Can I Avoid Inheritance Tax in the UK? Smart Strategies to Protect Your Estate

Belgravia Capital
4 days ago
3 min read

With rising property prices and frozen tax thresholds, more and more families in the UK are finding themselves exposed to Inheritance Tax (IHT) - sometimes unexpectedly.

This naturally leads to one of the most common questions we hear at Belgravia Capital Wealth Management: “Can I avoid inheritance tax?”

The answer is - not entirely for everyone, but with careful planning, many families can significantly reduce or even eliminate their IHT liability.

In this guide, we explain how Inheritance Tax works and outline legal, ethical strategies to protect your estate.

What Is Inheritance Tax and When Is It Charged?

Inheritance Tax is a tax on the estate of someone who has died.

It’s charged at 40% on the value of the estate above the tax-free threshold, known as the nil-rate band.

As of 2025, the main allowances are:

£325,000 nil-rate band per person
£175,000 residence nil-rate band if your home is passed to direct descendants

Together, this gives a potential £500,000 tax-free allowance per person - or £1 million for married couples or civil partners.

Anything above these thresholds is subject to IHT, unless exemptions or reliefs apply.

Can You Avoid Inheritance Tax Entirely?

Yes - some people can, especially if:

Their estate falls below the tax-free thresholds
They leave their estate to an exempt recipient (e.g. spouse or charity)
They make use of exemptions, gifts, and trusts over time

However, if your estate exceeds £1 million and includes property, cash, or investments, proactive planning becomes essential to avoid unnecessary taxation.

8 Legitimate Ways to Avoid or Reduce Inheritance Tax

1. Use Your Annual Gift Allowance

You can give away £3,000 per year without it being added to your estate. If unused, this can be carried forward one year.

2. Make Small Gifts

You can also give £250 per person per year to as many people as you like, as long as they haven’t received part of your £3,000 allowance.

3. Make Gifts From Surplus Income

If you have regular surplus income, you can give it away — provided it doesn’t affect your standard of living.

4. Leave Assets to Your Spouse or Civil Partner

Transfers between UK-domiciled spouses or civil partners are completely exempt from IHT, and they can also inherit any unused IHT allowances.

5. Use the Residence Nil-Rate Band

Passing your main residence to children or grandchildren can unlock an extra £175,000 of tax-free allowance per person.

6. Gift Early to Beat the 7-Year Rule

Gifts made more than 7 years before your death are outside your estate and fully exempt from IHT.

7. Use Trusts for Wealth Protection

Certain trusts - especially discretionary and bare trusts - can help move assets out of your estate.

8. Take Out a Life Insurance Policy in Trust

A whole-of-life policy written in trust can cover your IHT liability, ensuring that beneficiaries receive their inheritance intact.

Who Is Automatically Exempt From Inheritance Tax?

IHT does not apply in the following cases:-

Spouses or civil partners inheriting from each other
Charitable donations
Gifts to political parties, museums, or national institutions
Estates below £325,000 (or £500,000 with the residence band)

Even if your estate seems below the threshold, it’s wise to have it valued professionally, especially if you own property or significant investments.

What About Business or Agricultural Assets?

These may qualify for Business Relief or Agricultural Relief, which can reduce the taxable value of qualifying assets by 50% or 100%.

The rules are detailed and HMRC scrutinises these claims carefully - get specialist advice if this applies to you.

What Happens If I Do Nothing?

If you don’t plan ahead:

Your estate could lose 40% of its value above the threshold
Your family might be forced to sell property or assets to pay the tax bill
You may miss out on allowances and reliefs that require pre-death action

Proactive planning means more of your wealth stays in your family, rather than going to HMRC.

How Belgravia Capital Wealth Management Can Help with IHT planning

At Belgravia Capital, we provide personalised estate planning advice, including:

IHT exposure analysis
Strategic gifting plans
Trust and legacy structuring
Life insurance modelling
Coordination with solicitors and accountants

We work with families to secure and preserve generational wealth.

Conclusion: Can I Avoid Inheritance Tax?

Yes - in many cases, Inheritance Tax can be reduced or avoided entirely with the right combination of gifting, planning, trusts, and timing.

But the key is to start now, while you have options.

Need help creating an IHT reduction plan tailored to your estate?