valuable when unused pension assets fall into the IHT net next year.

The only way to keep pensions free of inheritance tax with any certainty will be to leave them to a spouse or civil partner.

Our financial planners have certainly been having more discussions around marriage or civil partnership with older clients in long-term relationships since the October 2024 Budget.

In the case of some elderly couples, you can almost say the biggest inheritance tax blunder would be not getting married or entering a civil partnership.

Even if the first partner to die wants to leave some assets to children, they will have more NRB to protect this part of the estate if none is used for the assets left to their partner.

Of course, the inheritance tax problem might arise further down the line when the surviving spouse dies.

While possibly benefiting from two sets of NRBs, their remaining wealth could be inflated by the pension assets from the first death, potentially increasing the inheritance tax liability for their children or other beneficiaries – especially if they die soon after their spouse.

6. Messing up insurance

Expanding inheritance tax liabilities are driving more families to take out insurance against a future tax bill, so it does not become a burden to their beneficiaries.

As the screw is being turned on reliefs and exemptions, they are reaching for this protection, which could for instance prevent the forced sale of the family home.

That said, premiums for whole-of-life cover can be high and will not be suitable in every case.

But even those who would benefit from insurance can make costly errors in arranging a policy.

It is essential to choose the right policy and, importantly, to put it into trust so that the payout itself does not form part of the taxable estate.

In practical terms, the most common way insurance is used to mitigate inheritance tax is through a whole-of-life policy written in trust.

The cover is designed to match the expected inheritance tax exposure after reliefs and exemptions, and is often used alongside steps to reduce a liability, such as lifetime gifting.

Premiums are paid during lifetime, and because the policy pays out on death whenever that occurs, the family has the security of knowing that funds will be available to pay the tax bill when it arises.

If you are married or in a civil partnership, then a ‘joint life, second death’ policy is usually best.

Both lives are insured, but because assets pass free of inheritance tax between spouses at first death, the policy only pays out to beneficiaries on the second death.

So, there’s obviously a number of potential mis-steps for those arranging insurance on a DIY basis.

Whole of life insurance comes in two forms, guaranteed and reviewable.

With guaranteed policies, the premium you pay at outset never changes, so if you pay that premium until death, the sum assured will pay out.

With reviewable policies the insurer will re-evaluate the holder’s situation in the future, and at that point you may get asked to pay more to maintain the same sum assured or have the sum assured reduced.

Guaranteed policies are more expensive but, especially with the support of cash-flow modelling, the holder should know that they have both the current and future financial legroom to afford the premiums.

In contrast, we have seen some reviewable policies where the premiums have gone up sixfold.

It’s worth noting that a major benefit of having life insurance in place to cover an inheritance tax bill is that it should pay out quickly after death and be available before probate is granted, making life a lot easier for executors and less stressful for family.

Inheritance tax must be paid within six months starting from the last day of the month after a death. This deadline will become more challenging and stressful for personal representatives when they have to deal with one or more pension schemes from next April.

That now adds further appeal to the idea of having a life policy in place, and makes it even more important to get it right.