Inheritance tax is a tax on the value of everything you gift or leave behind when you die. Not everyone is required to pay inheritance tax. You can leave any amount to your spouse or civil partner. But if the amount you leave to others is valued above £325,000, the excess is taxed at 40% when you die. This is known as the ‘nil-rate band’.

There’s also an additional inheritance tax allowance of £175,000 available. This is called the ‘residence nil-rate band’ and it can be applied to the main family home. There are other rules that apply to whether or not this allowance can be claimed. 

With rising house prices and frozen allowances, very many people have an IHT issue to address. So, understandably, some families want to plan for inheritance tax. Let’s look at a few options here. 


One route available to individuals worried about leaving behind an inheritance tax liability is to gift assets away during their lifetime. This can be an attractive option if you want to see loved ones benefit from your wealth whilst you are alive. 

Gifting is a straightforward concept in principle, but the rules around making a gift can be rather complex. 

Some very small gifts are inheritance tax-free, for example you can gift £3,000 in total each year. But larger gifts typically take seven years to become completely free from inheritance tax (known as potentially exempt transfers). So, if you die within seven years you are unlikely to have been effective in reducing the inheritance tax bill. 

Anyone making a gift loses ownership and control of that wealth as soon as the gift is made. 

Trust planning 

When you put money or property in a trust, that wealth is no longer in your name. In other words, you no longer own the assets. Therefore, you lose access to wealth that is put into trust. It also typically takes seven years for assets to become completely free from inheritance tax from the point they are settled into trust. 

However, one benefit of trusts is you can retain some control over what happens to the assets in the trust. They can be used to ensure wealth is kept in the family over generations. 

Business Relief 

Business Relief (BR) could be worth considering if you are reluctant to lose access to your wealth and are comfortable with investment risk. It’s an investment incentive that encourages you to invest into growing companies while planning for inheritance tax. 

Shares in companies that qualify for BR can be passed on free from inheritance tax if they’ve been held for at least two years and at the time you die. BR can be an attractive way to reduce an inheritance tax liability as it offers faster tax exemption than putting assets in trusts or making a gift. 

Plus, you retain access to your wealth because it’s an investment that remains in your name. Remember that any money withdrawn would become liable for inheritance tax if not spent. 

BR investments have their own specific risks which an adviser would explain to you. 

Life insurance 

Taking out insurance doesn’t reduce the amount of inheritance tax due on an estate, it is a way to pay a potential inheritance tax bill. 

Insurance policies are designed to pay out a lump sum when you die. There are two types of policies that can help with inheritance tax: whole-of-life assurance and term insurance. The former pays out when you die, providing you have kept up policy payments until that date, no matter when the death occurs. Term insurance pays out if you die within a certain period. 


If you would like more information, or would like to discuss your own position, then please do not hesitate to contact me or my colleagues, David Hughes and Denise Graham. 

Peter Rutherford is a director at Rutherford Hughes Ltd. He can be contacted on 0191 229 9600 or 

Tax advice is not regulated by the FCA and legislation is subject to change. Capital at risk. Rutherford Hughes Ltd. is authorised and regulated by the Financial Conduct Authority. Rutherford Hughes Ltd company registration no: 10431722. Country of registration: England. Office & Registered Office address: Collingwood Buildings, 38 Collingwood Street, Newcastle upon Tyne, NE1 1JF.

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