Keeping it in the Family – The issue of Inheritance Tax (IHT)

Posted: 25th March 2024 Key

Financial planning is complex and one aspect that has become more prevalent is that of Inheritance Tax (IHT). Since 2009, the Inheritance Tax Nil Rate Band (NRB), which determines the tax-free amount a person can leave behind, has remained at £325,000. This allowance has not kept up with growing asset values, resulting in more estates being subject to tax at 40% above this figure.


At Wise Investment, we believe in simplifying the complex financial landscape for our clients. In this article, we look briefly at the intricate topic of IHT and provide guidance on how you can “Keep it in the family”.

What can I leave to my family free of IHT?


When a spouse leaves their entire estate to their other half, the Inheritance Tax (IHT) is usually postponed. This allows the unused NRB to be carried forward, effectively doubling the tax-free inheritance after the second of the couple passes away. This also applies to the Residence Nil Rate Band (RNRB) of £175,000 per person, for homeowners who wish to pass on the family home to their children or other direct descendants.


For married couples who jointly own the family home and plan to leave it to their children, this means the total IHT exemption is £1 million. It’s important to note that these provisions do not offer much relief for unmarried couples, individuals without direct heirs, or estates worth over £2 million. If an estate exceeds this threshold, the RNRB gradually reduces and is completely removed at £2.35 million.

Possible Solutions

There are various ways you can look to mitigate the IHT liability on your estate:

  • Spend it. Perhaps the simplest way to reduce the value of your estate and potential IHT bill is to enjoy the money. Why not go ‘SKIing’ – Spending Kids Inheritance? Spend money on activities which immediately lose their monetary value such as eating out, entertainment and holidays. These activities all obviously have value beyond pounds and pence. Avoid buying potentially appreciating assets such as property, antiques and collectables as this just shifts the value and could even make the problem worse.
  • Gift it. Making direct gifts to your chosen beneficiaries can be a satisfying way of reducing any future liability. Consider the ‘7-year rule’ where gifts made more than 7 years before death are free from IHT. Do not overlook the ability to make gifts made from excess income, which should immediately fall outside of your estate. Such gifts need not be outright but could be paid into a Trust. This would mean you can start to take value out of your estate but still have control over when the beneficiaries receive funds. A halfway house is a Loan Trust where the original sum always forms part of your estate and you can call upon it if you need it. However, any growth in the underlying investment is immediately outside of the estate and retained for the beneficiaries.
  • Shelter it. Any funds held in Pensions will not form part of your estate and so should be preserved and grown where possible. Of course, if you ever need the money yourself, it is there waiting for you. Explore investments which attract IHT Business Relief (BR). Normally these would fall outside of your estate after you have held them for just 2 years but you also retain ownership and control. For example, a portfolio of Alternative Investment Market (AIM) shares or specialist structures operating in renewable energy or secured property development lending, amongst others.
  • Insure it. A Whole of Life insurance policy which would pay a lump sum out into a Trust which can then be used to pay the IHT bill. You should consider the cost of the premiums which can be very expensive, particularly as you get older or if you suffer health issues. If you are unable or unwilling to maintain the premiums, the policy ceases and you lose the cover.

Avoid overplanning! Strike a balance between providing for your own needs, assisting your beneficiaries, and minimising tax. Life brings change – income varies, investments fluctuate, and unforeseen expenses arise.

Importance Of Planning

You may well be asking “How much of a problem is this for me?”. No doubt you will have a general idea as to whether or not your estate is going to suffer IHT, but do you know the exact bill today should anything happen to you? Do you know what it might look like in the future if you do nothing? As you might expect, the way in which the IHT rules work and interrelate is complex. Each individual’s estate and viewpoint will be different, so there is no ‘one size fits all’ approach.

This is where Wise Investment comes in. After assessing your estate’s value, existing plans, and future goals, our Financial Planners provide a comprehensive report. This equips you to tackle the issue if your estate exceeds the threshold. We’ll continuously review your plan to minimise IHT while preserving your broader financial objectives.

Contact us today for a free no obligation conversation to get the ball rolling.


The information contained in this article is not a personal recommendation and should not be construed as investment advice. If you are unsure about the suitability of a particular investment you should speak to an authorised financial adviser. Every effort is taken to ensure the accuracy of the information provided but no warranties or given. HMRC tax rates and allowances are subject to change and tax treatment may depend on individual circumstances. Wise Investments Limited is authorised and regulated by the Financial Conduct Authority, reference number 230553. Registered Office: The Long Barn, Chalford Park Barns, Oxford Road, Chipping Norton, Oxfordshire, OX7 5QR. Registered in England 4970458.


Joseph Cooper