Inheritance tax is charged at 40% on the value of your estate above the nil-rate band. That is a significant chunk, but there are legitimate, HMRC-approved ways to cut your inheritance tax bill. Many of them start with a well-drafted will.

This guide covers the main options for how to reduce inheritance tax, from making full use of available allowances to longer-term planning with trusts and pensions.

Make sure you are using every allowance available

The first step in inheritance tax planning is making sure your estate uses the allowances it is already entitled to.

The nil-rate band sits at £325,000, frozen until at least 2028. The residence nil-rate band adds up to £175,000 if you leave your home to a direct descendant, such as a child or grandchild. For married couples and civil partners, any unused portion of both allowances can transfer to the surviving spouse, giving a combined tax-free threshold of up to £1 million.

That combined figure does not apply automatically. The way your will is written, who inherits your home and the overall value of your estate can all affect which allowances your estate can use.

Clients often assume the combined £1 million threshold applies to all married couples automatically. In practice, wills that have not been reviewed for years can leave an estate using a fraction of what it is entitled to.

If you are married or in a civil partnership and your wills have not been reviewed for some time, this is the place to start. A simple update could unlock allowances your estate is not currently making the most of.

How to reduce inheritance tax with lifetime gifts

Giving money or assets away during your lifetime can reduce the size of your estate for IHT purposes, provided you understand the rules.

The seven-year rule is the best-known. If you make a gift and survive for seven years after making it, that gift falls outside your estate for inheritance tax purposes. These gifts are called potentially exempt transfers. The name reflects the fact that they only become fully exempt if you survive the full seven-year period.

There are also exemptions that fall outside your estate immediately.

Your annual gift exemption lets you give away up to £3,000 each tax year. If you did not use it the previous year, you can carry it forward once, giving a potential £6,000 in year one. You can also give up to £250 to any number of people in a tax year, provided you have not used another exemption for the same person. For weddings and civil partnerships, the limits are up to £5,000 to a child, up to £2,500 to a grandchild or great-grandchild and up to £1,000 to anyone else.

Regular gifts from surplus income can also be exempt, with no fixed upper limit, if they come from income rather than capital, form part of a regular pattern and do not reduce your normal standard of living. This can be a useful option if you have pension income you do not need to spend. It requires good record-keeping, because your executor will need to show HMRC when gifts were made, where the money came from and whether they formed a regular pattern.

Whatever approach you take to gifting, keep a clear written record. Note the date, amount, recipient and source of funds for each gift, along with which exemption was used, if any. This does not need to be complicated. A simple document kept alongside your will is enough.

Leave a charitable gift in your will

Any gift to a UK registered charity is exempt from inheritance tax, with no upper limit. If you leave at least 10% of your net estate to charity, the IHT rate on the rest of your taxable estate reduces from 40% to 36%. In practice, this means the charity can receive a meaningful gift while the net cost to your beneficiaries is lower than it might appear, because part of the gift is offset by the tax saving.

If your estate is close to the inheritance tax threshold, a will professional or tax adviser can help you model the figures. In some cases, redirecting a fixed charitable gift into a percentage of the residue is enough to bring an estate over the 10% threshold, reducing the tax rate for all beneficiaries and costing the estate relatively little in net terms.

A charitable gift can be a fixed sum, a percentage of your estate or a share of the residue after other gifts have been paid. Make sure the charity is named clearly, including its registered charity number, with fallback wording in case the organisation changes its name or merges.

Use a trust

Trusts can reduce inheritance tax in the right estate and give you more control over how assets pass. The further above the threshold your estate sits, the more relevant they become.

A trust is a legal arrangement where assets are held by trustees for the benefit of others. Depending on the type, assets placed in a trust can fall outside your estate for IHT purposes, subject to certain rules.

Discretionary trusts give trustees the flexibility to decide who benefits and when. Life interest trusts are often used in second-marriage situations, allowing a surviving spouse or partner to benefit during their lifetime while the capital eventually passes to children from a previous relationship. More specialist structures, such as loan trusts and discounted gift trusts, are designed to reduce the taxable estate while retaining some access to income or capital.

Trusts involve ongoing administration, potential tax charges and reporting requirements. They tend to be most useful where your estate is significantly above the inheritance tax threshold and you want more control over how assets are passed on.

If you think a trust might be appropriate, take specialist advice before setting one up.

Check your pension nomination

Many pension pots currently sit outside the estate for inheritance tax purposes, making them one of the more tax-efficient assets to pass on. Because of this, it can make sense to spend other assets first and let your pension pass to beneficiaries without an IHT charge.

