Freddie had always believed that, whatever happened, the children would inherit the house.

He did not say it in a dramatic way, and he certainly did not think of himself as wealthy. In his mind, wealthy people were the people with country estates, complex trusts, private bankers and family offices; he was simply a man who had worked hard, bought a family home many years ago, paid the mortgage month after month, and watched the value of the property rise almost by accident as London and the South East became increasingly unaffordable for the next generation.

When his children complained about rent, mortgage deposits, interest rates, childcare costs and the sheer impossibility of building the kind of financial security their parents’ generation had taken for granted, Freddie would usually say the same thing, quietly and with genuine affection: “At least, one day, you’ll have the house.”

That sentence gave him comfort because, to him, the house was not just an asset. It was the visible proof that his life’s work had meant something; it was the place where the children had grown up, the place where birthdays and Christmases had happened, the place where family photographs were still on the walls, and the one thing he believed he could leave behind without complication.

Freddie had a will, which made everyone feel even more reassured. The will said that the house would pass to the children, and because the document had been signed, witnessed and placed neatly in a folder with the insurance papers, the family treated the matter as closed. Nobody was being careless; they were simply making the same mistake many sensible families make, which is to assume that a will is the same thing as an inheritance tax plan.

It is not.

A will is essential, but it does not remove inheritance tax, it does not create liquidity, it does not automatically preserve the residence nil-rate band, it does not check whether lifetime gifts have been made correctly, and it certainly does not solve the problem of a family whose assets are spread across more than one country. A will tells the executors who should receive the estate, but it does not tell the family how much will actually be left after tax, probate, valuations, professional fees, debts, administration and, in many cases, cross-border reporting.

Freddie’s family discovered this only after his death, which is exactly when these conversations become most painful and least efficient.

At first, the children spoke about the house emotionally, as families do. One wanted to keep it because selling it felt like erasing their father’s life. Another wanted to sell because the property was too expensive to maintain. A third, who lived outside the UK, assumed everything would be dealt with by the solicitor and that the Italian side of the estate would be handled separately in Italy. The problem was that HMRC, unlike the family, did not look at the house as a memory; HMRC looked at the value of the estate, the available allowances, the residence history, the assets in the UK, the assets abroad, and the tax that might be due before the children received what their father thought he had left them.

The image above is deliberately brutal, and it is not intended to be a technical inheritance tax computation. However, the underlying message is uncomfortable because it is true: many families think that the children are inheriting the whole house, when in reality the estate may first have to deal with inheritance tax, probate, executor responsibilities, valuation issues, administration costs, debts and the practical question nobody wants to ask after a funeral — where is the cash going to come from?

That last question is often the real problem, because inheritance tax is not paid with sentiment and it is not paid with family history. It is paid with liquidity.

In Freddie’s case, the estate was valuable on paper but not particularly liquid. The family home had increased significantly in value, but the cash savings were not enough to settle every liability comfortably; there was also an old life insurance policy, but it had not been written in trust, and the pension nominations had not been reviewed for years. On top of that, there were assets in Italy which the family had always mentally separated from the UK estate: a small apartment in Puglia inherited from Freddie’s parents, a bank account with an Italian institution, a modest investment portfolio, and a minority interest in a family company that nobody had valued for a long time because, in family language, it was “just something in Italy”.

That phrase — “just something in Italy” — is exactly where many UK-resident Italian families can get into difficulty.

For years, Freddie had treated his UK life and his Italian assets as two separate worlds. The UK house was the UK problem; the Italian apartment, the Italian bank account and the family company shares were, in his mind, Italian matters that would be dealt with by the Italian notary when the time came. His children had the same instinctive view, partly because Italian succession tax between parents and children often looks relatively modest when compared with UK inheritance tax; under the Italian rules, transfers to a spouse or children are generally taxed at 4% only on the value exceeding the €1 million allowance per beneficiary.

The difficulty is that a low or manageable Italian succession tax position does not necessarily mean that the UK inheritance tax position is low or manageable.

Since 6 April 2025, the UK inheritance tax system has moved away from the old domicile-based approach and now looks closely at long-term UK residence. Broadly, an individual may be within the long-term UK resident rules where they have been UK tax resident for at least 10 out of the previous 20 tax years, and HMRC guidance confirms that, where those rules apply, non-UK assets may also be within the scope of UK inheritance tax on death or on certain transfers. (GOV.UK)

That means the Italian apartment, the Italian portfolio, the Italian bank account, the shares in the family company, and even assets that the family emotionally regards as part of the “Italian side” of the estate may still need to be brought into the UK inheritance tax analysis if the deceased was within the relevant UK long-term residence regime.

This is where ordinary families can be caught completely off guard. They speak to the Italian bank and are told what documents are needed to release the account; they speak to the Italian notary and are told what is required for the Italian succession declaration; they look at the Italian inheritance tax rates and assume the cost is manageable; but none of that necessarily answers the separate UK question, which is whether HMRC expects the worldwide estate, including the Italian assets, to be reported and taxed through the UK inheritance tax framework.

In the UK, the standard inheritance tax nil-rate band is £325,000, and the residence nil-rate band can add up to £175,000 where qualifying conditions are satisfied, including the requirement for a qualifying residential interest to pass to direct descendants; for married couples and civil partners, unused allowances may in appropriate circumstances be transferable, but those rules are technical and conditional rather than automatic.

