How to Reduce Your Inheritance Tax Bill

When you die, you want to make sure you leave as much as possible for your loved ones.

Unfortunately, though, the Government lays claim to a portion of your estate through inheritance tax.

Thankfully, with the help of an estate planning team, there are ways to reduce your inheritance tax bill so your hard-earned wealth won’t be completely eaten up by the Revenue.

Inheritance tax thresholds

The standard rate for inheritance tax is 40% and will be charged on your estate over the threshold.

Before we explore ways to reduce your inheritance tax bill, it’s important to know the thresholds for inheritance tax exemption.

You will not have inheritance tax to pay if either:

  • the value of your estate is below £325,000
  • you leave everything above the threshold to your spouse, civil partner, a charity or a community sports club.

If you leave your home to your children (adopted, foster or stepchildren included) or grandchildren, your threshold can increase to £500,000.

To reduce your inheritance tax even further, here are a few options to consider.


While you’re alive, you have the option to gift money and assets to your loved ones, which may qualify for an exemption (providing it’s within HMRC’s guidelines).

Depending on the person you’re gifting your money or assets to, and the reason you’re giving them, there are different allowances you can take advantage of:

  • Annual exemption – each person can give away £3,000 worth of gifts in a tax year. A year’s exemption can carry over into the following, giving you a potential total exemption of £6,000.
  • Small gifts exemption – you can give away as many gifts as you wish, worth up to £250 per person each year. This won’t be possible if you’ve used another exemption for the same person.
  • Wedding or civil ceremony gifts – you can leave these gifts worth up to £1,000 per person. It will also increase to £2,500 for grandchildren and great-grandchildren. You can gift up to £5,000 to your own children. This exemption can apply on top of your annual exemption.

Leave everything to your partner

Married couples or couples in a civil partnership won’t have to pay inheritance tax on anything left to them, provided the partner is domiciled in the UK.

You are also able to pass on your unused tax allowance to your partner, which will reduce their inheritance tax bill once you’ve died.

Donating to charity

If you decide to leave charitable donations in your will, you will be able to reduce your inheritance tax liability, whether it be money, assets or property.

When you do this, your donation will either:

be taken off the value of your estate before inheritance tax is calculated
reduce your inheritance tax rate, if 10% or more of your estate is left to the charity.

You are allowed to leave to a charity a fixed amount of money, an item or what’s left after other gifts have been given out.

Set up a trust

Trusts can be a very efficient way to reduce your inheritance tax bill, provided certain conditions are met.

When you put assets, money or property into a trust, it then belongs to the trust so is technically outside of your estate.

That said, some trusts have their own tax implications. If the beneficiary of the trust is in the higher or additional tax band, income tax and capital gains tax can end up taking up a large chunk of their inheritance.

A full list of trusts can be found on the Government website.

Here to help

It can be stressful trying to organise your estate, especially when you have tax calculations to carry out. The team at P B Syddall & Co can help by offering advice on how to reduce inheritance tax for you and your family.

Get in touch to talk to us about your estate.