Our guide to inheritance tax planning

Inheritance tax – the tax paid on the estate of someone who has passed away – is currently charged at 40 per cent and is payable on the value of the estate above the threshold of £325,000. 

From April 2026, there will be changes to inheritance tax payable on a family business which will impact business owners and farmers. 

If you’re wondering how to reduce inheritance tax, our guide explains the different options available to those looking to reduce the value of their estate.  

Wondering how to avoid paying inheritance tax?

A frequently asked question is how to avoid paying inheritance tax – our advice is that we are not trying to avoid it, but with careful planning, we can look at ways to mitigate exposure to it.  

We are here to offer guidance on estate and inheritance tax planning, including ways in which you might look to reduce the size of your estate, which is a good option if you’re wondering how to reduce inheritance tax.  

The best solution for reducing the size of your estate will vary from person to person, as everybody’s finances and circumstances will look different. 

Consider what your estate will include

If you’re looking at ways to reduce the value of your estate, the first step is to look at your finances and assets.  

We do this with our clients to establish a full financial picture. Some people may have property, cash and other assets, and many of our clients are business owners who hold shares in their own companies, so that is a key consideration for them. 

When it comes to inheritance tax planning, understanding what you have and what it means to you is an important starting point. 

What do I need to do to reduce inheritance tax?

For people with high value assets and businesses, the changes to inheritance tax can have big implications, and careful tax planning is advised. There are various options to consider, including gifting to family or into a trust. 

Inheritance tax – gifts

Many people ask us about inheritance tax on gifts. Choosing to gift part of an estate to family as part of inheritance tax planning is becoming an increasingly popular option.  

Gifting to family minimises the estate’s value and therefore reduces its exposure to inheritance tax. 

There are wider tax implications for inheritance tax gifting within your lifetime – if you choose to gift shares in a business to family, it triggers capital gains tax, but you’ve got to consider this in the context of the impact on inheritance tax, as it may still be preferable. 

There is also the inheritance tax gifts seven-year rule to consider. Gifting an asset within your lifetime is what’s known as a potentially exempt transfer, because it is potentially exempt from inheritance tax – but only if the person gifting the asset lives for seven years after doing so. 

When you gift to another person, that’s when the seven-year clock starts. 

Using trusts to reduce inheritance tax

An alternative to gifting to another person in your lifetime is to gift to a trust.   

If you are a business owner, you may prefer to gift shares in your business to a trust which your children can access in the future.  

Some people choose this option if they don’t believe the beneficiary of the gift is ready to own the asset yet – for example, some might prefer to wait until their child or children reach a certain age to take over the business.  

Gifting into trust is also a good choice if the person giving the gift doesn’t feel ready to pass on their shares yet and would like to retain some control of the business. 

Generally, the person gifting the shares is a trustee, so when they gift the shares to a trust, the trust becomes the shareholder. By being a Trustee, this means they can still have a hand in running the business, they still have some control over what happens in the business and can dictate what’s paid out to beneficiaries. But, because the shares are in a trust, they are being held for the benefit of the beneficiary. 

Gifting shares in a business into a trust is known as a chargeable lifetime transfer and is still subject to capital gains tax, so it will create an immediate tax charge – but there are gift reliefs available because it’s a gift of a business asset. 

Gifting into trust comes with considerations of its own, because once you have assets in a trust, there are legal obligations – for example, reporting requirements. 

The inheritance tax gifts seven-year rule also applies to gifting into trust – the asset will only be exempt from inheritance tax if the person gifting it lives for seven years after doing so. 

Finding the right inheritance tax planning solution for you

If you are evaluating your options around inheritance tax on your estate, our inheritance tax specialists can work with you to find the best solutions for your needs.