Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

How to cut your Inheritance Tax bill in the UK

Two things are particularly important when passing on wealth to loved ones: ensuring the right people inherit your wealth and reducing Inheritance Tax.

HMRC collected £5.32 billion of Inheritance Tax revenue in the 2020/21 tax year*.

Even if you do not have a large estate, your family may still be liable to pay up to 40% Inheritance Tax upon your death.

Find out more about Inheritance Tax

Here are 5 tips from our Financial Advisers to help you cut your Inheritance Tax bill:

1. Write a Will

Married couples can arrange to have a mirror will which means that on the death of the first person, all of their assets are left to their spouse. This means that no Inheritance Tax is due to be paid on the first death and the Inheritance Tax bands will also be passed to the surviving spouse.

2. Utilise the full Residence Nil Rate Band

If you leave your property to your direct descendants, then a married couple will qualify for an exemption of £350,000 (£175,000 each) in addition to the £325,000 each nil rate band.

The Residence Nil Rate Band was introduced in the 2017/18 tax year and for the 2022/23 tax year it is an exemption of £175,000 per person when a property is left to direct descendants in addition to the nil rate band of £325,000.

Despite this additional allowance, HMRC still collected over £5 billion in Inheritance Tax receipts. This is because the Residence Nil Rate Band has no impact on tax from large estates. For estates over £2 million, the Residence Nil Rate Band is tapered.

3. Start gifting early 

In each tax year, you can gift £3,000 which is immediately outside of your estate for Inheritance Tax purposes. The sooner you begin to take advantage of this exemption, the more time you have to gradually reduce the size of your estate. You can also make small gifts of up to £250 per person per year.

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4. Take advantage of regular gifting from excess income

An under utilised allowance is gifting from excess income. There is no limit on the amount that you can gift per month as long as you can prove that the gift does not impact your standard of living.

5. Keep assets in your pension

Your pension can be passed onto your loved ones free from Inheritance Tax so you should consider spending assets outside of your pension first to leave as much in the pension to pass on your wealth tax-efficiently.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Find out if you can reduce your Inheritance Tax liability

If you think you will be affected by Inheritance Tax you should act sooner rather than later to mitigate your liability.

At Four Wealth Management, a financial adviser can calculate what your liability is and make sure you are taking advantage of all of the reliefs available to you. Your adviser will also create a plan tailored to you to help you to reduce or even elimitate your liability.

Call 0117 973 0500 or email to book a no-obligation meeting.

Find out more about Four Wealth Management

Advice relating to a Will involves the referral to a service that is separate and distinct to those offered by St. James’s Place.  Wills are not regulated by the Financial Conduct Authority.

*Source: HMRC, 2021

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How to cut your Inheritance Tax bill in the UK
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