That is why the phrase “the children will inherit the house” can be dangerously incomplete. The better question is whether the children will inherit the house intact, whether they will inherit it after a forced refinancing, whether they will need to sell it to fund the tax, whether the Italian assets will be accessible quickly enough to help, and whether the estate has been planned in a way that allows the executors to administer it without conflict, delay and unnecessary cost.

By the time Freddie’s children understood this, the family discussion had changed completely. It was no longer a gentle conversation about legacy, memories and fairness; it had become a hard conversation about valuations, HMRC deadlines, liquidity, whether the Italian apartment could realistically be sold, whether the UK house had to be marketed, whether one child could buy out the others, and whether the old family company shares had any value for tax purposes even though nobody in the family had ever treated them as a real investment.

That is the moment inheritance tax stops being a tax issue and becomes a family issue.

One child says the house should never be sold. Another says the estate cannot afford to keep it. One child thinks the Italian assets should be used first, while another points out that releasing or selling Italian assets can take time, particularly where succession formalities, banking procedures, cadastral records, historic ownership documents or family co-ownership issues have to be dealt with. Someone then asks why nobody dealt with this earlier, and the answer is usually the same: because everyone thought the will had solved it.

The will had not solved it. The will had merely started the administration.

Proper inheritance tax planning is not about artificial schemes, and it is not about pretending that tax does not exist. It is about understanding, while the client is alive and able to make decisions, what the family would actually receive if death occurred tomorrow. That requires a full estate balance sheet, not just a will review, because the adviser needs to know what is owned, where it is located, who owns it legally, who benefits from it economically, what it is worth, whether there is debt, whether there have been gifts, whether there are trusts, whether life insurance has been written correctly, whether pensions have been nominated properly, whether business property relief may be relevant, and whether non-UK assets are within the UK inheritance tax net.

For Italian families in the UK, the review should also ask questions that are often missed in purely domestic planning. Has the individual been UK resident for long enough to be treated as a long-term UK resident for inheritance tax purposes? Are the Italian properties owned personally, jointly, through a company, or with other family members? Are there Italian bank accounts or investment portfolios that have never been properly reported or valued for UK purposes? Are there assets inherited in Italy many years ago which the family still treats as sentimental rather than taxable? Are there children or beneficiaries living in different jurisdictions? Has anyone coordinated the UK inheritance tax analysis with the Italian succession process?

Sometimes the answer will be relatively straightforward. The will may need to be updated, the spouse exemption may need to be used correctly, the residence nil-rate band position may need to be checked, pension nominations may need to be reviewed, life insurance may need to be written in trust, and the family may need a practical liquidity plan so that the executors are not forced into a rushed sale at the worst possible time.

In other cases, the advice may be more sophisticated, particularly where there are substantial Italian assets, family company interests, trusts, lifetime gifts, children in different countries, second marriages, unmarried partners, or assets which are valuable but difficult to sell. That may involve lifetime gifting, gifts out of surplus income, trust analysis, family investment company planning, business property relief review, debt planning, insurance planning, or a coordinated UK–Italy succession strategy that recognises the fact that the Italian tax answer and the UK tax answer may not be the same.

What should not happen is the classic panic planning that takes place after someone reads one alarming article online and decides to transfer the house to the children, put assets into a trust, move money abroad, gift Italian property, or change ownership of family assets without understanding the reservation of benefit rules, capital gains tax, stamp taxes, Italian legal constraints, UK inheritance tax consequences and the practical effect on family control.

Bad planning can be worse than no planning, because it gives the family the illusion of protection while quietly creating a larger tax problem.

Freddie did not need panic planning. He needed a proper review while he was still alive, calm and able to explain the history of the assets. He needed someone to tell him that the house was not just a house, that the Italian apartment was not automatically outside the UK analysis, that the will was not a tax plan, that life insurance should not be left to chance, and that the children needed liquidity as much as they needed legal entitlement.

The painful truth is that many parents are not really trying to leave wealth. They are trying to leave security. They want their children to have a home, a cushion, a cleaner start, or simply fewer financial worries than they had themselves.

But security is not created by hope, and it is not created by a sentence in a will that nobody has stress-tested against the tax position.

The real question is not whether your children are named in your will. The real question is whether, after HMRC, probate, professional fees, cross-border succession, Italian assets, liquidity constraints and family disagreements have all been dealt with, your children will actually receive what you think you are leaving them.

Freddie thought he had left the children the house.

What he really left them was a set of decisions that should have been made years earlier.

At Vectigalis Tax, we advise UK and internationally connected families, including Italian families resident in the UK, on inheritance tax, cross-border succession, Italian assets, long-term UK residence, lifetime gifting, trusts, property ownership, pensions, insurance, family companies and liquidity planning.

Because the question is not simply:

“Do you have a will?”

The real question is:

“If you died tomorrow, would your children inherit the house — or would they inherit a cross-border tax problem?”

Vectigalis Tax
UK & International Tax Advisory
UK–Italy Private Client and Inheritance Tax Planning
angelo@vectigalistax.co.uk
www.vectigalistax.co.uk