A variety of wealth management strategies can be utilised to reduce your family’s inheritance tax liability.
Inheritance tax is tax paid to HMRC on the value of the estate of a deceased person, as per the deceased’s will or common law. Spouses and civil partners do not pay inheritance tax when receiving an inheritance from their husband/wife/partner, and you may not have to pay anything if you inherit within the “nil-rate band”.
The nil-rate band for inheritance tax – i.e., the amount of money you can inherit before having to pay any inheritance tax – is currently set at £325,000*, all inherited monies above this figure will be charged 40% tax.
However, this nil-rate band can be topped up by £175,000* to £500,000* if the deceased leaves their main residence to their children and/or grandchildren, officially known as the “main residence allowance”. If the estate is worth more than a total of £2 million, other rules apply.
Charitable donating is one strategy for reducing the inheritance tax bill your family will need to pay from your estate. By leaving a donation to charity in your will, you can reduce your tax bill in one or two ways:
Current laws encourage at least 10% of the estate’s value is donated to charity in return for partial tax relief. The amount owed to HMRC will be reduced by 10%, i.e., from an inheritance tax rate of 40% to 30%.
There are other wealth planning strategies to reduce the inheritance tax your family will owe, such as making the most of gift allowances, investments, insurance and more.
*Tax year 2024/2025