Inheritance Tax & Succession Planning – Top 5 ways to reduce Inheritance Tax

We all know you can’t live forever – but you can help your loved ones inherit as much of your wealth as possible.  With advance estate and succession planning you can preserve your wealth for the benefit of the next generation.  Here are five ways to reduce a potential Inheritance Tax liability:

  1. Make a Will

A valid Will is a vital tool in estate planning.  Having an appropriate Will in place makes sure that your assets are distributed in accordance with your wishes.  Without a Will, your assets will be distributed according to the Intestacy Rules and may be liable to Inheritance Tax that could otherwise be avoided.  It is imperative to have a Will in place if you are concerned about who will inherit your assets but also to mitigate your potential Inheritance Tax bill.


  1. Gifting Assets

Any gift you give seven or more years prior to your death is exempt from Inheritance Tax. However, you must be able to demonstrate that these are outright gifts. If you were continuing to receive rental income from a ‘gifted property’ for example, this would be considered a ‘gift with reservation of benefit’ and would not be considered an outright gift.  The same would apply if you were to gift your residential home yet continued to live there.

The seven-year rule does not apply to smaller gifts.  You can make gifts up to £3,000 per tax year, free of Inheritance Tax.  This allowance can also be carried over to the following year if it has not been used in the previous year.  Between spouses, you can carry over a total of £12,000.

Gifting assets can be useful in steadily reducing the size of your estate and accordingly reducing your potential Inheritance Tax liability.


  1. Putting Assets into Trusts

Trusts can be useful estate planning tools and enable you to set money aside for the benefit of specific beneficiaries at a certain time.

If you put cash, investments and/or property into a trust (which you, your spouse or your minor children cannot benefit from), they’re no longer part of your estate for Inheritance Tax purposes.  For example, you can set up a trust for your adult children to pay for your grandchildren’s education.


  1. Life Insurance

You may be able to cover your Inheritance Tax liability by taking out a life insurance policy.  By placing the policy into a trust, it remains outside of your estate for Inheritance Tax purposes and will be paid outside of your estate to enable you to discharge the Inheritance Tax bill.


  1. Leave Something to Charity

Anything given to charity is exempt from Inheritance Tax.  Leaving at least 10% of your residuary estate to charities can also reduce the amount of Inheritance Tax you pay.

The rate at which Inheritance Tax is calculated is 36% rather than the standard rate of 40%.  Although this might not result in a huge saving, it can mean that your family and friends will receive more than they would otherwise, while your favourite charities also benefit.


Without effective succession and estate planning, it is possible for you to leave far less of your estate to your family than you had originally intended.  It is always important to seek advice so that you ensure that your assets are distributed in accordance with your wishes whilst also establishing ways to mitigate any potential Inheritance Tax.