By Stuart d’Ivry, Managing Director of Pure Wealth Management

Inheritance Tax (IHT) can significantly reduce the value of an estate passed on to heirs. As of 2025, the standard inheritance tax rate in the UK is 40%, applied to estates valued above the tax-free threshold of £325,000 (known as the “nil-rate band”).

However, there are several legitimate ways to reduce or avoid inheritance tax altogether. This article outlines key strategies for tax-efficient estate planning in the UK.

Use the Nil-Rate Band and Residence Nil-Rate Band

Everyone has a £325,000 nil-rate band, meaning the first £325,000 of their estate is free from IHT.

Additionally, if you pass your home to a direct descendant (e.g., children or grandchildren), you may qualify for the residence nil-rate band, currently up to £175,000, bringing the total potential tax-free threshold to £500,000 per individual or £1 million for couples.

Make Gifts During Your Lifetime

a. Annual Exemption – You can give away up to £3,000 per year without it being added to the value of your estate. You can carry forward one year’s allowance.

b. Small Gifts – Gifts of up to £250 per person per year are exempt, as long as they haven’t benefited from your annual exemption.

c. Gifts from Income – Regular gifts made from your surplus income (not capital) are exempt if they do not affect your standard of living.

d. Potentially Exempt Transfers (PETs) – You can make larger gifts that become tax-free after seven years, provided you survive that long. If you die within seven years, taper relief may reduce the tax due.

 Leave Money to Charity

If you leave at least 10% of your estate to a registered charity, the IHT rate on the rest of your estate may be reduced from 40% to 36%.

Set Up a Trust

Trusts can be used to remove assets from your estate. While some trusts are subject to their own tax regimes, they can be effective tools when set up correctly. Popular types include:

• Discretionary trusts
• Interest in possession trusts
• Bare trusts

Professional advice is critical, as the rules are complex and misuse can lead to higher tax liabilities. Pure Wealth offer full advice in this area.

Take Out a Life Insurance Policy

You can take out a life insurance policy in trust to cover any expected IHT bill. This ensures that your beneficiaries receive a lump sum to pay the tax without dipping into the estate’s assets. Pure Wealth offer full advice in this area.

Invest in Business or Agricultural Relief Qualifying Assets

Certain assets qualify for Business Relief (BR) or Agricultural Relief, which can reduce their value for IHT purposes by 50% or 100%.

This typically applies to shares in qualifying unlisted companies and Land and buildings used in agriculture or business. Pure Wealth offer full advice in this area.

Final Thoughts

Inheritance tax planning is a complex area, and mistakes can be costly. It’s strongly recommended to consult a qualified estate planner or tax advisor when making significant decisions and this is where Pure Wealth expertise can help.

While you cannot completely avoid inheritance tax in every situation, with efficient financial planning and use of available allowances, it’s often possible to substantially reduce the amount your estate pays ensuring more of your wealth is passed on to your loved ones. Sounds great? Well, get in touch – the first meeting is free.

So, who are Pure Wealth Management?

Pure Wealth are an independent financial advice practice offering holistic whole of market advice to individuals and businesses across South Wales. We are not tied to any company or provider and will work in partnership with our clients to offer bespoke financial planning typically on an ongoing basis.

Pure Wealth is part of the wider Pure Group which consists of specialists in other areas such as residential property, property investing, commercial property and development. This ensures that clients of the Pure Group have the peace of mind that they are receiving independent advice across all areas of their finances.

Should any of the readers require any advice or have any question in relation to mortgages or any other areas of their financial planning please get in touch mention Sportin Magazine and we will ensure the first consultation is free of charge.

Contact 02922 671957

Email info@purewealthmanagement.co.uk

Investments can go down as well as up. You may not get back the original capital invested. This article is for information purposes only and does not represent advice or recommendation to act.

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