Inheritance Tax is meant to be paid once. But if you leave money straight to your children, it can be taxed when you die and taxed again when they die. By the time it reaches your grandchildren, a large part of it can be gone.
This is what people mean by Generational Inheritance Tax. It is not a separate tax. It is the same tax, charged on the same money, one generation after another.
The good news is that it can usually be avoided with the right planning in your Will.
Worried your family could pay twice?
We can look at your Will and tell you whether your money is likely to be taxed again when it passes on. The first meeting is free.
How money ends up taxed twice
Take a family over three generations.
- Your parents leave you their home and savings. Their estate pays Inheritance Tax on anything above their tax-free allowances.
- What you inherit is added to everything you already own: your home, savings and, from April 2027, most unused pensions.
- When you die, your estate is taxed at 40% on anything above your own allowances. That includes the money you inherited, which has already been taxed once.
- Your children receive what is left. If they are comfortably off too, the same thing can happen again.
It mostly affects families where both generations own a home and some savings. That is more and more families, because the tax-free allowances have been frozen since 2009 and will stay frozen until at least April 2031.
What it looks like in pounds
Say your parents leave you £500,000 after their own Inheritance Tax has been paid. Your own estate is already above your tax-free allowances.
| Left to you directly | Left in a trust for you | |
|---|---|---|
| Inherited from your parents | £500,000 | £500,000 |
| Counted in your estate when you die | £500,000 | Nothing |
| Inheritance Tax at 40% | £200,000 | None on this money |
| Passes on to your children | £300,000 | £500,000 (less any trust charges) |
Left to you directly, £200,000 of money that has already been taxed goes in tax again. Left in a trust, it stays outside your estate, so it is not taxed again when you die.
Simplified example. It assumes your estate is already over your tax-free allowances and ignores any growth in value.
How a trust in your Will stops it
Instead of leaving everything to your children outright, your Will can leave some or all of it in a trust for them.
- The money is held by trustees you choose, often family members.
- Your children can still benefit. The trustees can pay money out or lend it to them when they need it, for example to help with a house.
- Because the loaned money does not belong to your children, it is not added to their estates, and it is not taxed again when they die.
- It can also be kept safe in a trust from a child’s divorce, debts or care fees.
Trusts have their own tax rules, with much smaller charges every ten years. We explain these when we meet, so you can see whether a trust is worth it for your family.
Married couples: when it bites
There is no Inheritance Tax between husbands and wives or civil partners. So the problem usually appears on the second death, when everything passes to the children in one go.
A properly planned pair of Wills can use a trust on the first death and still keep the survivor secure in the family home. You can read more in our article on the problems with free Wills.
Already inherited? You may still be able to fix it
If a parent has died in the last two years, it may not be too late. A deed of variation lets you redirect what you inherited, to your own children or into a trust, as if your parent’s Will had said so.
Done properly, the money never becomes part of your estate. The two-year time limit is strict, so talk to us sooner rather than later.
Common questions
Is generational Inheritance Tax a real tax?
No. It is a name for ordinary Inheritance Tax being charged again on money that has already been taxed once.
Is there any relief if my child dies soon after me?
Yes, but it is limited. Quick succession relief reduces the second tax bill if your child dies within five years, and it gets smaller each year. After five years there is none.
Can I leave money straight to my grandchildren instead?
Yes, and it skips one round of tax. But young grandchildren cannot be given control of large sums. A trust lets you do it safely, with trustees looking after the money until they are older.
Do trusts pay Inheritance Tax?
They have their own rules, with charges every ten years and when money is paid out after 10 years. These are a fraction of the 40% your children’s estates could pay, and well-planned trusts can often keep them low.
Do I need to do anything if I am married?
Nothing is taxed on the first death, but planning then makes a big difference to what your children pay later. It is worth looking at your Wills together.
Talk it through in Caversham
We meet people face to face at our office in Caversham. The first meeting is free. We look at what you own and what you are likely to inherit, show you what your family could pay, and set out your options and prices. You choose all, some or none of them.
Or call us on 0118 948 4381.
Related: Trusts | Will writing | The four types of tax in the UK | Free Wills: the pros and cons
This article is general information, not tax or legal advice. Tax rules are correct as at October 2026.
