Inheritance tax can place a huge financial burden on your loved ones. These steps can help you manage your estate, so more of your wealth goes to those you wish to benefit.
How can I reduce my inheritance tax (IHT) bill?
When RBC Wealth Management conducted a survey of UK high-net-worth individuals (HNWIs) in late 2023, one concern stood out above all others: inheritance tax (IHT).1
Such concern is well founded. Families in the UK paid a record £7.5 billion in IHT in the financial year 2023-2024 – nearly double the £3.83 billion paid in 2014-15.
It’s a staggering rise, driven largely by sustained property price increases and a long-term freeze of the IHT threshold.
Source: HMRC
In the UK, a zero percent rate of IHT, known as the nil rate band, is applied on assets up to £325,000 per person. If your estate is worth more than £325,000 when you die, any assets beyond that figure may be subject to a flat IHT rate of 40 percent. Any unused threshold may be transferred to a surviving spouse or civil partner, increasing their combined threshold to up to £650,000.
Individuals may also benefit from the additional residence nil rate band of £175,000, where property is left to direct descendants. Similar to the nil rate band, any unused amount can be transferred to a surviving spouse, increasing the combined nil rate threshold to a possible £1,000,000. However, the additional residence nil rate band is tapered for estates worth more than £2,000,000, and therefore withdrawn entirely if a married couple’s combined estate is worth more than £2,700,000.
The following example demonstrates how IHT can impact the total value of an estate.
Note: It was announced in the 2024 Autumn Budget that from April 2026, qualifying AIM shares will benefit from a reduced 50 percent IHT relief; and from April 2027, most pensions will be subject to IHT and fall inside an individual’s estate.
The UK’s IHT threshold has been frozen since 2009, which has resulted in significant fiscal drag. If the threshold had moved in line with the Retail Price Index’s level of inflation – one of two main measures of UK consumer inflation – an individual would now be able to pass on more than £407,000 without incurring IHT.2 Projected forward to tax year 2027-2028, and that figure would be over £500,000 .
But what exactly comes under the scope of IHT?
IHT is applicable to everything from property – your main residence, holiday homes and rentals – to your money, personal art, jewelry, vehicles and other investments.
Naturally, concern over the impact of IHT seems to increase with age. While RBC Wealth Management’s survey found IHT to be the primary concern for 35 percent of HNWIs when averaged across all age groups, the figure rises to 42 percent among those aged 55-65. This underlines the value of robust retirement planning and putting appropriate measures in place as early as you can.
“There are some people who will be happy to pay any IHT liability, as their money is going to HMRC and helping those less fortunate,” says Dean Moore, managing director of Wealth Planning for RBC Wealth Management in the British Isles. “But the majority of estate owners who have children, and charitable causes that are close to their heart, will want to mitigate its impact. This means starting the process as soon as possible.”
Smart strategies for effective inheritance tax planning.
Gifting money can be a tax-efficient solution to limiting your IHT liability. Yet gifting without losing control of assets is the second biggest financial concern of UK HNWIs, behind IHT.3
“Many of our clients employ a gifting strategy to offload their wealth in a controlled manner,” says Moore. “But they often require support with identifying how much they should gift and when they should do it.”
Gifts considered “outside” an estate include those between spouses and civil partners, gifts of up to £3,000 per year, and those of £250 or less per person, per year – as long as you haven’t used another allowance on the same person.
One popular option is to gift money to your children for specific purposes, such as buying property, funding education or setting up a business. An added advantage with this is you get to see your loved ones benefit. Gifts toward a wedding benefit from an allowance of up to £5,000 from each parent, £2,500 from each grandparent and £1,000 from anybody else.
A common way for HNWIs to gift is using a trust, which they may also become a trustee of. This enables you to retain a degree of oversight over how the money is distributed to your children and beneficiaries.
Another option is to move the assets into a family investment company – a corporate structure in which your family members become shareholders. The company can be set up to divide ownership and voting control according to your wishes.
It’s important to note that, with any non-exempt gift you make, you must survive seven years before it qualifies for the zero percent rate.
