Using Cash Flow Modelling to Overcome Inertia in Inheritance Tax Planning

Estate planning is a core area of advice - looking at ways to mitigate and/or provide for a potential inheritance tax (IHT) charge on one’s estate.

And it’s an area becoming relevant to more clients by the day—with frozen thresholds and rising asset values (particularly property and investments), more people are being drawn into the IHT net. From April 2027, pension savings will also be pulled back into the estate for IHT purposes—making proactive planning all the more important.

Yet despite this growing need, one of the most common themes we see with clients is inertia.

It’s not a lack of interest—most people care deeply about what happens to their wealth after they’re gone. But there’s often a deep reluctance to take meaningful action. That might mean holding off on lifetime gifting, investing in Business Relief-qualifying assets, establishing trusts, or putting a whole-of-life policy in place.

This hesitation is entirely rational. You’ve likely spent decades accumulating wealth, navigating market volatility, making difficult decisions about spending versus saving. The idea of then giving large sums away—or locking them into less liquid structures—naturally triggers anxiety and understandably so.

What if care costs spike? What if your circumstances change? What if your children aren’t ready to handle the responsibility?

We can’t resolve every uncertainty (some conversations, like how your children might use their inheritance, are for the kitchen table). But one fear we can address is the fear of running out of money.

And that’s where cashflow modelling becomes invaluable.

Please note, the Financial Conduct Authority does not regulate Estate and Inheritance Tax Planning. Inheritance Tax thresholds depend on your individual circumstances and may change in the future.

FORO: The Fear of Running Out

At the heart of estate planning inertia lies a simple question: What if this leaves me short?

It’s a legitimate concern. None of us knows how long we’ll live, what future spending needs we’ll face, or how care costs might evolve. Rules of thumb—like “gift 20%” or “keep three years’ spending in cash”—don’t offer the clarity or confidence needed for meaningful decisions.

That’s why we turn to cashflow modelling. It offers a robust, evidence-based framework to assess not just if you can afford to engage in estate planning, but how much you can deploy (under conservative assumptions)—without putting your own financial future at risk.

Applying Cash Flow Modelling to Estate Planning

Cashflow modelling creates visual forecasts of how your wealth could evolve over time. It’s typically used in retirement planning—to assess when you can afford to retire and how much you can sustainably spend—but it’s just as powerful when planning around inheritance tax.

Here’s how we use it to address the Fear of Running Out:

1. Understand Your Position

We begin with a full financial fact-find—pensions, ISAs, property, income sources—and, crucially, your spending. This includes not just the essentials, but also discretionary costs like holidays, dining out, and supporting family. Most people underestimate their outgoings, and bank statements often tell a different story. To allow for this, we usually build in a 25–30% buffer—what we affectionately call a Wild Spending Allowance. The goal throughout is to lean on the side of caution.

2. Factor in Care Costs

This part is highly personal. Some clients prefer to ringfence a dedicated ‘war chest’—typically £250–500k in liquid assets—to cover potential care needs. Others are comfortable treating their property as a fallback, while some take the view that “what will be, will be” and opt not to plan for care at all. There’s no right answer. We’ll be guided by your preferences and can build this into the model accordingly.

3. Project Forward—Cautiously

Next, we project your finances over time using deliberately conservative assumptions—typically 4–5% annual investment returns (nominal), 3.5% inflation, and a planning horizon to age 100. The goal is to stress-test your plan. If it holds up under cautious assumptions, you can have confidence it will work in practice.

Note, when investing, your capital is at risk. The value of your investment (and any income from them) can go down as well as up, and you may get back less than you invested.

4. Identify Your Surplus

The analysis shows whether you're on track to have ‘enough’ (income and liquid capital) to meet your desired spending throughout life. If so, we can then quantify your projected surplus by age 100, even under adverse investment and inflation scenarios.

5. Calculate a ‘Maximum Action’ IHT Plan

Lastly, we calculate the present value of your projected surplus and use it to build an indicative estate planning portfolio—covering options such as direct gifts, trusts, Whole of Life cover, and Business Relief investments.

We typically model a ‘maximum action’ scenario—i.e. the largest reasonable estate planning package you could implement today that would run your liquid capital down to zero by age 100 (or to your preferred care reserve).

Most clients won’t action the full amount in one go—but it serves as a useful benchmark: what could be done to reduce your IHT exposure, without compromising your lifestyle, even under cautious assumptions.

