Why Inheritance Tax Is (Largely) Optional
Inheritance Tax (IHT) is often seen as an unavoidable cost of passing on wealth—but with the right planning, much of it can be reduced or avoided entirely. That’s why many advisers call IHT “a voluntary tax.”
In the UK, the standard IHT rate is 40% on estates above the £325,000 nil-rate band. For married couples or civil partners, this can be combined to £650,000 and potentially increased to £1 million with the residence nil-rate band. Yet HMRC collected over £7.5 billion in IHT in the 2023/24 tax year—largely because people didn’t take action in time.
So why is it optional?
Because there are several legitimate, HMRC-approved strategies to reduce your IHT liability:
Gifting: Use your £3,000 annual exemption, plus small gift allowances. Larger gifts may fall outside your estate after 7 years.
Trusts: These can help pass on wealth while retaining some control.
Charitable giving: Leave 10% or more of your estate to charity and reduce your IHT rate from 40% to 36%.
Business Property Relief (BPR): Certain qualifying investments, including shares in private trading companies or AIM-listed businesses, can be 100% IHT-exempt after just 2 years, if still held at death.
Life insurance: When written in trust, a policy can cover the IHT bill without increasing the estate’s value.
With proper planning, you can leave more to your family and less to HMRC.
Inheritance tax may feel inevitable - but for many, it’s a choice.
