How Can You Reduce Inheritance Tax?

This article is for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change in future. Estate planning, trusts and inheritance tax planning can involve matters that fall outside FCA regulation. If you are considering making gifts, placing assets into trust or changing ownership of property, it is important to take professional advice based on your own circumstances before making any decisions.

When people ask how they can avoid inheritance tax, what they are usually asking is whether there are lawful ways to reduce the tax due on their estate.

In many cases, there are. Complete avoidance is not always realistic, but inheritance tax can often be reduced through early planning, sensible use of allowances and careful structuring of assets. In practice, the biggest mistake is leaving it too late.

Start with the thresholds

Before looking at solutions, it helps to understand whether inheritance tax is likely to apply at all.



Most estates have a standard nil-rate band of £325,000. If a qualifying home is left to direct descendants, an additional residence nil-rate band of £175,000 may also apply. Married couples and civil partners can usually transfer unused allowances between them, which means some families may be able to pass on up to £1 million before inheritance tax becomes payable, depending on the estate structure and available reliefs.

HMRC’s guidance on Inheritance Tax thresholds explains the current allowances and when tapering may reduce the residence nil-rate band for larger estates.

For many families, the issue is not one unusually valuable asset. It is the combined value of the home, savings and investments.

Gifts are often the simplest starting point

For many people, gifting is one of the more practical ways to reduce the value of an estate for inheritance tax purposes.

Gifts that can be exempt straight away

Some gifts fall outside the estate immediately because they use one of HMRC’s exemptions. These include:

• up to £3,000 each tax year through the annual exemption
• gifts of up to £250 per person
• certain wedding or civil partnership gifts
• regular gifts made from surplus income

Regular gifts from surplus income can be particularly useful where there is more income than is needed for day-to-day spending. However, HMRC expects them to form part of a regular pattern and not reduce your standard of living.

The seven-year rule

Some larger gifts may fall outside the estate if the relevant conditions are met and you survive for seven years after making them.

If you die within seven years, some or all of the gift may still be counted. HMRC’s rules on Inheritance Tax gifts and the seven-year rule explain how this works and when taper relief may reduce the tax due.

Gifting usually works best where it is affordable, properly documented and reviewed alongside the rest of the estate. It is rarely wise to give away assets that you may still need later.

Why some gifts do not work in practice

A common mistake is giving something away while continuing to benefit from it.

For example, someone may transfer ownership of a home but continue living there rent-free. In those situations, HMRC may still treat the asset as part of the estate under the rules for gifts with reservation of benefit.

In general, a gift is more likely to reduce inheritance tax where ownership and control genuinely pass to someone else, and you no longer benefit from the asset.

Trusts may help, but they are not automatic answers

Trusts are often discussed in inheritance tax planning, but they are not always the right solution.

A trust may help move assets outside the estate, control how wealth is passed on or protect certain beneficiaries. They can be useful where there are specific family, control or protection goals.

At the same time, trusts have their own tax rules, costs and administration. Used well, they can be effective. Used without a clear purpose, they can simply add complexity.

Our guide on how to mitigate inheritance tax with a trust explains when a trust may help and where it may be less suitable.

Pensions may still matter

Pensions have often formed part of inheritance tax planning because they may sit outside the estate, depending on the pension type and the rules in force.

That said, this is an area that should be reviewed carefully. MoneyHelper explains that pension money may be included in inheritance tax calculations from April 2027, depending on the circumstances involved. These changes may still depend on future legislation, so older assumptions may no longer be reliable. See MoneyHelper’s guide to pensions after death.

Business and agricultural relief can be significant

Some qualifying business and agricultural assets may attract substantial inheritance tax relief.

For some families, these reliefs can reduce the taxable value of certain assets by 50% or even 100%. However, the rules are technical and depend on the type of asset, the ownership history and how the asset is used.

That is why relief should usually be confirmed before it is relied on.

Life insurance may help with the bill

Life insurance written in trust does not usually reduce inheritance tax itself, but it may help the family pay the bill without selling property or investments quickly.

For some families, that can be just as important as reducing the tax itself.



Where broader planning comes in

Inheritance tax planning rarely sits on its own. It often overlaps with retirement income, pensions, property ownership and how wealth is passed on over time.

That is why our estate and lifestyle planning service looks at inheritance tax as part of a wider financial picture. We review gifting, trusts, pensions and the structure of the estate together rather than in isolation.

You can find out more about our estate and lifestyle planning service and how inheritance tax may fit within a broader financial plan.

Before making changes, ask these questions

Before giving away assets or changing ownership, it is worth asking:

1. Do I still need this money or assets myself?
2. Will the gift genuinely leave my estate?
3. Could the gift affect my own financial security?
4. Are there simpler exemptions or allowances I have not yet used?
5. Have I reviewed whether pensions, trusts or reliefs may be more suitable?



In summary

If you are wondering how you can avoid inheritance tax, the answer is usually that you reduce it gradually rather than remove it completely in one step.

For many families, the aim is not total avoidance, but a more efficient structure and a lower eventual inheritance tax bill. That often means combining gifting, exemptions, trust planning where appropriate and regular review of the estate over time.

If you would like to discuss how inheritance tax planning may fit into your wider financial position, you can contact our team to discuss the next steps.

The Financial Conduct Authority does not regulate estate planning, trusts or most forms of tax advice. Financial promotions should be clear, fair and not misleading, and tax treatment depends on individual circumstances and may change in future.