Please note, Business Relief investments are high risk products and not suitable for the majority of retail investors.

A Worked Example

To bring this to life, here’s how we might apply this process in practice.

Step 1: Current Position

James and Kate, both aged 70, are retired and starting to think more seriously about estate planning. They have three adult children and two grandchildren.

Their current financial position is as follows:

£750,000 main residence (mortgage-free)
£1,400,000 in investments—split between fully crystallised pensions (£300,000 each) and ISAs (£400,000 each)
£100,000 in cash
Full State Pensions, plus £10,000 each per year from private pensions

Their estimated annual spending is £48,000. To this we add a 25% buffer—£1,000/month—as a ‘Wild Spending Allowance’, to build in headroom. We also assume spending gradually tapers at -1% a year, reflecting a more passive lifestyle over time.

Step 2: Care Costs

James and Kate would like to maintain a £500,000 ‘war chest’ for any future care needs (in today’s terms).

Step 3: Cashflow projections

Here’s a projection of their liquid capital (cash, ISAs, pensions), as well as total net worth (including property).

Note: All figures are in today’s prices, adjusted for inflation.

4. Surplus

The modelling shows James and Kate are comfortably on track. Even under cautious assumptions, they’re projected to hold around £1.6m in liquid assets by age 100, with total net assets approaching £2.5m.

That’s a strong position—but it comes with a potential sizeable inheritance tax liability, estimated at around £700,000 under current rules. Notably, this includes pension savings, which are currently outside the scope of IHT but are due to be brought back into the estate from April 2027 under the government’s proposed reforms.

5. A ‘Maximum Action’ IHT Plan

To address that potential IHT bill—and make use of the surplus capital identified—we’ve modelled the following estate planning package:

Gift £300,000 to their children directly (£100,000 each)
Transfer £325,000 into a discretionary trust (for children, grandchildren, and future generations)
Begin investing £25,000 annually into Business Relief-qualifying assets
Take out a £300,000 Whole of Life insurance policy (joint life, second death), estimated at £365/month (subject to underwriting; quote dated 06/11/2025)

We refer to this as a maximum action plan—structured to run their liquid assets down to the £500,000 care reserve by age 100.

Here’s the revised liquid capital projection under this scenario, showing exactly that:

It’s also worth noting that even if their liquid assets were fully depleted, they would still have substantial property equity—currently £750,000—which could be accessed if needed, either through sale or borrowing.

In practice, few would choose to implement everything at once. But it helps quantify what’s possible without compromising their lifestyle.

The Potential IHT Impact:

Gifts and trust: £625,000 removed from the estate after seven years, saving £250,000+ in IHT; also reinstates the full Residence Nil-Rate Band (£100,000 immediate saving)
Business Relief: Assuming 15 years of contributions, this could save an additional £130,000 (13 years exempt investments of £25,000 a year)
Whole of Life cover: Provides a £300,000 tax-free payout on second death to cover any residual liability

Taken together, this plan could eliminate the bulk of the projected IHT bill—without jeopardising James and Kate’s long-term financial security.

Discussion Starter

It’s worth emphasising that cash flow modelling is the beginning of estate planning conversations, not the conclusion.

Understanding your capacity to fund IHT mitigation is necessary but not sufficient. You still need to consider:

Which IHT planning strategies align with your circumstances and objectives (we’ll explore the main options—gifts, BR, trusts, whole of life cover—in detail in coming weeks)
Your attitude to control vs efficiency (some strategies are more IHT-efficient but cede more control)
Family dynamics and relationships
Broader estate planning beyond IHT (asset protection, providing for vulnerable beneficiaries, charitable objectives)
Your own comfort with different risk profiles

By starting with robust cashflow analysis, we ensure these conversations are grounded in financial clarity—not vague guesswork or generic rules of thumb. From there, we can explore estate planning strategies tailored to your preferences, objectives, and family dynamics.

If you’d like to explore how cash flow modelling might inform your estate planning decisions, get in touch. We can discuss your specific circumstances and whether this approach would add value to your planning.

Happy Thursday!

Kind regards,
George

George Taylor, CFA

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Regulatory Information

Blincoe Financial Planning Limited is an appointed representative of Sense Network Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales (No. 14569306). Registered Office: Star Lodge, Montpellier Drive, Cheltenham, GL50 1TY.

Important Disclaimer

This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.

Using Cashflow Modelling To Plan for Inheritance Tax, Without Running Out