Inheritance Tax continues to be a growing concern for many families across the UK. With thresholds frozen and property values rising, more estates are now being pulled into the tax net than ever before. Planning ahead can make a significant difference to how much of your wealth is passed on to the people you care about.
Understanding how Inheritance Tax works and the steps you can take to reduce it can help protect your legacy and ensure more of your assets go to your loved ones rather than the taxman.
Understanding the Current Inheritance Tax Thresholds
As of March 2026, the standard nil rate band remains at £325,000 per person. In addition, there is a residence nil rate band of £175,000 if you leave your main home to direct descendants such as children or grandchildren. This means an individual could potentially pass on up to £500,000 tax free. Married couples and civil partners can combine their allowances, allowing up to £1 million to be passed on without Inheritance Tax.
Any part of the estate above these thresholds is normally taxed at 40 percent. However, if at least 10 percent of the estate is left to charity, the tax rate can reduce to 36 percent.
These allowances have been frozen for many years and are now expected to remain unchanged until at least the 2030 to 2031 tax year. As property prices and savings increase, more families are finding their estates exceed the threshold.
Recent changes also affect Business Property Relief and Agricultural Property Relief. From April 2026, a combined allowance of £2.5 million per person will qualify for full relief, while any value above this receives 50 percent relief. For couples, unused allowances can be transferred, potentially allowing up to £5 million in relief.
How to reduce your Inheritance Tax liability
With careful planning, there are several legitimate ways to reduce your Inheritance Tax liability.
- Make Use of Annual Gift Allowances
One of the simplest ways to reduce the value of your estate is through gifting. Each person can give away up to £3,000 every year without it being added to their estate for Inheritance Tax purposes. If the allowance was not used in the previous year, it can be carried forward, allowing up to £6,000 to be gifted.
You can also give small gifts of up to £250 per person each year, and there are additional allowances for wedding or civil partnership gifts.
Over time, these gifts can reduce the overall value of your estate while allowing you to support family members when they may need it most.
- Consider Lifetime Gifting
Giving assets away during your lifetime can also reduce your estate. These are known as Potentially Exempt Transfers.
If you survive for seven years after making the gift, it is usually removed from your estate entirely for Inheritance Tax purposes. If death occurs between three and seven years after the gift, taper relief may reduce the amount of tax payable.
There is also an exemption for regular gifts made from surplus income. If the gifts do not affect your standard of living and are made consistently, they can be immediately exempt from Inheritance Tax.
- Transfers Between Spouses and Civil Partners
Assets passed to a spouse or civil partner are normally exempt from Inheritance Tax. This allows couples to pass wealth between them without triggering a tax charge.
Any unused tax allowances can also be transferred to the surviving partner. This means that when the second partner passes away, the estate may benefit from both allowances.
- Pension Planning and Inheritance Tax
Pensions can play an important role in estate planning. In many cases, pension funds sit outside your estate for Inheritance Tax purposes, which means they can be passed to beneficiaries in a tax efficient way.
Ensuring your pension nominations are up to date is an important step in protecting your wealth and making sure the funds go to the people you intend.
- Using Trusts for Estate Planning
Trusts can be a useful tool for managing and protecting family wealth. Placing assets into certain types of trust may remove them from your estate while still allowing some level of control over how the funds are distributed.
Trusts can involve entry charges, exit charges and periodic reviews, so it is important to seek professional advice before setting one up.
- Charitable Giving and Tax Efficiency
Leaving a portion of your estate to charity can reduce the overall rate of Inheritance Tax. If at least 10 percent of the net estate is donated, the tax rate on the remaining estate may fall from 40 percent to 36 percent.
For some families, this approach allows them to support causes they care about while also reducing the tax burden on their estate.
- Business and Agricultural Property Relief
Business owners and those with agricultural assets may benefit from specific tax reliefs. These can significantly reduce the taxable value of qualifying assets.
With the upcoming changes introducing a £2.5 million relief cap per person, careful planning is becoming even more important for business owners who want to pass assets on to the next generation.
- Life Insurance and Inheritance Tax
Another option is to use a life insurance policy written in trust. This can provide a payout to cover any Inheritance Tax bill without increasing the value of the estate itself.
It can help families avoid needing to sell assets quickly in order to pay tax liabilities.
The Importance of Professional Inheritance Tax Planning
Every family situation is different. Factors such as age, health, family structure and the type of assets you own can all influence the most effective strategy.
Working with a financial adviser can help you explore different scenarios and create a plan that protects your wealth while staying fully compliant with tax rules.
At Lazenby’s Financial Services, our independent advisers in Yorkshire specialise in inheritance and estate planning. We work closely with clients to review their circumstances, explore suitable strategies and help ensure their wealth is passed on as efficiently as possible.
If you are concerned about Inheritance Tax or want to understand your options, speaking to an adviser early can make a significant difference.
Important Information
As with all pensions, investments and tax planning, the value of assets can go down as well as up and tax rules may change in the future. This article is for information purposes only and does not constitute personal financial advice. Always seek independent financial advice before making financial decisions.
Our expert team is available for a free, no-obligation consultation to see how we can help you and your inheritance and estate planning.