Some investments are exempt from IHT entirely, such as those qualifying for the Enterprise Investment Scheme , Agricultural Property Relief (APR), Business Relief (BR) and investments in Alternative Investment Market (AIM) companies.
However, from April 2026, AIM shares will benefit from IHT relief at a reduced rate of 50 percent (no matter the value of shares held).
The treatment of APR and BR investments will also change in April 2026. APR and BR investments in privately owned companies will have a combined £1 million lifetime allowance. That means up to £1 million of qualifying assets can be left completely free from inheritance tax. Above this lifetime allowance, assets will qualify for relief at a 50 percent rate uncapped.
BR is a good example of the rationale behind IHT-exempt investments. It’s a system designed to aid succession in family businesses and stimulate investment into British companies. Here, any investment into a qualifying company is exempt from IHT after only two years (up to the value of £1 million as of April 2026). You don’t need to run your own business to benefit either; reputable providers now offer portfolio companies in which anyone can buy shares.
Another advantage is that you retain direct access to the assets, unlike putting money into a trust or setting up a corporate vehicle. This can be reassuring if you’re concerned about the potential cost of future care, or about giving away too much of your wealth too soon. You can also continue to draw an income from these shares or sell them to fund future expenses.
Any gift made to charity during your lifetime is immediately exempt from IHT. If you leave a portion of your estate to charity in your will, you can also reduce the rate of IHT applied to the rest of your estate.
For example, if you leave 10 percent of your estate to charity, the 40 percent rate of IHT that would apply to the rest reduces to 36 percent.
It’s worth factoring this into your will, as well as investigating tax-exempt vehicles such as charitable trusts or foundations.
“The beauty of giving money to causes you care about is that, as you begin to set aside money during your lifetime, you can see it being put to work, and take satisfaction in the difference it’s making,” says Nick Ritchie, senior director of Wealth Planning at RBC Wealth Management in the British Isles.
You may decide you don’t want to give up any or all of your assets during your lifetime, but still wish to minimise the IHT bill.
One solution is taking out a whole-of-life insurance policy, which pays out after your passing and can be used to pay off all or some of the IHT liability.
“Insurance can mean that, should anything happen to you in the next 10, 15, 20 years, your IHT liabilities are covered,” says Ritchie. “This can provide you with certainty – and peace of mind. But you need to start early, as the cost of your policy will largely be dictated by your age and health.”
Previously, your place of residence was the main consideration in IHT planning, and you could remain within the UK IHT net after leaving. However, changes taking effect from 6 April 2025 will make it easier to leave the UK IHT net behind following a relocation.From 6 April 2025, if you’ve been a non-UK resident for more than 10 of the last 20 years, your non-UK assets will be outside the scope of UK IHT.Those looking to leave the UK can use life insurance to cover potential IHT during this 10-year period. After 10 years outside the UK, it’s possible to return to the UK and remain outside the IHT net for 10 years, or to remain outside the UK and outside the UK IHT net (on the basis you do not hold assets located in the UK).Care should be given to days spent in the UK, activities undertaken while in the UK and ties to the UK, as you will need to avoid becoming a UK tax resident to free yourself from the IHT net.Your new home country should also be considered carefully as you will need to factor in visa requirements (your right to be in the country), local tax laws and lifestyle.
Probably the simplest way to reduce the amount of inheritance tax due on your estate is to spend your money on yourself while you’re still alive. Be it a trip of a lifetime or pursuing a specific hobby, spending your own money on something you love doing can be incredibly fulfilling, especially when you know that 40p of every £1 spent is money that would have been lost to tax.
IHT mitigation doesn’t have to be complex. Engaging with an experienced wealth advisor can help you build a holistic wealth plan that meets your needs both now, and in the future.
“It all starts with a conversation,” says Moore. “By identifying a client’s goals in four key areas – career, family, lifestyle and property – we can build the best combination of strategies for them and their family, while ensuring their plan evolves to serve their needs as they change.”
Yet the process of mitigating the impact of IHT can be a hard one to start.
