I want to reduce inheritance tax
In short
There are several legitimate ways to reduce inheritance tax: use your allowances, make gifts (using exemptions and the seven-year rule), leave gifts to a spouse or charity (both exempt), and consider trusts or business and agricultural reliefs. These have trade-offs and pitfalls, and the pensions rules change in April 2027, so take regulated advice before acting.
The situation
You want to reduce the inheritance tax your estate will pay.
What happens legally
The main levers (figures current for 2026) include:
- Allowances: the £325,000 nil-rate band and £175,000 residence nil-rate band (home to direct descendants), transferable between spouses.
- Gifting: the £3,000 annual exemption, small gifts, wedding gifts, and gifts out of surplus income; larger gifts fall outside the estate if you survive seven years.
- Exempt gifts: anything left to a spouse or civil partner, or to a charity, is exempt; leaving 10%+ to charity cuts the IHT rate on the rest from 40% to 36%.
- Trusts and reliefs: trusts, business relief and agricultural relief can help, but are complex and increasingly restricted.
The risks
- Gifts made within seven years of death can still be taxable, on a sliding scale.
- Giving away assets you may need later can leave you short, and 'gifts with reservation' don't save tax.
- From 6 April 2027 most unused pension funds fall within inheritance tax, changing many existing plans.
Recommended actions
- Use your annual and regular-gifting exemptions each year.
- Make a will that captures all available allowances, including a spouse's.
- Consider charitable legacies for both impact and the reduced 36% rate.
- Take regulated financial and legal advice before gifting large sums or using trusts.
Sources
- Inheritance Tax Act 1984 — legislation.gov.uk
- GOV.UK — Inheritance Tax: gifts, exemptions and the 7-year rule
- HMRC — Inheritance Tax on pensions: technical note (changes from 6 April 2027)
- Reviewed by
- ClearLegacy editorial team
- Last reviewed
- June 2026
- Next review
- December 2026
- Jurisdiction
- England & Wales
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