Inheritance Tax is charged at 40% on whatever your estate exceeds its available allowances, and almost every reduction available comes from decisions taken during your lifetime rather than after it. Nothing below involves a scheme; each is a long established part of the legislation.
Start with the allowances you already have
The Nil Rate Band is £325,000 and the Residence Nil Rate Band adds up to £175,000 where a main home passes to children or grandchildren. Anything left to a spouse or civil partner is exempt, and unused allowances transfer to the survivor. Our guide to the Inheritance Tax threshold sets out how those figures interact.
Use the exemptions that reset each year
You can give away £3,000 each tax year with no Inheritance Tax consequence, and carry forward one unused year. Small gifts of up to £250 per person, wedding gifts and gifts between spouses sit outside the calculation entirely. These are modest sums individually and meaningful over a decade.
Gifts from surplus income
Regular gifts made out of income rather than capital leave your estate immediately, provided they are habitual and do not reduce your standard of living. Paying a grandchild's school fees or making a standing order to an adult child can qualify. The exemption depends on records, so keep a note of the income the gifts come from.
Larger gifts and the seven year rule
A substantial gift falls outside your estate once seven years have passed. Between three and seven years, taper relief reduces the tax due on the gift itself. Gifting works best when it is started early and when you are certain you will not need the capital back, because you cannot reverse it.
Trusts
A Trust allows you to move value out of your estate while keeping control over how it is eventually used. Up to £325,000 can be settled every seven years without an immediate charge, and assets held in Trust are also protected from a beneficiary's divorce, creditors and future care costs. That combination is why Trusts sit at the centre of most bloodline planning.
Write life policies in Trust
A life policy paid into your estate inflates it and can be taxed at 40%. The same policy written in Trust pays out to your family directly, usually within weeks and free of Inheritance Tax. It is one of the few changes that costs nothing and is frequently overlooked.
Pensions
Pensions have historically sat outside the estate and remain one of the more efficient places to hold wealth, though the rules are changing from April 2027. Which assets you spend first and which you leave untouched is a planning decision, not an administrative one.
Business and agricultural assets
Business Property Relief and Agricultural Property Relief can remove qualifying trading businesses, farms and certain unquoted shares from the charge after two years of ownership. The reliefs are valuable and conditional, so they need reviewing when a business changes shape or is sold.
Charitable giving
Gifts to charity are exempt, and where you leave at least 10% of your net estate to charity the rate on the remainder falls from 40% to 36%.
The order matters more than the list
Reliefs and gifts interact, and using one badly can cost another. Selling a family home, making a large gift shortly before care is needed, or drafting a Will that hands everything outright can each undo the rest. Inheritance Tax planning works when the sequence is deliberate and reviewed as circumstances change.
If you would like to know what your estate would pay today and which of these would make the most difference, we can put the numbers in front of you and explain what we would recommend.