“These are difficult conversations,” says Ritchie. “They involve considering your own mortality, and it can be all too easy to end up kicking the can down the road as a result. But if you don’t tackle IHT promptly and properly, you may land your family with a heavy administrative and financial burden, at a time of deep emotional stress.”
Proper planning will never completely remove the emotion from the situation, but a proactive, incremental approach to IHT will make the process much easier for you – and dramatically reduce the strain on your loved ones.
Sources:
1 Survey conducted by Kantar on behalf of RBC Wealth Management in October 2023. Respondents consisted of 600 high-net-worth individuals (minimum investable assets of £500,000) based in the UK.
2 Correct as of Feb. 7, 2023.
3 Survey conducted by Kantar on behalf of RBC Wealth Management in October 2023. Respondents consisted of 600 high-net-worth individuals (minimum investable assets of £500,000) based in the UK.
This article was updated in Jan. 2025.
Please note: RBC is not a tax specialist and this does not constitute tax, legal or investment advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should always check the tax implications with an accountant or tax specialist.
EIS investments are considered high risk investments by the UK’s financial regulator, the Financial Conduct Authority. They are only suitable for UK resident taxpayers who can tolerate higher risk and have a suitable timeframe for investment. Tax reliefs are subject to a minimum investment period and cannot be guaranteed. They depend on the individual circumstances of each client. Tax rules are subject to change.
Past performance is not a guide to future performance, the value of investments and income arising can fluctuate significantly, future returns are not guaranteed, and you could lose all of the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Secure your financial future by contacting our wealth specialists.
This publication has been issued by RBC’s Wealth Management international division in the United Kingdom and the Channel Islands which is comprised of an international network of RBC® companies located in these jurisdictions and includes RBC Europe Limited and Royal Bank of Canada (Channel Islands) Limited. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by RBC’s Wealth Management international division.
This publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, the value of investments and income arising can go down, future returns are not guaranteed, and an investor may not get back the amount originally invested. Countries throughout the world have their own laws regulating the types of securities and other investment products and services which may be offered to their residents, as well as the process for doing so. As a result, any securities or services discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.
This material is prepared for general circulation and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law none of the entities which comprise the international division of RBC Wealth Management nor any of their affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Wealth Management.
Clients of RBC Europe Limited may be entitled to compensation from the UK Financial Services Compensation Scheme (FSCS) if it cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. For further information about the compensation provided by the FSCS scheme (including the amounts covered and eligibility to claim) please refer to the FSCS website FSCS.org.uk. Please note only compensation related queries should be directed to the FSCS. Royal Bank of Canada (Channel Islands) Limited is not covered by the UK Financial Services Compensation Scheme.
RBC Europe Limited is registered in England and Wales with company number 995939. Its registered office is 100 Bishopsgate, London EC2N 4AA. RBC Europe Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Royal Bank of Canada (Channel Islands) Limited (“the Bank”) is regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank’s general terms and conditions are updated from time to time and can be found at https://www.rbcwealthmanagement.com/en-eu/terms-and-conditions. Registered office: Gaspé House, 66-72 Esplanade, St. Helier, Jersey JE2 3QT, Channel Islands. Deposits made with Royal Bank of Canada (Channel Islands) Limited in Jersey are not covered by the UK Financial Services Compensation Scheme. Royal Bank of Canada (Channel Islands) Limited is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for ‘eligible deposits’ up to £50,000 per individual claimant, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the Government of Jersey’s website http://www.gov.je/dcs or on request.
Investment services offered by the Bank are not covered by an investor compensation scheme as there is currently no such scheme operating in Jersey, however ‘eligible deposits’ held pursuant to investment services may be protected under the Bank Depositors Compensation Scheme described above – for more information see the Bank’s general terms and conditions. Some of the products that the Bank might recommend to you could be registered overseas and may be covered by a local compensation scheme. Your investment counsellor will provide you with the details of any overseas compensation schemes (where applicable) at the time of making an investment recommendation.
Copies of the latest audited accounts are available upon request from the registered office. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence.