Inheritance tax is charged at 40% on the value of an estate above the available nil-rate bands, and with property values having risen substantially over recent decades, more estates than ever are affected. There are, however, a number of long-established, entirely legal ways to reduce a potential inheritance tax bill.

Understand your nil-rate bands

Every individual has a standard nil-rate band of £325,000, below which no inheritance tax is due. If you own a home and leave it to direct descendants, you may also qualify for the residence nil-rate band of £175,000 (as long as your joint estate value is below £2,000,000), taking your total tax-free threshold to £500,000. Married couples and civil partners can typically pass any unused allowance to their surviving partner, potentially giving a combined threshold of up to £1 million. These thresholds are frozen until April 2031.

Use the spousal exemption

Transfers between spouses and civil partners are entirely exempt from inheritance tax, regardless of the amount, provided both partners are UK-domiciled. This is often the simplest and most valuable exemption available, though it only delays tax rather than removing it, since the full estate will eventually be assessed on the second death.

Make use of annual gifting allowances

Everyone can give away £3,000 each tax year free of inheritance tax, known as the annual exemption and this can be carried forward one year if unused giving you up to £6,000. Small gifts of up to £250 per person, wedding gifts of up to £5,000 depending on the relationship, and regular gifts made out of surplus income (rather than capital) that don’t affect your standard of living can also be given away immediately free of inheritance tax.

Consider larger gifts and the seven-year rule

Larger gifts, known as potentially exempt transfers, fall outside your estate entirely if you survive seven years from the date of the gift. If you die within that period, taper relief can reduce the tax due on gifts made more than three years before death (but not if the gift is within your nil rate band). This is a powerful tool for reducing an estate over time, but it means giving up access to the money or asset permanently.

Give to charity

Gifts to registered charities are entirely free of inheritance tax. Leaving at least 10% of your net estate to charity in your will also reduces the inheritance tax rate on the rest of the estate from 40% to 36%, which can make charitable giving considerably more efficient than it first appears.

Use trusts thoughtfully

Placing assets into certain types of trust can remove them from your estate, though the rules are complex, trusts have their own tax regime, and a seven-year clock generally applies in a similar way to direct gifts. Trusts can also be useful for controlling how and when beneficiaries receive money, not just for tax reasons.

Consider life insurance written in trust

Rather than reducing the tax bill itself, a life insurance policy written in trust can provide a lump sum to cover an expected inheritance tax liability, paid outside the estate and free of tax, so beneficiaries aren’t forced to sell property or investments quickly to settle the bill.

Check business and agricultural reliefs

Certain business assets and agricultural property may qualify for relief from inheritance tax. From April 2026, 100% relief is limited to the first £2.5 million of combined qualifying business and agricultural property, with only 50% relief available above that (an effective rate of 20% tax on the excess), and any unused allowance can be transferred between spouses or civil partners. This is a specialist area where professional advice is particularly worthwhile.

Get the plan reviewed

Inheritance tax planning sits at the intersection of your will, your pension, your investments, and your family circumstances, and the right combination of these approaches is different for everyone. A financial adviser or solicitor can help you build a plan that reduces tax exposure without compromising your own financial security.