Top 10 Tips - Reducing Inheritance Tax

Inheritance Tax (IHT) is one of the more contentious areas of tax that we help clients with.

Some feel a reel sense of unfairness that any wealth that may wish to pass on to loved ones has been built up out of income that has already been taxed and so see IHT as essentially double taxation.

We’ll leave that one for the politicians!

The general rule is that any assets that you own over and above £325,000 in value will be subject to 40% tax when you die.

But, there are some relatively straightforward and cost-effective things that you can do to reduce the amount of inheritance tax that you pay.

So here is ATN Partnerships Top 10 Tips for reducing IHT. 

Top 10


Your pension pot will not (normally) be part of your taxable estate and therefore not subject to Inheritance Tax. Whenever possible ensure that pension draw-down is delayed until after other investments have been used.

Resident nil rate band

This is an additional tax free allowance on top of the usual £325,000 and allows you to pass up to £175,000 of the value of your residence (which does not need to be your main home) to direct descendants tax-free. 


Gifts of up to £3,000 (total) per year attract no Inheritance Tax, they will essentially be excluded from the value of your estate.

Small gifts

Small gifts up to £250 per recipient, per year do not need to be included in the £3,000 limit above. 

Wedding Gifts

Wedding gifts up to £5,000 are exempt when made by a parent.

Gifts from income (as above)

This is a very little-used option - best to read our blog How can I reduce my Inheritance Tax.

Business property relief

Certain qualifying assets which can include things such as shares in a limited company  can get either 100% or 50% Business Relief

7-year rule - diminishing IHT 

This one is quite well known - essentially if you transfer wealth to a beneficiary at least seven years before you die, that transfer will be ignored for the purposes of Inheritance Tax.

Gifts given 3 to 7 years before your death are taxed on a sliding scale from 32% down to 8%.

Life Insurance

You can set up a Trust to remove assets from your estate in a tax-efficient manner or look at things such as a Whole of Life Policy that will pay towards IHT

Gifts to Charities

These are exempt from IHT, and, if more than 10% of your estate if gifted to charities then the rate of IHT charged against the rest of your assets drops from 40% to 36%.

Talk to us

If you would like clear, concise, and easy to understand help and advice on any issues that you are concerned about, then you can contact us on 01474 326224. Alternatively, visit our website or email us info@atnpartnership.co.uk.