Estate planning is a crucial part of financial management that is often overlooked until it becomes too late. But as you accumulate assets and wealth throughout your lifetime, it’s essential to consider how you’ll pass them on to your loved ones and minimise the tax burden they may inherit.

In this blog post, we’ll explore strategies for efficient estate planning and reducing inheritance tax liabilities to help you protect your assets and help your family.


Inheritance tax and your estate

Inheritance tax is applied at 40% on the estate of a deceased individual, but only on the portion of the estate that is valued above £325,000 – everything below that is completely protected.

Put simply, your estate is everything that you own, including all your property, investments, savings and personal possessions, on top of any liabilities or debts you might have.

You also have your £175,000 main residence allowance, which protects this much of your home from inheritance tax. That effectively leaves you with £500,000 to plan with.


Reducing your tax liability

Inheritance tax is applied to your estate once you’ve passed away, so you obviously need to work on reducing the amount that is applied while you’re alive. You can do that through multiple tactics:


Make use of your allowances

As we’ve already discussed, you have some allowances available to you. Make full use of them by reducing the value of your estate by following our next advice.


Consider lifetime gifts

One effective way to reduce the value of your estate and your potential tax liability is to make lifetime gifts to your loved ones. You can gift up to a certain amount each tax year without incurring inheritance tax:

  • Annual exemption: You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate.
  • Small gift allowance: You can give as many gifts of up to £250 per person as you want each tax year, as long as you have ot used another allowance on the same person. Birthday and Christmas gifts are exempt from inheritance tax.
  • Gifts for weddings or civil partnerships: You can give up to £5,000 to your child, £2,500 to your grandchild or great-grandchild, and £1,000 to anyone else who is getting married.

No tax is due on any gifts that you give if you live for seven years after giving them. This is known as the seven year rule. If you die within seven years of giving a gift and there’s inheritance tax to pay, the amount due depends on when you gave it:

Years between gift and death                 Rate of tax on the gift

3 to 4 years                                                         32%

4 to 5 years                                                         24%

5 to 6 years                                                         16%

6 to 7 year                                                            8%

7 or more                                                              0%



Trusts are a powerful tool for estate planning that can help you protect your assets and minimise tax liabilities. By transferring your assets into a trust, you effectively remove them from your estate.

There are various types of trusts open to you, each with its own advantages and drawbacks, so it’s important to seek professional advice to determine the most suitable trust structure for your needs. Options include bare trusts and interest in possession trusts.

Accountants like Alton & Co. play an indispensable role in the effective management of your estate planning. With our expertise in tax law and financial planning, they can provide tailored advice to ensure your assets are protected and your tax liabilities are minimized. We are adept at navigating the complexities of inheritance tax, utilising allowances, and setting up trusts that best suit your personal and financial goals.

By partnering with a skilled accountant, you can develop a robust estate plan that safeguards your legacy and provides peace of mind for you and your loved ones.

Need help with your estate planning and preparing for inheritance tax? We can assist you. All you need to do is get in touch.