Inheritance Tax (IHT) is often referred to as a "voluntary tax"—not because you choose to pay it, but because with the right planning, you can legally reduce or avoid it altogether. In the UK, without proper estate planning, your heirs could lose a significant portion of your wealth to HMRC.
At Lawrence Grant Chartered Accountants, we specialise in Inheritance Tax planning that aligns with your personal, financial, and family goals. Whether you're based in London or Harrow, our advisors provide tailored strategies to help you preserve more of your estate for future generations.
Get a quick overview of IHT rules on our Inheritance Tax Summary page.
What Is Inheritance Tax?
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. The standard IHT rate is 40%, and it's charged on the portion of the estate that exceeds the tax-free IHT thresholds.
Current IHT Thresholds (2025/26):
- Nil Rate Band (NRB): £325,000 per person
- Residence Nil Rate Band (RNRB): up to £175,000 (if passing on a main residence to direct descendant(s))
Combined, a couple could potentially pass a combined estate value of up to £1 million free of IHT if planned correctly.
Learn how the government is collecting record revenues: IHT Receipts Reach Record £8.2 Billion
Who Pays Inheritance Tax?
Usually, the executor of the will or administrator of the estate is responsible for calculating and paying any IHT due. However, failing to plan ahead can leave your loved ones with an unexpected tax bill—often resulting in the sale of assets like homes or investments to pay the tax.
Common Inheritance Tax Planning Strategies
1. Use Your Annual Exemptions
You can gift up to:
- £3,000 per year (annual exemption)
- £250 small gifts to any number of people that hasn't benefited from the annual exemption each year
- Wedding gifts (£5,000 for children, £2,500 for grandchildren, any other person £1,000)
- Gifts between spouses will normally be exempt
- Regular gifts of surplus income can be immediately free of IHT
2. Make Use of Potentially Exempt Transfers (PETs)
Larger gifts can be IHT-free if you survive for seven years. HMRC states that "most lifetime transfers are potentially exempt transfers (PETs)". PETs enable an individual to make gifts of unlimited value which will become exempt (i.e. escape tax) if the individual survives for a period of seven years. PETs allow you to pass wealth down during your lifetime while reducing your estate's value.
Tip: Consider placing assets into trusts to gain more control over how they're distributed.
3. Leverage the Residence Nil Rate Band (RNRB)
If you're passing your main home to children or grandchildren, the RNRB adds an extra £175,000 tax-free allowance. To qualify:
- You must leave your home to direct descendants
- The estate must not exceed £2 million (after which the RNRB tapers off)
4. Business Relief (BR) and Agricultural Property Relief (APR)
If you own a family business or farmland, you may qualify for up to 100% relief from IHT. These reliefs are complex but can dramatically reduce your estate's liability.
Reform of the rules applying from April 2026, the qualifying conditions themselves have not changed but the amount of relief will be capped. The first £1m of qualifying assets will be exempt from IHT and the excess will attract 50% relief (in effect producing a 20% tax rate). The £1m will be shared across assets qualifying for BR and AR on pro-rata basis.
5. Life Insurance Policies Written in Trust
A common strategy is to take out a life insurance policy written in trust. This ensures the payout doesn't form part of your estate and can be used to pay IHT liabilities.
6. Charitable Donations
If you leave at least 10% of your estate to charity, the overall IHT rate on the rest of your estate may be reduced from 40% to 36%.
What Happens Without Planning?
Without proper inheritance tax planning:
- Depending on the size of your estate you could pay tens or hundreds of thousands in IHT
- Family assets (like homes or shares) might be sold to pay the tax
- You miss out on valuable reliefs and exemptions
- Disputes may arise due to unclear or outdated wills
Remember, IHT isn't just for the wealthy—rising property values mean more middle-class families are now impacted.
How Lawrence Grant Helps with Inheritance Tax Planning
At Lawrence Grant, our personal tax specialists help you:
- Evaluate your estate and potential liabilities
- Structure assets and gifts for maximum tax efficiency
- Can review Wills to ensure is tax efficient for IHTSet up and manage trusts
- Claim BPR and APR for qualifying assets
- Review plans regularly to reflect changes in law or family circumstances
We make tax planning clear, legal, and personal.
When Should You Start Inheritance Tax Planning?
The earlier, the better.
Starting IHT planning in your 50s or 60s ensures you have time to:
- Make tax-free gifts
- Survive the 7-year PET rule
- Reorganise assets like property or shares
- Set up appropriate trusts and insurance policies
Even if you're retired or in later life, it's never too late to take meaningful steps.
Conclusion
Inheritance Tax planning is essential for anyone who wants to leave a meaningful legacy and avoid unnecessary taxes. With the right advice, you can take advantage of generous exemptions, smart structures, and legal reliefs to protect your estate.
At Lawrence Grant Chartered Accountants, we provide the tools, knowledge, and strategies to make sure your wealth goes where you want it to—not to HMRC.
Ready to protect your estate? Contact us for personalised inheritance tax advice.
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