Smart Ways to Minimise Inheritance Tax (IHT): A Simple Guide
Passing on your wealth shouldn’t mean losing a large share to Inheritance Tax. Here’s how you can legally reduce your family’s tax bill and make sure more of your estate goes to your loved ones:
1. Make the Most of Your Tax-Free Allowance
Every individual can leave up to £325,000 (the nil-rate band) tax-free. Anything above this is usually taxed at 40%. If you’re married or in a civil partnership, any unused allowance passes to your partner, potentially doubling your tax-free threshold.
2. Use the Main Residence Allowance
If you leave your home to children or grandchildren, you can benefit from an extra allowance (currently £175,000). Combined with the standard nil-rate band, couples may be able to pass on up to £1 million tax-free.
3. Gift Regularly from Your Income
Gifts made regularly from your income (such as birthday presents or financial support) are usually exempt from IHT, as long as they don’t affect your standard of living.
4. Make Larger Gifts Early
Gifts above the small gifts allowance may still be exempt if you live for seven years after making them—this is known as the “seven-year rule”.
5. Consider Trusts
Putting assets in trust can remove them from your estate, reducing the value subject to IHT, though rules can be complex.
6. Leave Money to Charity
Leaving at least 10% of your estate to charity can reduce the IHT rate on the rest of your estate from 40% to 36%.
Review your assets and consider a plan that uses allowances, gifts, trusts, or charitable donations. Getting advice can help ensure your estate is passed on tax-efficiently and in line with your wishes.
