Do I need to plan for Inheritance Tax?

Inheritance Tax (IHT) is the tax payable on your estate upon your death when it’s passed on to loved ones. Your death estate will be the value of your savings, property, and any other assets combined.

IHT is only payable when the death estate exceeds the Nil Rate Band (NRB) of £325,000.  Anything below this is free of IHT. As well as this, when leaving your residential home to children or grandchildren, you can also benefit from the Residential Nil Rate Band (RNRB) of £175,000. Anything left above these allowances is subject to IHT at 40%.

For example, Paul has a death estate of £650,000, including his residential home valued at £180,000.  Paul made a Will leaving his entire estate to his daughter. This is how much IHT his daughter would need to pay:

(Pauls Estate) £650,000 – (NRB) £325,000 – (RNRB) £175,000 = (Taxable) £150,000

£150,000 taxed at 40% = £60,000 IHT payable.

Ways to plan for and reduce your Inheritance Tax

There are multiple ways to plan and reduce your inheritance tax bill if you feel like you may be affected. Below are a few ways to try and manage your expected bill.

Create a will:

Creating a will ensures your estate is distributed exactly as you wish. You can plan who receives what in order for it to be the most tax-efficient way. For example, leaving your residential home to your children as opposed to your siblings will mean you qualify for the RNRB of up to £175,000.


Making gifts during your lifetime will reduce the value of your estate and therefore reduce the amount of IHT payable. Gifts made 7 years prior to your death are not included in your estate, whereas gifts made within the 7 years up to death still remain part of your estate but may be subject to tapering relief.


In creating a trust you can remove assets from your estate so they aren’t included in IHT calculations. Various types of trusts exist and the process of setting them up can be quite complex in nature. Trusts can be personalised to meet your individual needs. Best to seek financial or legal advice when setting these up.


Spending your wealth can be a great way to reduce the total value of your estate, especially when enjoying your retirement. In turn, this may reduce your IHT bill.