From 6 April 2027, most unused pension funds and pension death benefits are due to be brought within the estate for inheritance tax purposes. If your pension makes up a significant part of your wealth, reviewing your estate plan before those changes take effect is worth doing.

Your will and your pension nomination do different jobs, but both affect who receives your wealth after you die. Pensions do not pass through your will. The nomination form held by your pension provider controls who receives the funds, and if that form is out of date, your wishes may not be followed.

Check your nomination if you have married or divorced, had children or grandchildren, changed pension provider or if your circumstances have changed in any material way. Outdated nominations are one of the most common oversights we encounter when clients come to review their estate plans. In some cases, a nomination form has never been updated since the pension was first opened.

Consider agricultural or business property relief

If your estate includes qualifying agricultural land or business assets, agricultural property relief and business property relief can significantly reduce the IHT due.

From April 2026, both reliefs have changed. A combined allowance of £1 million can attract 100% relief. Value above that level may receive 50% relief instead.

These reliefs are not automatic. The type of asset, how long it has been owned, how it is used and the way your will is structured can all affect whether the relief applies and at what rate. If your estate includes a farm, a family business or qualifying shares, specialist advice is worth the investment.

Start with your will

Most inheritance tax planning depends on having a properly drafted will. Spousal exemptions, charitable legacies, trust structures and the transferable nil-rate band all require your will to direct assets correctly for the reliefs and allowances to apply.

Without a will, your estate passes under the intestacy rules. These provide a default outcome, but they are not designed with tax efficiency in mind. Many of the planning options in this guide become unavailable or less effective without proper provision in your will.

A will lets you choose who inherits, make use of available allowances, leave gifts to charity, create trusts where appropriate and appoint the right executors. If your estate may be above the inheritance tax threshold, your will deserves careful attention.

Sometimes the biggest improvements to your inheritance tax position come not from complex arrangements but from using the allowances available, keeping better records and making sure your will is up to date.

When should you review your inheritance tax planning?

Your inheritance tax position is not something to set and forget. It should be reviewed whenever your circumstances change.

Common personal triggers include getting married or entering a civil partnership, going through a divorce, having children or grandchildren and receiving a significant inheritance. On the financial side, selling a business, buying a property or reaching a point where your estate may be approaching the threshold are all worth acting on.

Tax rules also change. The pension reforms due in April 2027 are a current example, and the changes to agricultural and business property relief from April 2026 are another.

Even without a major life event, reviewing your will every few years is sensible. Asset values shift, family circumstances move on and estate planning that worked well five years ago may no longer reflect your situation.

Get help with your inheritance tax planning

There is no single approach that works for every estate. The right combination of allowances, gifts, trusts and planning depends on your circumstances, your family and what you want to achieve.

If any of the planning options in this article apply to your situation, the right starting point is a will drafted by someone who understands how to structure it for IHT purposes. My Local Will Writer works by phone, and most people are surprised by how quickly the process can be completed.

Get a quote here.

Frequently asked questions

How can I reduce inheritance tax in the UK?

You can reduce your inheritance tax bill by making full use of available allowances, making lifetime gifts, leaving money to charity, reviewing your pension nomination, using trusts where appropriate and making sure your will is properly drafted.

How much can I give away before inheritance tax?

You can give away up to £3,000 each tax year using your annual exemption. If the previous year’s exemption was unused, you can carry it forward once. You can also give up to £250 to any number of people in a tax year and make use of wedding and civil partnership gift allowances. Regular gifts from surplus income may also be exempt if they meet certain conditions. Larger gifts fall outside your estate entirely if you survive for seven years after making them.

Does leaving money to charity reduce inheritance tax?

Yes. Gifts to UK registered charities are fully exempt from inheritance tax. If you leave at least 10% of your net estate to charity, the IHT rate on the rest of your taxable estate reduces from 40% to 36%.

Can a trust help reduce inheritance tax?

A trust can help with inheritance tax planning in the right circumstances, but the benefits depend on the type of trust and the assets involved. Trusts can add complexity and carry their own tax rules, so it is important to take specialist advice before setting one up.

Are pensions subject to inheritance tax?

Many pensions currently sit outside the estate for inheritance tax purposes, but from 6 April 2027 most unused pension funds and pension death benefits are due to be brought within the estate. If your pension is a significant part of your wealth, reviewing your position before then is advisable.

What is the seven-year rule for gifts?

If you give away money or assets and survive for seven years after making the gift, it will usually fall outside your estate for inheritance tax purposes. These gifts are known as potentially exempt transfers. If you die within the seven-year period, taper relief may reduce the tax due on gifts made more than three years before death.

How to reduce inheritance tax - My Local Will Writer