With property values soaring and tax thresholds stuck in place, more families are stumbling into the inheritance tax (IHT) trap than ever before.
It’s easy to see why resentment builds. After a lifetime of paying tax, the thought of losing another chunk of your estate to HMRC can feel like insult to injury.
If you want to protect your legacy, you need to act: the sooner, the better.
(Read Time: Approx. 3 minutes)
Topics Discussed:
- Effective ways to minimise inheritance tax using gift allowances, life assurance and surplus income
- How trusts can help protect your wealth and benefit loved ones efficiently
Why Inheritance Tax is Hitting More Families Than Ever
HMRC reported £7.6 billion in IHT receipts in the first 11 months of 2024 to 2025.
That’s more than the entire amount collected in the whole of the previous tax year.
With property prices climbing and the IHT threshold unchanged, the trend is clear: more estates are being dragged into the tax net.
And starting in 2027, pension pots will also be included in IHT calculations, pushing liabilities even higher.
Avoiding this tax completely isn’t realistic, but minimising it is well within reach.
Make the Most of Gift Allowances While You Can
One of the most straightforward ways to reduce IHT is by using your gift allowances.
You can gift unlimited sums free from IHT provided you survive seven years after making the gift and don’t continue benefiting from it.
Additionally, there’s an annual exemption of £3,000 which can be doubled if unused from the previous year and doubled again if both spouses gift together.
Want to gift more without triggering the seven-year rule? Consider gifting from surplus income.
Provided the gifts come from regular disposable income and you still cover your living costs comfortably, these payments are exempt from IHT.
Be sure to keep detailed records to prove this if HMRC ever asks.
Use Life Assurance to Ease the Burden on Your Estate
Life assurance is a smart option for those who want to leave behind a tax-ready estate.
When structured correctly, it provides beneficiaries with a payout that sits outside of your estate and isn’t subject to the usual 40 percent IHT charge.
Whole-of-life policies written in trust are particularly effective. They guarantee a payment to your loved ones, which can be used to settle the IHT bill quickly.
This is especially helpful because most assets remain inaccessible until probate is granted, yet the IHT is due beforehand.
Unlock Even More Tax Efficiency with Trusts
For more complex estates or those wanting extra control, trusts offer an excellent solution.
But caution is key: get the structure wrong and you could face a ‘gift with reservation of benefit’ scenario, where the gift is ignored for tax purposes because you still benefit from it.
One clever workaround is to exclude yourself from the trust but allow your spouse to benefit.
To avoid any perceived conflict of interest, trustee appointments for your spouse should require the approval of at least two trustees.
An added advantage is the power for trustees to provide interest-free loans.
After your death, your spouse could borrow from the trust.
The outstanding loans may then reduce the value of their estate for IHT purposes, creating an additional layer of tax efficiency.
Summary
With inheritance tax bills reaching record highs and more estates caught in the net, simply hoping for the best is no longer an option.
If you want to pass on your wealth without handing a large portion to HMRC, it’s vital to act now.
Whether through gifting, surplus income, life assurance or trusts, there are powerful tools at your disposal.
Contact us at Tax Expert today and take control of your estate with the guidance of our specialist advisors.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel