Inheritance Tax (IHT) can take a large slice of what you leave behind, but simple planning can often reduce or even remove the bill. This guide explains practical options in clear language so you can talk confidently with a professional adviser.

You will learn:

• When Inheritance Tax may be due in England and Wales

• The main allowances and thresholds that can reduce the bill

• Five common strategies families use to manage IHT

• Key risks, blind spots, and when to get regulated financial or legal advice

This is general information, not personalised tax advice, but it will help you ask better questions.

Table of contents

1. When Inheritance Tax applies

2. Key allowances and reliefs

3. Five ways to reduce a potential IHT bill

4. Risks, time limits, and record‑keeping

5. Review checks and when to get advice
   
   

1. When Inheritance Tax applies

In the UK, Inheritance Tax is usually charged on the value of a person’s estate when they die.

Key points:

• Each person has a tax‑free allowance called the nil‑rate band.

• Tax is normally charged at 40% on the value above the available allowances.

• The rules are UK‑wide, but this article focuses on people who live in England and Wales.

The estate includes property, savings, investments, some life policies, and certain gifts made in the seven years before death.

Blind spots:

• If you are not UK-domiciled, or have assets abroad, different rules may apply.

• Some jointly owned assets, business interests, or trusts may be taxed differently.

• If you own a property that is hard to sell (e.g., leasehold with a short lease, or a home with planning issues), the value for IHT may not reflect the real market value, but HMRC can challenge low valuations.

2. Key allowances and reliefs

The amount of IHT depends heavily on how these allowances apply.

Common allowances include:

• Nil‑rate band (NRB): A tax‑free allowance up to a set amount. Any unused portion may be transferable to a spouse or civil partner.

• Residence nil‑rate band (RNRB): An extra allowance when leaving a qualifying home to direct descendants, subject to conditions and value limits. If your estate is worth more than a set threshold, this allowance may be reduced or lost.

• Spouse or civil partner exemption: In many cases, assets left to a UK‑domiciled spouse or civil partner are free of IHT. If your spouse is not UK-domiciled, the exemption is limited.

• Charity exemption: Gifts to UK‑registered charities in a will are usually free of IHT and may reduce the rate on the rest of the estate in some circumstances.

Nuance:
If you have remarried, have stepchildren, or own more than one property, check how the residence nil-rate band applies. It is not always straightforward.

3. Five ways to reduce a potential IHT bill

These strategies are commonly used in England and Wales. Always check the latest rules and seek advice where needed.

1. Make use of annual gift allowances

You may be able to give away certain amounts each tax year without increasing your IHT bill, for example:

• An annual exemption up to a set amount per tax year

• Small gifts to different people up to a fixed limit per person

• Gifts on marriage or civil partnership within allowed limits

These gifts are usually immediately outside your estate for IHT purposes.

2. Consider regular gifts out of surplus income

If you have income you do not need to maintain your usual standard of living, you may be able to make regular gifts out of surplus income that fall outside your estate, provided you keep good records and meet the conditions.

3. Review how your home and other assets will pass

• Leaving a qualifying home to direct descendants may allow you to benefit from the residence nil‑rate band, subject to limits.

• Check how you own property with your partner (joint tenants or tenants in common) and whether this matches your wishes.

• If you own a leasehold flat, check the lease length and ground rent terms—these can affect value and saleability, which in turn affects IHT calculations.

4. Keep your will up to date

A clear, up‑to‑date will can:

• Make full use of spouse and charity exemptions

• Direct assets in a way that suits your family

• Reduce the risk of disputes that can eat into the estate

Blind spot:
If you have children from previous relationships, or own property abroad, make sure your will is clear and valid in all relevant countries.

5. Look at protection and specialist advice

Some people consider:

• Life insurance policies written in trust to help cover an expected IHT bill

• Professional estate planning advice from solicitors and regulated financial advisers

These steps will not suit everyone, so independent advice is important.

To make any of these ideas work in practice you usually need good records. For example, for gifts out of income you should keep a simple schedule showing your income, usual spending, and the regular gifts you have made each year.

4. Risks, time limits, and record‑keeping

Inheritance Tax planning always comes with trade‑offs.

• Gifts made within seven years of death may still be counted for IHT, depending on the type of gift.

• Some gifts are treated as gifts with reservation of benefit if you continue to use or benefit from the asset (for example, giving away your home but still living in it rent‑free).

• Complex schemes can have unexpected tax consequences.

• If you make gifts to trusts, or transfer assets abroad, specialist advice is essential—these can trigger immediate tax charges or reporting requirements.

Good record‑keeping helps your executors later:

• Keep notes of gifts, dates, and amounts

• Store your will and key documents somewhere safe and tell your executors where they are

Blind spot:
If you have made gifts but not kept records, your executors may struggle to claim exemptions or reliefs, and HMRC may challenge your estate’s calculations.

5. Review checks and when to get advice

Before acting on any inheritance tax ideas, work through these checks:

• Suitability check: Ask whether a step fits your real‑world needs, not just the tax position. Do not give away money you may need.

• Professional advice check: For larger estates, complex gifts, or international assets, speak to a solicitor or regulated financial adviser who understands IHT rules for England and Wales.

• Document check: Confirm your will, life insurance, and ownership of property and investments all line up with your intentions.

AI‑powered legal tools can help you understand the language used in wills and tax guidance, prepare questions for your adviser, and summarise options in plain English.

Using Caira to prepare for estate planning advice

If you already have a draft will, trust deed, life policy schedule or adviser report, you can upload them to Caira, an AI‑powered legal assistant.

With Caira you can:

• Upload PDFs, Word documents, spreadsheets and even photos or screenshots of paperwork.

• Ask questions like ''How do these gifts interact with the nil‑rate band?'' or ''What is this clause trying to achieve?''.

• Get clear summaries you can share with family members or take to a solicitor or financial planner.

Caira is privacy‑first and answers are grounded in a library of more than 10,000 legal and tax documents for England and Wales together with your own documents.

You can try Caira on a free 14‑day trial (no credit card needed). After that it remains a low‑cost, affordable monthly service at £15/month – a relatively cheap way to feel more confident before and after paid professional advice.

Review checks for this article

1. Tax law accuracy check
   Ask a solicitor or tax specialist to confirm that allowance names, rates, and descriptions reflect the latest IHT rules at the time of publication.

2. Risk explanation check
   Ensure potential risks (for example, gifts with reservation, seven‑year rule, and unsuitable schemes) are clearly flagged.

3. Compliance and disclaimer check
   Add or confirm a clear disclaimer that this article is general information only, not tax or financial advice.