Inheritance tax (IHT) can be a tricky topic, but it's important to understand, especially if you want to pass on your wealth to your loved ones. Let's break it down in simple terms.
Inheritance tax (IHT) can be a tricky topic, but it's important to understand, especially if you want to pass on your wealth to your loved ones. Let's break it down in simple terms.
How IHT affects you
You might think IHT only affects a few people, but in 2023-2024, the government collected £7.6 billion from thousands of families. The current threshold for IHT is £325,000, and this amount is frozen until 2030. This means more people might have to pay IHT in the future.
IHT is usually charged on the value of everything you own when you die, after taking off any debts, exemptions, and reliefs. Anything left to your spouse or civil partner is usually exempt, as are gifts to charities. However, with some smart planning, you can reduce the amount of IHT your estate has to pay, ensuring more of your hard-earned wealth goes to the people you care about.
Five tips to reduce IHT
Here are five simple steps you can take to reduce the amount of IHT your estate might have to pay:
- Make a will: having an up-to-date will is crucial. It ensures your estate goes to the people you want.
- Gift your wealth now: consider giving some of your money away while you're still alive. Gifts made more than seven years before your death are exempt from IHT. You can give away up to £3,000 each year without paying IHT, and small gifts up to £250 are also exempt if they come from your income*.
- Use your pensions: pensions are a tax-efficient way to pass on your wealth. If you die before age 75, your pension can be passed on tax-free. After 75, it will be taxed at the recipient's income tax rate.
- Consider trusts: trusts can help reduce IHT and give you control over how your assets are used by future generations. Different types of trusts have different rules, so it's best to get advice on what works for you.
- Check your life assurance: life assurance can help pay or reduce an IHT bill. If it's written in trust, the payout won't be included in your estate and can be used to cover the IHT bill.
Talk to an expert
IHT can be complicated, but making a plan and adjusting it as your circumstances change can help you make the most of tax allowances. Getting expert advice can ensure you don't pay more tax than necessary and that your estate goes to the people you want it to.
If you want to learn more, please get in touch with us.
Tax treatment varies according to individual circumstances and is subject to change.
Inheritance Tax Planning & Trusts are not regulated by the Financial Conduct Authority.
Inheritance Tax Planning, Estate Planning, Will Writing, Taxation Advice, Trusts and Advice on Income Tax is not regulated by the Financial Conduct Authority.
* Inheritance Tax Receipts Are £600m Higher Than 23/24, Reveals HMRC
* How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK
Approver Quilter Wealth Limited, Quilter Financial Limited, Quilter Financial Services Limited & Quilter Mortgage Planning Limited. Quilter Financial Planning Solutions Limited. March 2025
