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.

2. Make use of lifetime gifting

One of the simplest ways to reduce your IHT bill is to start giving assets away during your lifetime.

You can give away up to £3,000 per tax year free of IHT under the annual exemption. You can also make unlimited small gifts of up to £250 per person per year, and there are exemptions for wedding gifts (up to £5,000 for a child).

Larger gifts can also be exempt if you survive for seven years after making them (these are called Potentially Exempt Transfers). This is why we often encourage clients to start planning early rather than leaving it too late.

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 can be an effective way to control how and when assets are passed on while reducing IHT exposure.

For example, you might place life insurance policies in trust so that the payout does not form part of your taxable estate. Or you might use a discretionary trust to pass on assets while keeping flexibility over who benefits.

Trusts can be complex, and there are entry charges and reporting requirements to consider. Professional advice is essential here to avoid unexpected tax consequences.

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 or Agricultural Relief, which can reduce the taxable value of those assets by up to 100%.

We often see families miss out on these reliefs because the business structure isn’t quite right, or because too much of the company’s value is tied up in investments rather than trading activities. Getting a professional review can make the difference between a huge tax bill and no IHT at all on the business.

Inheritance tax doesn’t have to be a huge burden

Inheritance Tax doesn’t have to be a 40% raid on your life’s work. With careful planning and often some relatively straightforward steps, you can make a significant difference to what your family receives.

At A4G, we work with families to create practical, tailored plans to minimise IHT, make use of allowances, and give peace of mind that everything is in order.

If you’re worried about inheritance tax or simply want to check you’re on track, we’d be happy to sit down with you and review your situation.

Book a free inheritance tax consultation today and start planning to keep more of your wealth in the family. Email enquiries@a4g-llp.co.uk, call 01474 853 856 or fill in the contact form here.