Inheritance Tax (IHT) in the UK is charged at 40% on estates above the available allowances. With good planning, you can often reduce or even avoid unnecessary tax, but the key is to act early and within the rules.
No one likes to think about inheritance tax, but for many families, it’s one of the biggest financial risks they face. Property prices, pensions, and investments can quickly push estates above the £325,000 nil-rate band (or £500,000 if you qualify for the residence allowance).
The good news? There are clear, legal ways to minimise the impact.
1. Use your allowances
Each year you can give away up to £3,000 without it counting towards IHT. Small gifts of £250 per person also fall outside the rules. These seem minor, but over time they add up.
2. Make larger gifts early
Gifts beyond the allowances are “potentially exempt transfers.” If you survive seven years, they fall outside your estate. Leaving these gifts until later in life increases the risk that they’ll still be caught by IHT.
3. Consider trusts carefully
Trusts can help manage succession, but they aren’t always the tax savers people expect. Done badly, they add complexity and charges. Done well, they can protect vulnerable beneficiaries or hold life insurance outside the estate.
4. Use pensions strategically
Pensions have been a powerful IHT planning tool, and even after 2027 (when they fall into scope), they will often remain more efficient than ISAs or property. Reviewing your drawdown strategy can make a big difference.
5. Business and agricultural relief
For families with trading businesses or farmland, certain assets may qualify for 100% IHT relief. But the rules are strict, and it’s important to review eligibility regularly.
6. Keep your will up to date
Outdated wills are one of the simplest and most costly mistakes. A will that reflects your current wishes, beneficiaries, and tax rules is one of the most powerful IHT tools you have.
Bringing it together
Minimising IHT isn’t about finding loopholes or clever tricks. It’s about understanding the rules, planning early, and making sure your wealth is structured in line with your goals.
The real aim isn’t just to pay less tax — it’s to make sure more of your wealth goes to the people and causes you care about.
Nic Round is a Chartered Financial Planner and Chartered Wealth Manager, authorised and regulated by the Financial Conduct Authority.