Five Smart Ways UK Families Can Reduce Inheritance Tax Exposure

Inheritance tax (IHT) has quietly become one of the most significant financial risks for UK families. Frozen allowances, rising property prices and increasingly international family lives mean that estates once considered modest are now facing substantial tax bills.

Drawing on years of advising families on succession and estate planning, below are five practical strategies that can materially reduce inheritance tax exposure when applied correctly and in good time.

1. Plan Early — Time Is a Tax Asset

One of the most powerful tools in inheritance tax planning is simply time. Early planning allows families to take advantage of lifetime gifting rules, under which certain gifts can fall outside the estate entirely if the donor survives for seven years.

Where death occurs sooner, taper relief may reduce the tax payable on gifts made between three and seven years beforehand. For married couples and civil partners, careful coordination of allowances can also enable significant wealth — often up to £1 million — to pass free of IHT. Waiting too long often means fewer options and higher tax costs.

2. Use Trusts with Care and Precision

Trusts remain a cornerstone of effective estate planning, but they must be structured with precision. When properly designed, trusts can move assets outside an individual’s estate, safeguard wealth for future generations and provide flexibility over how and when beneficiaries benefit.

They are also commonly used to hold life insurance policies so that proceeds are paid outside the estate. However, poorly planned trust arrangements can trigger unexpected tax charges or compliance issues. Trust planning should always be tailored and professionally implemented.

3. Post-Death Planning Using Deeds of Variation

Inheritance tax planning does not necessarily stop at death. A deed of variation allows beneficiaries, within two years of death, to redirect inherited assets without triggering additional IHT or capital gains tax.

This flexibility can be used to pass wealth down a generation, introduce trusts after death, or rebalance family provision — often achieving a more tax-efficient outcome while respecting family intentions.

4. Insuring Against the IHT Liability

Inheritance tax is usually due within six months of death, and delays can attract interest. Life insurance policies written into trust can provide immediate funds to meet this liability, ensuring executors are not forced to sell assets under pressure.

Because the policy is held outside the estate, the payout itself does not increase the IHT burden. This approach is particularly effective where the estate is asset-rich but cash-poor.

5. Maintain Clear and Detailed Records

Accurate record-keeping is often overlooked but critical. Executors may need to evidence lifetime gifts, including their timing, value and source of funds. This is especially important for gifts made from surplus income, which can be immediately exempt from IHT — provided they are properly documented.

Well-kept records reduce disputes with HMRC and make estate administration significantly smoother.

Frequent Pitfalls to Avoid

• Assuming unmarried partners benefit from spouse exemptions.

• Making large gifts without safeguarding personal financial security.

• Retaining enjoyment of gifted assets, which can nullify tax relief.

Inheritance tax planning is most effective when approached as a long-term strategy rather than a last-minute exercise. With careful structuring and timely advice, families can preserve wealth, maintain control and reduce unnecessary tax leakage.

About the Author

Sheikh Najam is a Notary Public of England and Wales, a qualified lawyer, and the founder of Staple Inn Notaries, a London-based practice advising individuals, families, and businesses on UK and cross-border legal matters.

He advises on notarial services, Wills and estate planning, trusts, probate, inheritance tax planning, business and corporate law, and dispute resolution, with particular expertise in international and cross-border estates, trusts, and documentation.

Sheikh Najam is STEP-qualified and authorised to practise law anywhere in England and Wales. He regularly acts for international clients, overseas families, and business owners requiring UK legal advice in connection with foreign authorities, overseas assets, and multi-jurisdictional matters.

📍 Based in central London📞 020 3488 4195