Inheritance Tax (IHT) remains one of the most significant considerations for individuals with estates valued above £2 million. With the nil-rate band frozen and asset values, particularly property, remaining elevated, more families are now facing substantial tax liabilities on death. While traditional estate planning often leans heavily on gifting, trusts, and life insurance, one increasingly relevant but under-discussed tool is debt structuring.
In the context of estate planning, debt can be more than a liability. When implemented thoughtfully, it can serve as a liquidity mechanism, an offset to taxable value, and a strategic tool to retain control over assets while reducing overall IHT exposure. However, it must be used with care, underpinned by advice from both tax professionals and lending specialists.
Under current UK rules, individuals are subject to IHT at 40% on the value of their estate above the nil-rate thresholds. For many private clients, these thresholds are quickly surpassed, particularly where property, business assets, and investment portfolios are held.
Given the flat nature of these allowances, the IHT burden often grows disproportionately with asset value. As a result, preserving liquidity within the estate, and reducing the chargeable estate value itself, becomes paramount. Debt, particularly where it is properly secured and legitimately incurred, can play a role in both of these areas.
One of the more direct ways debt impacts IHT is through deduction. The value of an estate is calculated net of liabilities, which means that certain outstanding debts at the time of death can reduce the taxable value of the estate.
This principle opens up several potential strategies:
It is important to note, however, that not all debt is automatically deductible. HMRC applies specific rules around the purpose of borrowing and repayment potential, and deductibility may be denied if debt is used to acquire excluded property or if it appears to be primarily for tax advantage. We are not tax advisers, and this would require tax advice from your tax advisers.
Accordingly, any debt-based estate planning must be undertaken with input from a qualified tax adviser to ensure that it falls within allowable definitions and does not contravene anti-avoidance rules.
Beyond reducing the chargeable value of an estate, borrowing can also serve a more practical purpose: ensuring that executors have sufficient liquidity to settle IHT liabilities without triggering fire sales of illiquid assets such as property or business interests.
For example:
This is particularly relevant for clients who are asset-rich but income-light, or those whose succession planning includes philanthropic or structured legacy ambitions.
Private banks and specialist lenders increasingly recognise the role of debt within estate and succession planning. Facilities can be structured flexibly, often with interest rolled-up or serviced via external income sources, and tailored to the client’s estate strategy.
Common arrangements include:
Henry Dannell frequently works alongside legal and tax advisers to ensure that lending structures complement wider estate plans. Key considerations include the visibility of liabilities within the estate, the sustainability of interest payments, and the interaction with Business Property Relief and other IHT mitigation strategies.
We have seen a rise in concessionary purchases among high-net-worth individuals who are looking to gift their property assets down to children or grandchildren; this could be for a wider portfolio of properties being gifted or for passing down of the family home. When structured correctly using the right mortgage advice and protection advice on how to ensure the liability, this can be a valuable tool in transferring wealth.
While debt structuring can offer genuine IHT planning benefits, it must be approached with caution:
Above all, debt should not be viewed as a stand-alone solution but as part of a coordinated estate plan, aligned with long-term intentions, supported by professional advice, and executed with full transparency.
For private clients with estates exceeding £2 million, debt structuring offers a compelling, though nuanced, addition to the estate planning toolkit. When used appropriately, it can reduce taxable estate value, preserve liquidity, and support a more controlled and deliberate transfer of wealth.
At Henry Dannell, we work closely with our clients’ legal and tax teams to deliver lending strategies that sit in harmony with broader estate objectives. Whether funding lifetime gifts, navigating liquidity needs, or optimising intergenerational plans, our approach is to structure debt not as a burden, but as a strategic lever.
If you would like to explore how borrowing could support your estate planning objectives, we welcome the opportunity to offer discreet, tailored advice in line with your long-term goals.