15 ways to slash your potential Inheritance Tax bill (Part I)

3 min Read Published: 05 Aug 2010

In the first of a two-part post we will explain how you can minimise your potential IHT bill on your death and save your £000’s in tax. There’s no need to thank me.

In simple terms, Inheritance tax (IHT) is a tax payable on death. A 40% tax charge is applied to the value of your estate (for people in the UK this is the sum of all their worldly assets) in excess of the IHT-free allowance, applicable at the time of death. Currently this allowance stands at £325,000

Increases in house prices and personal wealth mean that more and more people are being hit by IHT as the value of their assets increase beyond the tax-free threshold. Frustratingly, this means that your children, or other beneficiaries, could see the size of their inheritance slashed. But you don’t have to simply accept the situation. With a bit of planning you can reduce the amount the tax man robs from you when you eventually ‘move on’.

Tips on how to slash your IHT bill (Money tips #85 to 90):


1) Make a will - If you die without making a will, i.e. intestate, this might not only result in an unnecessary IHT bill but, in addition, your assets might not be distributed to whom you want them to. See my post Money tip #14 – Make a will.

2) Get married (money tip #85)– as cynical as it may sound getting married can help reduce your potential IHT bill. Any assets passed between spouses (including those under civil partnerships) are free from IHT. However, transfers or gifts between non-married spouses don’t enjoy this privilege meaning that you could end up with an unexpected IHT bill in the event of the donor’s death. The other benefit of getting married is that IHT is not payable when an estate passes between a husband and wife, or from one civil partner to another. Even better, married couples or civil partners can transfer any unused element of their IHT-free allowance to their spouse when they die. That means that a married couple’s assets can reach £650,000 (i.e. 2 IHT-free allowances of £325,000) before any IHT is payable.

3) Minimise your potential estate (money tip #86) – If you are worried about IHT then you should look to minimise your estate. That means that any death benefits from pensions funds or insurance policies should be written under trust, or have a registered death nomination form. In this way upon your death the proceeds from these contracts will never form part of your estate so will be free from IHT.

4) Pass on unwanted inheritance (money tip #87) – following on from the above point. It is possible to divert on an unwanted inheritance to someone else. So if for example a wealthy individual suddenly inherits a large sum of money which they do not require they can apply for a 'deed of variation' which will mean the gift can go to another nominated person and not ever form part of the original beneficiaries estate. The variation has to happen within two years of the original donor’s death for it to be valid. This could save £000s in IHT. But speak to your financial adviser and solicitor first.

5) Make use of your annual IHT exemption (money tip #88) -. You can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from IHT when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires. This annual exemption is in addition to the other gift exemptions.

6) Gift money when an intended beneficiary is getting married (money tip #89)- Some gifts made during your lifetime are exempt from Inheritance Tax because of the type of gift or the reason for making it. Wedding gifts are exempt subject to the following limits:

  • parents can each give cash or gifts worth £5,000
  • grandparents and great grandparents can each give cash or gifts worth £2,500
  • anyone else can give cash or gifts worth £1,000

7) Make small gifts (money tip #90)- You can make small gifts up to the value of £250 to as many people as you like in any one tax year. However, you can’t give a larger sum and claim exemption for the first £250. You can’t use your small gifts allowance together with any other exemption when giving to the same person.

Part two of our guide will be published tomorrow and will be available by clicking here.

  1. How can I gift my property to my daughter so that she does not pay inheritence tax? I am 68years old

  2. Hi you say £3,000 but how many gifts of that figure can you give away in ONE year. Regards A L

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