Following the latest HMRC inheritance tax (IHT) receipts reaching £1.5 billion for May 2024 to April 2025, £98 million higher than the same period last year, and the Autumn Budget confirming the freeze of both the Nil Rate Band (NRB) and the Residence Nil Rate Band (RNRB) until at least April 2030, more families than ever are set to face significant IHT bills.
With IHT having the potential to substantially decrease how much you can pass on; St. James’s Place outlines steps individuals can take to offset this impact and maximise the amount you’re able to leave for your loved ones.
Kerry Drysdale, Head of Holistic Planning at St. James’s Place comments: “With inheritance tax thresholds failing to keep pace with inflation and pensions being brought into scope, more estates are likely to fall into the IHT net – creating unexpected tax burdens for beneficiaries.
“However, there are several planning strategies that can mitigate the impact of these charges, helping individuals pass on wealth more efficiently – often while enjoying the benefits of giving during their lifetime.
Kerry Drysdale outlines different gifting strategies to minimise tax bills and pass on more wealth to loved ones:
1) Use of annual exemption: “The annual exemption allows individuals to give away £3,000 each year, plus the previous year’s exemption if not already used. Combined over two years, this amounts to £6,000 of IHT-free gifting.
- Small gifts exemption: “Additionally, individuals can give away £250 to any number of recipients each tax year, provided no other exemption is used for the same recipient.
- Gifts from normal expenditure out of income: “Unlimited gifts can be made as long as they:
i. Are part of your ‘normal expenditure’.
ii. Are from your income.
iii. Do not negatively impact your usual standard of living after the gifts have been made.
- Wedding/civil partnership gifts: “A parent or a legal guardian can give up to £5,000 as a wedding / civil partnership gift; a grandparent can give £2,500; and any other person can give £1,000. The couple can also gift each other £2,500.
- Gifts to qualifying charities, political parties or for national benefit: “Unlimited gifts can be made to qualifying charities, political parties or for national benefit, which are fully exempt from IHT.
Kerry Drysdale continues: “It’s a good idea to keep clear records of your income and expenditure when using gifting exemptions to demonstrate that the necessary conditions have been met. HMRC form IHT403 is useful for this purpose and is also the form executors are required to submit when claiming the exemption.
Larger gifts of surplus capital can be considered if you have sufficient resources to sustain your own lifestyle. This could be an outright gift to a chosen beneficiary or a gift into trust which provides you with more flexibility and control over who receives what and when. Through careful financial planning and budgeting, reducing – or even eliminating – any potential charges for beneficiaries is possible and will allow you to enjoy seeing your beneficiaries put these gifts to good use during your lifetime.”
The following calculations are based on a scenario of a basic rate taxpayer aged 65, with a £1,000,000 money purchase pension fund achieving 4% investment growth per annum – for full assumptions see notes to editors:
St. James’s Place example analysis highlights how gifting can significantly reduce IHT charges, allowing more wealth to be passed on to loved ones
Basic Rate Taxpayer
| Liquid Assets Left at Age 100 | IHT Charge at 100 | Total Wealth Passed on at 100 (including gift into trust) | |
| Gifting available tax-free cash into a Trust at age 75 | £1,146,925 | £179,170 | £1,492,258 |
| No gifting | £1,820,428 | £448,571 | £1,364,560 |
High-Rate Taxpayer
| Liquid Assets Left at Age 100 | IHT Charge at 100 | Total Wealth Passed on at 100 (including gift into trust) | |
| Gifting available tax-free cash into a Trust at age 75 | £1,307,752 | £243,501 | £1,598,119 |
| No gifting | £2,096,077 | £558,831 | £1,526,876 |
