Can Inheritance Tax Be Avoided? Comprehensive Strategies for UK Families

Belgravia Capital
May 31
4 min read

Inheritance Tax (IHT) is often seen as an unavoidable cost of passing wealth to the next generation - but that’s not always true.

With the right planning, many UK families can legally reduce or even avoid paying inheritance tax altogether.

At Belgravia Capital Wealth Management, we regularly hear the question:

“Can inheritance tax be avoided?”

The short answer is: Yes - with long-term planning, strategic gifting, and careful structuring, you can significantly reduce or eliminate IHT.

In this guide, we’ll walk through the practical, legal methods to protect your wealth from HMRC and secure your legacy for future generations.

How Inheritance Tax Works in the UK

Before exploring how to avoid it, it’s important to understand the basics.

Inheritance Tax is charged at 40% on the portion of your estate that exceeds your available allowances:

£325,000 nil-rate band (NRB) per person
£175,000 residence nil-rate band (RNRB) if your main home is left to direct descendants

This means a couple can potentially pass on £1 million tax-free. Anything above that is taxed at 40%.

Can Inheritance Tax Be Avoided?

Yes - for many families, IHT can be avoided entirely through:

Using exemptions and allowances
Transferring wealth during life
Strategic use of trusts
Life insurance planning
Charitable giving
Business relief

It requires advance preparation, ideally years before death, but the rewards are significant.

6 Effective Strategies to Avoid or Minimise Inheritance Tax

Use the 7-Year Gifting Rule

Gifting assets during your lifetime is one of the most effective ways to avoid IHT.

Gifts made more than 7 years before your death are completely tax-free
Taper relief may reduce tax on gifts made 3 - 7 years before death
Use your £3,000 annual exemption, and consider regular gifts from surplus income

Make the Most of Spouse Exemptions

Anything you leave to a UK-domiciled spouse or civil partner is free from IHT.

On second death, their estate can benefit from your unused tax allowances
This can effectively double your tax-free threshold

Pass on Your Main Residence to Children or Grandchildren

The residence nil-rate band allows you to pass on your home tax-free up to £175,000 (per person).

But be aware:

It only applies if the home is passed to direct descendants
Estates over £2 million lose this benefit gradually

Establish a Trust

Trusts allow you to remove assets from your estate while retaining control.

Discretionary trusts can be used for complex family arrangements
Bare trusts allow full ownership transfer to beneficiaries after a set age
Trusts have their own tax rules, including entry charges and periodic reviews, so professional advice is essential

Use Business Relief or Agricultural Relief

Certain assets can be passed on with 50% or 100% IHT relief, including:

Shares in qualifying trading businesses
Farms and agricultural land
Some AIM-listed investments

This relief is especially valuable for entrepreneurs and farmers.

Take Out a Whole-of-Life Insurance Policy in Trust

You can insure against a future IHT bill by:

Taking out a whole-of-life policy
Writing it in trust so it sits outside your estate
Ensuring the policy pays out quickly and tax-free

This gives beneficiaries a way to pay HMRC without needing to sell inherited assets.

Can Inheritance Tax Be Avoided by Making a Will?

A will is essential - but on its own, it doesn’t reduce inheritance tax.

What it does do:

Ensure your estate is distributed according to your wishes
Help maximise allowances and avoid intestacy problems
Allow for trust creation and structured gifting

Proper will planning, combined with tax strategy, is key to avoiding IHT.

What About Avoiding IHT by Moving Abroad?

While some believe moving abroad exempts you from UK inheritance tax, the reality is more complex.

IHT is based on domicile, not just residence
Even if you live abroad, if you’re UK-domiciled, your worldwide estate is still subject to IHT
Changing domicile is difficult and requires severing UK ties completely

There are better, safer ways to reduce tax exposure without relocating.

Myths About Avoiding Inheritance Tax

“Only the wealthy pay IHT” - False. Many middle-class families now fall into the IHT net due to rising house prices.
“Giving my house to my children removes it from IHT” - Not if you continue to live in it without paying full market rent (this is a “gift with reservation”).
“I don’t need to plan - my estate is under the threshold” - Until property growth or unexpected inheritance pushes it over.

How Belgravia Capital Wealth Management Can Help with IHT and Estate Planning

We help individuals and families across the UK:

Calculate their IHT exposure
Implement long-term tax-saving strategies
Set up trusts and life insurance plans
Optimise wills and use allowances efficiently
Coordinate with solicitors and tax professionals for seamless planning

With proactive advice, many of our clients reduce - or completely eliminate - their future IHT bill.

Conclusion: Can Inheritance Tax Be Avoided?

Yes - but only through early, smart planning. It’s not about loopholes or offshore accounts - it’s about making full use of the UK’s legal tax reliefs and exemptions.

Don’t leave 40% of your estate to HMRC unnecessarily. Start your inheritance tax planning today.