Inheritance Tax (IHT) can significantly impact the wealth you leave behind. With careful planning, however, it's possible to reduce or even eliminate your IHT liability. In this guide, we’ll explore what inheritance tax is, current thresholds, and proven strategies to protect your estate.
What is Inheritance Tax?
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. It’s charged at 40% on the value of the estate above certain thresholds, unless exemptions apply.
Current Thresholds
As of 2025, the standard nil-rate band is £325,000 per individual. An additional £175,000 residence nil-rate band may apply if you leave your home to direct descendants. This means a couple could potentially pass on up to £1 million tax-free.
Common Strategies to Reduce IHT
1. Gifting
You can give away assets during your lifetime. Gifts made more than seven years before death are usually exempt. There are also annual exemptions, such as £3,000 per year and small gifts of up to £250 per person.
2. Trusts
Trusts can help you control how your assets are used and reduce IHT liability. They’re especially useful for protecting assets for children or vulnerable beneficiaries.
3. Charitable Donations
Leaving at least 10% of your estate to charity can reduce the IHT rate from 40% to 36%. Charitable gifts are also exempt from IHT entirely.
4. Business Property Relief
If you own a business or shares in a qualifying company, you may be able to pass these on free of IHT. Relief of up to 100% is available, subject to conditions.
Who Should Consider Planning?
Anyone with an estate approaching or exceeding the £325,000 threshold should consider IHT planning. This includes homeowners, business owners, and those with significant savings or investments.
Real-World Example
Jane, a 68-year-old retired business owner, had an estate worth £1.2 million. By setting up a discretionary trust for her grandchildren, making lifetime gifts, and leaving 10% to charity, she reduced her IHT liability by over £100,000 — ensuring more of her wealth went to her family.
How Rite Wealth Can Help
At Rite Wealth, we specialise in estate planning strategies tailored to your goals. Our advisers can help you assess your current position, explore tax-efficient options, and implement a plan that protects your legacy.
Take the Next Step
If you're concerned about inheritance tax or want to ensure your estate is passed on efficiently, contact Rite Wealth today for a personalised consultation.
This article is for information only. It is not financial advice or a personal recommendation, and it does not take account of your circumstances. Any recommendation would follow a full assessment.
Tax treatment depends on individual circumstances and may change in future. The Financial Conduct Authority does not regulate will writing or some forms of estate planning and tax advice.