Posted October 21, 2025

Inheritance Tax Planning: Protecting Your Family’s Wealth

Inheritance tax (IHT) represents one of the most significant threats to generational wealth preservation. With IHT rates of 40% on estates exceeding the nil-rate band, the impact on family wealth can be devastating without proper planning. However, with strategic foresight and expert guidance, there are numerous legitimate ways to minimise your IHT liability whilst ensuring your family’s financial security.

Understanding Current IHT Thresholds and Rates

The foundation of effective inheritance tax planning begins with understanding the current thresholds and how they apply to your specific circumstances. For the 2025-26 tax year, the nil-rate band remains frozen at £325,000 per individual, with anything above this threshold subject to IHT at 40%. However, homeowners have an additional residence nil-rate band (RNRB), which provides an allowance of up to £175,000 when passing a family home to direct descendants (although there is a taper threshold of £2m for the RNRB).

For married couples and civil partners, these allowances are transferable, potentially creating a combined threshold of up to £1 million before IHT becomes payable. This transferability extends beyond just the basic nil-rate band to include any unused RNRB, making joint planning between spouses crucial for maximising available reliefs.

Leaving a gift of 10% or more of the net estate over the IHT threshold to a qualifying charity can reduce the rate of IHT from 40% to 36%, presenting an opportunity for philanthropically minded families to reduce their tax burden whilst supporting causes they care about.

Strategic Gifting: The Seven-Year Rule and Beyond

Annual gifting represents one of the most accessible IHT mitigation strategies available to families. The annual exemption of £3,000 per person can be carried forward for one year if unused, allowing couples to gift up to £12,000 in a single tax year without any IHT implications. Additional exemptions include wedding gifts (up to £5,000 to children, £2,500 to grandchildren, and £1,000 to others) and regular gifts from income that don’t affect your standard of living.

The potentially exempt transfer (PET) rules allow unlimited gifting, provided you survive seven years from the date of the gift. This creates powerful planning opportunities for families with substantial wealth, as large transfers can be made IHT-free with sufficient time planning. The tapering relief system provides partial relief for gifts made between three and seven years before death, with the tax liability reducing progressively.

Normal expenditure out of income gifts deserve particular attention, as these are immediately exempt from IHT without any seven-year waiting period. These might include regular premium payments on life insurance policies written in trust for beneficiaries, or consistent annual payments to family members that can be sustained from your regular income after maintaining your usual standard of living.

Business Property Relief: Maximising Commercial Assets

From 2026/27 Business Property Relief (BPR) is changing, a new £1m 100% relief allowance (combined with Agricultural Property Relief (APR)) will apply.  Any assets over the £1m allowance will qualify for 50% relief, resulting in an effective 20% inheritance tax charge on the remaining value,

For business owners, structuring your affairs to maximise BPR can dramatically reduce your estate’s IHT exposure. The key requirement is that qualifying assets must be held for at least two years before death (and still held at the time of death), making early planning essential. The business must also be a trading business rather than an investment company.  Any unused allowance cannot be transferred to a spouse or civil partner.

Agricultural Property Relief (APR) works alongside BPR for farming families and those with agricultural investments, potentially providing 100% relief on agricultural land and buildings. The interaction between APR and BPR can be complex, requiring specialist advice to ensure optimal structuring.

Careful consideration should be given to the balance between extracting value from businesses through dividends or salary (which becomes part of your taxable estate) versus retaining value within qualifying business structures. This balance will depend on your overall wealth, other planning strategies, and family circumstances.

Trust Structures: Sophisticated Wealth Preservation

Trust planning offers sophisticated solutions for families seeking to maintain control whilst removing assets from their taxable estates. Discretionary trusts provide flexibility in distributions whilst potentially achieving IHT savings, though they come with their own tax regime including periodic tax charges every ten years.

Life interest trusts can be particularly effective for married couples, allowing the surviving spouse to benefit from trust assets during their lifetime whilst ensuring ultimate distribution to chosen beneficiaries. These structures can help navigate the complex interaction between spousal exemptions and generational planning.

Loan trusts present an innovative solution where you lend money to trustees who invest the funds, with investment growth occurring outside your estate whilst you retain the right to receive loan repayments. This technique is particularly effective in rising markets, as all investment growth accrues to beneficiaries rather than being subject to IHT.

Combining Strategies for Maximum Effect

The most effective IHT planning typically involves combining multiple strategies tailored to your specific circumstances. A high-net-worth family might utilise annual gifting allowances, establish trust structures for long-term wealth preservation, structure business interests to maximise available reliefs, and consider life insurance policies to provide liquidity for any remaining tax liabilities.

Regular reviews are essential, as changes in legislation, family circumstances, and asset values can all impact the effectiveness of your planning. The recent freezing of nil-rate bands until 2028 has increased the number of families needing to implement proactive strategies.

Timing considerations are crucial throughout this process. The seven-year rule for PETs, the two-year qualifying period for BPR, and the interaction with capital gains tax implications all require careful coordination to achieve optimal results.

Professional Guidance: Essential for Success

Given the complexity of inheritance tax legislation and the severe financial consequences of getting it wrong, professional guidance is not just advisable but essential for effective planning. The interaction between IHT, capital gains tax, income tax, and stamp duty can create opportunities and pitfalls that require expert navigation.

Regular health reviews and family discussions ensure that your planning remains aligned with both your wishes and changing circumstances. What works for one family may not be appropriate for another, making bespoke advice crucial for achieving your objectives.

The cost of professional advice pales in comparison to potential IHT savings, and early intervention provides the greatest scope for effective planning. With IHT affecting an increasing number of families due to rising property values and frozen thresholds, the time to act is now.

Secure Your Family’s Financial Future

Don’t let inheritance tax erode the wealth you’ve worked so hard to build. Our specialist team understands the complexities of IHT planning and can develop tailored strategies to protect your family’s financial future whilst ensuring compliance with all relevant regulations.

Contact us today to arrange your confidential IHT planning consultation and discover how we can help preserve your wealth for future generations.