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How To Reduce Inheritance Tax

If you are looking to reduce the amount of inheritance tax you pay then there are some things that you can do to legitimately reduce it.

someone planning to legally reduce inheritance tax

If you are looking to reduce the amount of inheritance tax you pay then there are some things that you can do to legitimately reduce it. Of course, inheritance tax cannot be avoided altogether as it will apply to every estate however you can ensure you are taking advantage of all the reliefs and exemptions that are available to you.


Gifting provides you with the scope to reduce inheritance tax by reducing the value of your estate. While there are small gift exemptions of £3000 per year, if you choose to give a larger gift, there will be no tax to pay initially but if you pass away within 7 years of making the gift then there will be tax consequences.

Remain within the Exemptions

You are exempt from inheritance tax if your estate is valued at £325,000 or less. Should you own property a residence nil rate band of £175,000 is available if the property is left to children or grandchildren. What this means is that a couple who are married and who are leaving a property to their children will have the potential to have inheritance tax threshold of up to £1 million.

Create a Will

If you create a Will then you will have the potential to maximise any inheritance tax relief while also ensuring that your estate passes to the right people. If you fail to put a Will in place then your estate will be left to intestacy laws which might not use all the reliefs you are entitled to.

Get Married

There are several benefits available when you get married or enter into a civil partnership. Upon death, all assets passing to the survivor will be free of inheritance tax. When the second partner dies, both allowances can be used against the estate meaning that up to £1 million can be left free of inheritance tax.

Life Assurance

If a whole of life policy is taken out and written in trust, this would usually pay out the sum outside of your estate which means that it won’t be susceptible to inheritance tax. Furthermore, it is also possible to use the policy to settle any inheritance tax bills. Planning this way could help to ease the financial burden on family members and beneficiaries. If the policy isn’t written in trust it could form part of your taxable estate and 40% of it could have to be paid in tax.

Make Use of a Pension

A pension is a useful way of saving money and it benefits from tax relief as well as employer’s contributions. These assets grow outside of the estate and can be accessed from 55 years of age. If you pass away before the age of 75 then the pension pot is passed to your family and beneficiaries without being hit by inheritance tax if it is withdrawn within two years. If you pass away after the age of 75, any withdrawals are taxed at the marginal income tax rate.

Use Trusts

Trusts can be utilised to hold assets making it possible to provide for loved ones in the future. The value of the estate can be mitigated if all assets are gifted into the trust. When creating a trust, the tax implications depend on the type of trust and the assets held within it. While they are valuable tax planning tools the rules are strict, and you must ensure you obtain comprehensive advice from a tax and trust specialist.

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