Inheritance Tax Advice: 5 top tips every family should know

Inheritance Tax (IHT) is one of the most controversial taxes in the UK. Many families are shocked to discover just how much of their wealth could end up going to HMRC rather than their loved ones.

We often speak to families who have worked hard, saved diligently, and built up assets over decades only to find that their estate could be hit with a 40% tax bill when they pass away. The good news is there are plenty of ways to plan ahead, reduce that bill, and make sure more of your wealth stays in the family.

Here are my five top tips as an inheritance tax specialist.

1. Understand your nil-rate band and residence nil-rate band

Every individual has a nil-rate band of £325,000. This is the amount you can leave tax-free. If you are married or in a civil partnership, you can transfer any unused nil-rate band to your partner, doubling the allowance to £650,000.

On top of this, there is the residence nil-rate band (RNRB), currently £175,000 per person, which can apply if you leave your main residence to direct descendants (children, grandchildren). Combined, this means a couple could potentially pass on £1 million free of IHT but only if the estate qualifies.

Planning to maximise these allowances is crucial, particularly if your estate is close to the £2 million taper threshold where RNRB starts to reduce.

Key updates:

• These thresholds are frozen until at least 2030, meaning inflation could push more estates above the tax-free limits.

• The RNRB tapers away for estates valued over £2 million. Planning to maximise these allowances remains crucial.

2. Make use of lifetime gifting

Giving assets away during your lifetime is one of the simplest ways to reduce IHT exposure.

• Each tax year, you can give up to £3,000 per person free of IHT (annual exemption)

• You can also make small gifts of up to £250 per recipient per year and gifts for weddings (up to £5,000 for a child)

• Larger gifts may be exempt if you survive seven years after making them (Potentially Exempt Transfers)

Tip: Start early. The earlier you gift, the less risk of a high IHT bill later.

3. Consider regular gifts out of surplus income

Many people are unaware of this powerful exemption. If you have surplus income (not capital) and make regular gifts that don’t affect your standard of living, those gifts can be immediately outside your estate for IHT purposes.

This is particularly valuable for grandparents helping with school fees or supporting family with the cost of living. The key is to document the pattern of giving carefully, as HMRC may ask for evidence.

4. Use trusts wisely

Trusts remain a powerful tool for controlling when and how assets are passed on while potentially reducing IHT exposure.

For example:

• Placing life insurance in trust ensures the payout is outside your estate.

• Discretionary trusts allow assets to be passed on while maintaining flexibility over beneficiaries.

Key updates:

• With the new 2025 residence-based IHT regime, trusts must be reviewed, especially for cross-border or long-term UK residents.

• The allocation of business and agricultural relief within trusts will follow a chronological order for transfers after 30 October 2024.

Professional advice is essential to avoid unexpected tax consequences and to structure trusts correctly under the new rules.

5. Don’t forget about business relief and agricultural relief

If you own a trading business or certain types of farmland, you may qualify for Business Relief (BPR) or Agricultural Relief (APR), which can reduce the taxable value by up to 100%.

Important changes:

• From April 2026, 100% relief will be capped at £1 million per individual, with any value above that eligible for only 50% relief.

• Estates with significant business or farming assets should review their structures now to make the most of available relief before the cap applies.

Looking ahead: what families need to watch

• From April 2027, unused pensions and certain pension death benefits may be included in the estate for IHT purposes

• Non-UK residents and cross-border estates will be affected by the new residence-based IHT rules, potentially including worldwide assets if long-term UK residents

• Inflation and frozen thresholds mean more estates will face IHT even if asset growth seems modest