Inheritance Tax (IHT) is one of the biggest considerations for anyone looking to protect their wealth and pass it on to future generations. With new reforms on the horizon in 2026 and the possibility of further changes after that, now is the perfect time to review your finances and make sure your estate is structured in the most tax-efficient way.
Why it pays to organise your finances
Taking the time to understand your estate – including your property, investments, savings and other assets gives you far more control over your financial future. It helps you:
Prepare for changes in your personal circumstances
Navigate shifts in the economy
Respond to new rules and tax reforms
Recent Government decisions, led by Chancellor Rachel Reeves, have already brought attention back to IHT. Measures such as freezing the nil-rate band, including some pensions within the estate value, and altering Business and Agricultural Property Relief have set the tone for future fiscal planning.
With the 2025 Autumn Budget due on 26 November, more adjustments to IHT are possible.
When does Inheritance Tax apply?
In the UK, IHT becomes payable when your estate is valued above the £325,000 nil-rate band. Anything above this threshold may be taxed at 40%.
There is also an additional allowance to be aware of:
Residence Nil-Rate Band (RNRB)
If you pass on a home you owned to direct descendants — such as children or grandchildren — you may qualify for the £175,000 RNRB.
Combined with the standard nil-rate band, this means some estates can pass on up to £500,000 tax-free.
How to reduce your IHT liability
Lowering your IHT exposure is completely possible with good planning. Here are the most common and effective options:
1. Gifting assets
Gifting is one of the simplest ways to reduce the overall value of your estate.
You can gift up to £3,000 per tax year, tax-free.
If unused, this allowance can be carried into the following year.
You can also give £250 per person per year, separate from your £3,000 allowance.
You can make regular gifts from your income, as long as your lifestyle is not affected.
Donations to charity are not subject to IHT.
2. The seven-year rule
Some gifts only become fully exempt from IHT if you live for seven years after giving them.
If you pass away within this period, the gift may be added back into your estate and taxed although taper relief can reduce the amount owed.
Taper Relief Rates:
| Years between gift and death | Rate charged |
|---|---|
| 0–3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% |
The longer you live after making the gift, the lower the potential tax charge.
3. Using trusts
Trusts are a popular way to protect assets for future beneficiaries while also reducing the size of your estate.
By placing assets into a trust, they are generally no longer considered part of your estate for IHT purposes. You’ll need to:
Choose trustees to manage the assets
Select the right type of trust (e.g., bare trust, discretionary trust)
Understand the fees and tax rules that apply
Because trusts can be complex, professional guidance is strongly recommended.
Why expert advice makes a difference
Understanding your IHT position isn’t just about tax, it’s about protecting your wealth, safeguarding your legacy, and giving your family clarity and peace of mind.
Professional advisers can help you:
Build a clear picture of your estate
Stay ahead of tax reforms
Create a structured and efficient plan for passing on wealth