Avoiding inheritance tax in the UK: 10 legal strategies for 2025
Published 14 August 2025
You have worked hard to build your legacy. But inheritance tax in the UK threatens to reduce what you leave behind. For many women, the responsibility of family finances and estate planning can feel overwhelming.
With thresholds frozen and property values rising, more estates are being taxed. You may be asking yourself: will my children face a tax bill I could have prevented?
The good news is, inheritance tax planning does not need to be complicated. With a few strategic moves such as gifting, updating your will, using trusts, you can pass on more of what you have worked for.
This guide simplifies everything you need to know about avoiding inheritance tax in 2025. Let us help you protect your estate and preserve your peace of mind.
Whether it is juggling bills, planning for the future, or figuring out how to invest, money decisions can quickly become overwhelming. That is where a financial adviser steps in, not just when you are in financial trouble, but also when you are ready to take your money game to the next level.
There is no one size fits all answer to when you should get advice. It depends on your goals, your life stage, and how complex your finances have become.
Let us explore the moments when expert guidance can really make a difference.
Understanding inheritance tax in the UK
What is Inheritance Tax?
Inheritance tax is a charge applied to the value of your estate after you pass away. Your estate includes everything you own such as property, savings, personal belongings, and investments, and deducts anything you owe such as mortgages, loans, debt and taxes. In 2025, many estates are now falling into the taxable bracket due to rising house prices and frozen allowances.
Who needs to worry about it?
Many assume inheritance tax is only a concern for the wealthy, but that is no longer true. If your estate is worth more than £325,000, or £500,000 if you own a home and leave it to your children or grandchildren, you could be affected.
1. Understand the key thresholds
The nil-rate band allows the first £325,000 of your estate to be tax-free. The residence nil-rate band offers an additional £175,000 when your home is passed to direct descendants.
For married couples or civil partners, unused allowances can be transferred, meaning a combined tax-free threshold of up to £1 million.
Tip: Ensure your will passes your home to a direct descendant to qualify for the residence nil-rate relief.
2. Consider gifting early
Making gifts during your lifetime is one of the simplest ways to reduce inheritance tax. But timing is key and so is making sure you will not need this later in life.
The seven-year Rule
If you live for seven years after giving a gift, it will not count toward your estate. If you pass away within that time, taper relief might reduce the tax due.
Use your allowances
£3,000 annual exemption
Small gifts of £250 to different people
Wedding gifts of up to £5,000 (child), £2,500 (grandchild), or £1,000 (others)
Keep a record of all gifts, and be consistent over the years.
3. Use trusts wisely
Trusts can move assets out of your estate while allowing you to retain some control. They are useful when you want to provide for children or protect vulnerable family members.
Types of trusts include:
Bare trusts: straightforward and simple
Discretionary trusts: flexible but taxed periodically
Interest in possession trusts: income goes to one person, capital to another
Always seek advice before setting up a trust.
4. Leave your estate to a spouse or civil partner
Anything left to a spouse or civil partner is exempt from inheritance tax. Their unused allowances can also transfer to your estate, doubling the thresholds.
Example: If you leave everything to your spouse, and they later pass away, your children could benefit from up to £1 million tax-free.
5. Reduce the tax rate through charitable giving
Leaving 10% of your estate to charity can reduce the inheritance tax rate from 40% to 36%. This can be a thoughtful way to support a cause you care about while lowering your tax bill.
Speak to a solicitor to include this in your will correctly.
6. Claim business or agricultural relief
If you own a business or farm, you may qualify for Business Property Relief or Agricultural Relief, reducing the taxable value of those assets by up to 100%.
This is a powerful relief but requires careful planning. Passive investments or rental properties usually do not qualify.
7. Use life insurance to cover the bill
A life insurance policy written in trust can be used to pay the inheritance tax due on your estate. This keeps the policy outside your estate and ensures your loved ones receive the payout quickly.
Important: Policies not written in trust could increase your taxable estate.
8. Downsize thoughtfully
If you sell your home and buy a smaller property, you can still claim the residence nil-rate band. This is called the downsizing addition and applies if you leave assets of equal value to your descendants.
Keep clear records of the sale and include all relevant instructions in your will.
9. Keep your will up to date
An outdated will can cost your family thousands in tax. Life changes such as marriage, divorce, or the birth of grandchildren should prompt a review.
Make sure your will reflects your current wishes and makes full use of available allowances.
10. Work with a specialist
Inheritance tax planning is not just for the wealthy. It is about understanding your options and putting the right plans in place.
A financial planner or estate planning solicitor can help you:
Identify your risks
Use reliefs and exemptions effectively
Protect your beneficiaries from unnecessary costs
Choose a regulated professional who understands your family values as well as the rules.
Quick takeaways
You may face inheritance tax if your estate exceeds £325,000 (£500,000 with home allowance)
Gifts, trusts, and life insurance are powerful tools for reducing liability
Married couples can combine allowances for up to £1 million tax-free
Business and agricultural reliefs may exempt valuable assets
Always keep your will and plans up to date
Conclusion
Inheritance tax does not need to be a burden. With the right approach, you can reduce or even eliminate the tax your family may have to pay.
Whether you are gifting now, using trusts, or reviewing your will, each step you take brings clarity and control. And that peace of mind is invaluable.
This is not about being perfect or having a huge estate. It is about making smart, considered choices that reflect your love and legacy.
Take the time today to protect tomorrow. Your family will thank you.a
Book your no-obligation clarity call today.
Warmly,
Shalini Kanap
FAQs
1. How much can I gift before inheritance tax applies?
You can give away £3,000 each year without affecting your estate. Larger gifts are also tax-free if you survive for seven years.
2. Is inheritance tax always 40%?
No. The rate can be reduced to 36% if at least 10% of your estate is left to charity.
3. Does inheritance tax apply to pensions?
In most cases, pensions are not subject to inheritance tax if you die before age 75. Check your provider's rules.
4. Do life insurance payouts count toward inheritance tax?
Not if the policy is written in trust. This ensures the payout goes directly to your beneficiaries.
5. What is the easiest way to avoid inheritance tax?
Start planning early. Gifting, updating your will, and using allowances are some of the simplest and most effective strategies.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Wills & Trusts are not regulated by the Financial Conduct Authority.
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