Can I Avoid Paying Inheritance Tax? Separating Fact from Fiction in the UK

Belgravia Capital
4 days ago
3 min read

Inheritance Tax (IHT) is often labelled the UK’s most unpopular tax - and for good reason.

At 40% above certain thresholds, it can feel punitive, especially for families whose wealth is tied up in property or small businesses.

At Belgravia Capital Wealth Management, clients regularly ask:

“Can I avoid paying inheritance tax?”

The answer: You can’t evade it - but with smart, legal planning, you can often reduce or completely avoid it.

In this article, we break down what’s possible, what’s not, and the most effective strategies for keeping your family’s wealth intact.

Understanding What Inheritance Tax Actually Is

Inheritance tax is charged on your estate - the total value of your property, savings, investments, possessions, and some lifetime gifts - when you die.

Key thresholds as of 2025:

£325,000 nil-rate band (everyone gets this)
£175,000 residence nil-rate band (if your home goes to a direct descendant)
Total possible allowance: £500,000 per person, £1 million per couple

Anything above this is taxed at 40%, unless exemptions or reliefs apply.

Can You Avoid Paying Inheritance Tax Entirely?

Yes - in certain cases. Inheritance tax is only paid if:

Your estate exceeds the available allowances
You don’t take steps to gift or structure your assets beforehand

If your estate is below £500,000 (or £1 million for couples), you won’t pay a penny in IHT.

Common Ways to Avoid or Reduce Inheritance Tax

Gifting Assets During Your Lifetime

You can give away assets during your life. If you survive seven years after making a gift, it’s outside your estate for IHT.

You also have annual exemptions:

£3,000 total per year
£250 small gifts per person
Wedding gifts (up to £5,000 depending on relationship)

Leaving Everything to Your Spouse or Civil Partner

All assets passed to your spouse or civil partner are exempt from IHT, regardless of value.

Plus, their unused allowance is transferred to you, doubling your tax-free estate.

Leaving Assets to Charity

Gifts to registered charities are IHT-free. Better still - if you leave 10% or more of your estate to charity, the IHT rate on the rest drops from 40% to 36%.

Using Trusts Wisely

Trusts allow you to pass on assets without giving full control away, and in some cases reduce IHT - especially for:

Children or grandchildren
Vulnerable or disabled beneficiaries
Complex family arrangements

Note: Trusts don’t eliminate tax and can be complex - always get advice.

Taking Out Life Insurance in Trust

A whole-of-life policy written in trust can be used to pay the IHT bill, so your beneficiaries don’t need to sell property or investments.

Can You Legally Evade Inheritance Tax?

No - tax evasion is illegal and includes:

Hiding assets
Undervaluing an estate
Misleading HMRC

But tax avoidance - using legitimate strategies to reduce or eliminate tax - is legal and widely used.

Common Myths About Avoiding Inheritance Tax

“Making a will avoids IHT” - False. A will controls distribution, not tax.
“Putting my house in my child’s name means no IHT” - False (and risky). If you still live in it rent-free, HMRC calls this a “gift with reservation.”
“Moving abroad exempts me from IHT” - Not unless you fully change your domicile and sever UK ties.

Who Doesn’t Pay Inheritance Tax?

You may not pay IHT if:

Your estate is under the tax-free threshold
You leave everything to your spouse, civil partner, or charity
You’ve made exempt gifts
You qualify for business or agricultural relief

Oh, and if you’re the monarch.

High-Impact Planning for High-Value Estates

If your estate exceeds £1 million, consider:

Structuring assets in trusts or family investment companies
Using Business Relief to pass on business assets IHT-free
Making use of surplus income gifting (giving away income you don’t need)

This is where expert planning from a firm like Belgravia Capital can save hundreds of thousands, sometimes millions, in tax.

How Belgravia Capital Wealth Management Can Help you Avoid Inheritance Tax

We specialise in helping high-net-worth individuals and families:

Identify their exposure to inheritance tax
Build lifetime gifting and trust strategies
Use life insurance to cover future liabilities
Coordinate with solicitors and accountants for joined-up planning

Every family is different - and so is every estate. That’s why our advice is tailored, practical, and designed to protect your wealth.

Conclusion: Can You Avoid Paying Inheritance Tax?

Yes - but only through early planning, proper structuring, and smart use of tax rules.

There’s no one-size-fits-all solution. But the worst mistake you can make is to do nothing and let HMRC take 40% of your legacy.

Let us help you plan a smarter way forward.