The legitimate strategies available to reduce your family's inheritance tax bill — explained in plain English.
Inheritance tax is often described as voluntary — implying that with the right planning, it can be avoided entirely. That is an exaggeration. But it is true that there are several legitimate, well-established strategies that can significantly reduce the amount your family pays.
The key is understanding which strategies apply to your situation. Not every approach suits every family. Your age, health, attitude to risk, the size and shape of your estate, and whether you are married or in a civil partnership all affect which options are available and how effective they will be.
Here are the main strategies, from the simplest to the most advanced.
Every tax year, you can give away £3,000 completely free of inheritance tax. For a couple, that is £6,000. These gifts take effect immediately — there is no seven-year waiting period and no conditions to meet. You can also make small gifts of up to £250 per person to as many people as you like, and larger wedding gifts of up to £5,000 from a parent.
If you did not use last year's exemption, you can carry it forward for one year, meaning the first year's gift could be doubled to £6,000 per person or £12,000 for a couple.
This is the simplest starting point. The amounts may seem modest, but used consistently over many years, the cumulative effect is significant.
There is no upper limit on how much you can give away. The rule is that you must survive for seven years after making the gift. If you do, the money is completely outside your estate. If you die within seven years, the gift may be taxed — but at a reduced rate if you survived at least three years, thanks to taper relief.
The gift must be genuine and unconditional. You cannot continue to use or benefit from what you have given away. Before making a large gift, it is important to think carefully about whether you might need the money in the future — for care costs, home repairs, or simply day-to-day living. A financial adviser can help you work through the numbers.
If you earn or receive more income than you need for your normal standard of living, you can give the surplus away and it is immediately exempt from inheritance tax. There is no seven-year waiting period and no upper limit. The three conditions are that the gifts must form a regular pattern, they must come from income rather than capital, and you must maintain your normal standard of living after making them.
This is one of the most powerful exemptions available, particularly for people with generous pensions or investment income. Keeping good records is essential — HMRC will want to see that the gifts genuinely came from surplus income.
If you leave at least 10% of your estate (after deducting allowances) to charity in your will, the inheritance tax rate on everything else drops from 40% to 36%. The family loses surprisingly little — the tax saving partly pays for the charitable gift.
Every person has a tax-free allowance of £325,000 (the nil-rate band). If your home passes to direct descendants — children, stepchildren, or grandchildren — you get an additional £175,000 (the residence nil-rate band). Together, that is £500,000 per person or up to £1,000,000 for a married couple or civil partnership.
Many families do not receive the full allowance because their wills are not structured correctly, or because the estate exceeds £2 million and the residence nil-rate band is tapered away. Making sure both allowances are preserved is one of the most impactful steps you can take — and it costs nothing except a properly drafted will.
Worth knowing. If the estate is above £2 million, the residence nil-rate band is reduced by £1 for every £2 over the threshold. The effective tax rate in this zone is 60%, not 40%. Getting the estate below £2 million — through gifting, spending down pensions, leaving money to charity, or other strategies — can be one of the most valuable planning moves available.
Trusts allow you to move assets out of your estate while retaining some degree of control over how they are used. There are several types suited to inheritance tax planning, including loan trusts, discounted gift trusts, and discretionary trusts. Each works differently and suits different circumstances.
Trusts can be particularly useful for people who want to reduce their estate but are not comfortable making outright gifts. They do involve more complexity and usually require specialist advice to set up correctly.
A whole-of-life insurance policy written in trust can provide a lump sum on death that sits outside the estate. This does not reduce the inheritance tax itself, but it provides a fund specifically to pay the bill — meaning your family does not have to sell the home or cash in investments to cover the tax. The premiums are often eligible as gifts from surplus income, making them tax-free too.
Until April 2027, pensions generally sit outside the estate for inheritance tax purposes. However, the government has announced plans to bring unused pension funds into scope from that date. If this change proceeds as planned, it will significantly increase the tax bill for many families — particularly those who have been deliberately preserving their pension pots as a tax-efficient way to pass wealth on.
Reviewing how and when you take money from your pension, the order in which you spend different pots of money, and who receives your pension when you die is becoming increasingly important.
Important change ahead. From April 2027, unused pension funds may be included within your estate for inheritance tax purposes. This is one of the most significant changes in a generation and it affects anyone who expects to have money remaining in their pension when they die. The legislation is still being finalised, but planning ahead is advisable.
For many families, the family home is the largest single asset in the estate. How it is owned (jointly or separately), whether it qualifies for the residence nil-rate band, and how it passes through the will all affect the tax position. Downsizing to a smaller property, changing how the home is held in the title deeds, or releasing equity from the home can all play a role in reducing the estate — but they involve trade-offs that need careful thought.
It is worth saying plainly: money you spend during your lifetime is not part of your estate when you die. Holidays, home improvements, helping children onto the property ladder, enjoying your retirement — all of these reduce your estate. Inheritance tax planning does not have to mean sacrifice. For many people, the best strategy is simply to enjoy more of their wealth while they are alive.
The right combination of strategies depends entirely on your circumstances. Your age, health, estate size, family situation, and attitude to gifting and control all matter. Some strategies you can start today with no professional help. Others need a financial adviser, a solicitor, or both.
The first step is understanding where you stand. Our free calculator estimates your inheritance tax liability and shows you which strategies may apply to your specific situation — including how much each one could save.