Inheritance tax advice

In recent years, inheritance tax (IHT) receipts have been rising steadily, hitting a record high of £8.2 billion in 2024-25. Because the Nil-rate band and residence nil-rate band have been frozen while property and asset values have increased, more estates are now tipping over the tax-free thresholds.

This growth in receipts could have been lower if more families had put a plan in place and taken advice. Without planning, many estates are exposed to larger IHT bills than expected, which may mean beneficiaries end up paying more tax and receiving less than they thought.

It is often thought that inheritance tax only affects very wealthy families, but that’s increasingly not the case: rising property prices, increasing share values, and frozen thresholds are bringing more ordinary households into the IHT net.

What is inheritance tax?

Inheritance is a tax on your wealth that is paid on your death. It can also apply to some gifts that are made during your lifetime.

In order to ensure as much of your wealth is passed on as possible, it’s important to think about IHT planning. Spending, making personal gifts during your lifetime and understanding the allowances can all help, however if your estate is complicated, you may benefit from engaging a financial adviser.

Research indicates that over 30% of people only start to consider IHT planning after they reach the age of 55. Regardless of where you live, your estate may be liable to UK IHT on your UK assets and may even extend to assets you own overseas. 

A large number of families delay inheritance tax advice conversations until it is too late to make a difference. 

What is estate planning?

Estate planning is the process of arranging what happens to your money, property, and possessions after you pass away or if you become unable to manage them yourself. It ensures that your wishes are followed, your loved ones are provided for, and your affairs are handled as smoothly as possible.

At its core, estate planning involves creating a will, which outlines who should inherit your assets. But it can also include setting up trusts, appointing guardians for children, choosing someone to make financial or medical decisions on your behalf if you're unable to, and making plans to reduce taxes or legal complications for your heirs.

Good estate planning helps protect your legacy and gives you peace of mind, knowing everything is in place for the future. Whether your estate is large or small, having a clear plan can save your family time, stress, and unnecessary costs during a difficult time.

How to reduce an inheritance tax bill

There are several legitimate ways to reduce an IHT bill, often through careful planning and understanding how thresholds, exemptions and reliefs work. 

Our financial advisers will ensure you are managing your inheritance tax bill as efficiently as possible. This is achieved through a number of different ways, including:

• Spending
• Making personal gifts during your lifetime
• Understanding the allowances available to you

There are other strategies and reliefs available which can be used to mitigate an inheritance tax liability on your estate, including life insurance, equity release*, and charitable giving, among others. 

Some others may require you to own a specific type of asset and/or have a higher risk approach to investment as well as capacity to withstand losses. Examples include investing in assets which qualify for: 

• Business Relief
• Agricultural Relief
• Woodland Relief
• Acceptance in Lieu

Please note that business relief is a high‑risk investment and you are unlikely to be protected if something goes wrong. Don’t invest unless you’re prepared to lose all the money you invest. 

If you would like to know more about how we can help you with IHT planning, you can speak to an adviser for more information.

Arrange your free initial consultation

What is the inheritance tax threshold? 

Everyone has a £325,000 inheritance tax nil-rate band (NRB). If you are married or in a civil partnership, you and your spouse have a combined nil-rate band of £650,000. 

From April 2017, an additional main residence nil-rate band was introduced. For the 2025/26 tax year, the residence nil-rate band (RNRB) allowance remains at £175,000. To qualify, the individual’s main residence must be passed down to a direct lineal descendant.

If an estate is valued above £2 million, the residence nil-rate band is reduced by £1 for every £2 over that amount. This taper means an individual’s full allowance of £175,000 is lost once the estates value reaches £2.35 million, while for a couple with both allowances available, the combined £350,000 is removed entirely once the estate exceeds £2.7 million.

The thresholds for the NRB and RNRB are fixed at £325,000 and £175,000 respectively until April 2030.

How much inheritance is tax free?

How to calculate inheritance tax and estate value

Calculating IHT begins with working out the total value of your estate, which includes all your assets such as property, savings, investments, possessions, and any gifts made in the last seven years. From this, any debts or liabilities are deducted to arrive at the net estate value. Any amount over the NRB or RNRB is usually taxed at 40%, unless specific exemptions or reliefs apply. 

However, calculating IHT can be complex due to several factors. These include lifetime gifting rules, available exemptions (such as those for spouses or charities), the use of trusts, and regularly changing tax legislation. Without careful planning, it’s easy to overlook valuable reliefs or trigger unnecessary tax charges. 

To help you visualise these numbers, we've put together an inheritance tax calculator:

Avoiding inheritance tax on your estate through gifting

Avoiding inheritance tax on your estate through gifting involves understanding the rules. Knowing these key figures can help you quickly assess whether your gifts may be exempt from IHT and potentially prevent an unnecessary tax bill later on.

	Annual gifting exemption You can give away a total of £3,000 worth of gifts each tax year, known as your ‘annual exemption’. It can be gifted to one person or split between several people. If you didn’t use the exemption in the previous tax year, you can carry it forward for one year and combine it with the exemption for the current tax year and gift up to £6,000.
	Small gifts You can give as many small gifts of up to £250 per person as you like each tax year – just make sure you haven’t used another allowance (like the annual gifting allowance mentioned above) for the same person.
	Wedding gifts You can give a tax-free gift to someone who’s getting married or entering a civil partnership. The limits are £5,000 to a child £2,500 to a grandchild/ great grandchild £1,000 to anyone else. If you’re gifting to the same person, you can combine this wedding gift allowance with your annual exemption, but not with the small gift allowance. For example, you could give your child £5,000 as a wedding gift and an additional £3,000 using your annual exemption, all in the same tax year.
	Gifts to charities and political parties Gifts to registered charities and political parties are exempt from inheritance tax.
	Gifts from income You can make regular gifts from your surplus income as long as they don't affect your normal standard of living. Any gifts must form part of your normal expenditure, meaning that there must be an observable, regular pattern, should HMRC decide to audit any records. Examples of a gift out of regular income might include covering your child’s rent, or paying into a savings account for a child under 18. You can combine this exemption with other allowances (like your annual exemption) when giving to the same person - just not with the small gift allowance. For instance, you could pay your son’s monthly rent from surplus income while also giving him a one-off £3,000 gift using your annual exemption.
	Lifetime gifts Potentially Exempt Transfers (PETs) and gifts into Trust: Both are lifetime gifts for inheritance tax purposes and will be affected by the seven-year rule.

The seven-year rule in inheritance tax refers to how gifts are treated for tax purposes after your death, should you die before or after seven years following the gift. If you die within seven years of making the gift, it may be subject to IHT, depending on the amount given and who received it. In some cases, taper relief may reduce the amount of tax payable if the gift was made more than three but less than seven years before death. If you survive seven years from the date the gift was given, in many cases the gift will be free of IHT, regardless of the value.

Other things to note about gifting:

• Gifts between spouses are free of inheritance tax.
• Gifts to help with family maintenance: You can make gifts to help relatives with their living costs if they are financially dependent such as a child under age 18 or in full time education, an elderly family member who needs financial assistance or even a former spouse.

Arrange your free initial consultation

The Financial Conduct Authority does not regulate Estate Planning, Will Writing, Tax Advice or Trusts. 

If you would like to know more about how we can help you with IHT planning speak to an adviser for more information.

*This is a lifetime mortgage (home reversion scheme). To understand the features and risks, ask for a personalised illustration.

Inheritance Tax FAQs