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How to cut inheritance tax (it’s painless, we promise!)

You're probably not doing everything you can to reduce your IHT bill, so here's four ways to tackle it, with a little help from the pros at Wise Investment (and yes, one does involve the Caribbean...)

No-one likes to talk about death or money, which makes inheritance tax (IHT) something of a no-go convo around the dinner table, but avoid the subject forever and the first you’ll hear of it could be a whopping bill.

Perhaps you, or your parents, would like to give 40% of your estate to the tax man, but if you’re with the other 99% of us, you’ll want to start thinking now about how to cut that bill.

The experts at Oxfordshire-based Wise Investment have helped lots of people-like-us manage their estate (that’s to say, you don’t need a Georgian manor house and several trust funds to apply), so I asked them to tell us in plain English what we need to do and I’m about to share their wisdom with you (in return, just give me a flat rate of 15% of what you own, I’m not greedy).


Now this I can do… Apparently the simplest way to reduce the value of your estate and potential IHT bill is to enjoy the money. You’ve worked hard to accumulate your wealth so why not go ‘SKIing’ (Spending the Kids Inheritance if you’re not familiar with that adrenalin sport.). But before you nab that Paris haute couture (essentially for picking up essentials at Tesco local, n’est pas?P) or antique bronze bust, hold a beat – buying appreciable assets such as property, antiques and collectables just shifts the value and could hike your bill even higher. Instead, spend money on what’s called depreciating or wasting assets such as cars or on goods and services like entertainment and holidays (hello, Antigua!), which immediately lose their monetary value. Just tell the kids you’re making memories in the process… with or without them!


Giving your money away is another way of reducing your estate. Sounds easy enough, hey? Not so fast Robin Hood… In the case of your parents spending their money or you spending yours, there are limits – £3,000 a year to be precise, plus smaller gifts up to £250, marriage gifts and gifts that come out of regular income can also be made. It’s satisfying as you can see your money being enjoyed, but that said, anything given within seven years of dying will be taxed, albeit at a sliding scale for the first four years. It doesn’t have to be an envelope of cash – there are also clever ways to gift like trusts where the interest is outside of the estate and retained for the beneficiaries.


No – we’re not talking the Cayman Islands… There are ways to invest your money that IHT can’t touch – pensions don’t form part of your estate, so max out on these. Plus, if you need the money (that plush retirement home won’t pay for itself) it’s right there. There are also various investments that you can make which are exempt from IHT after they have been held for at least 2 years including AIM (Alternative Investment Market) shares (albeit with the rollercoaster ride of surfing the stock market).


You can take out a whole life insurance policy which would pay a lump sum out into trust. The trust fund can then be used to pay the IHT bill. Or your cash and other assets are used to pay the bill and the funds preserved in the trust. It’s not black-and-white though – the premiums can be pricey, particularly if you suffer health issues as you get older. Investing as a couple lowers the risk and the premiums, but not entirely. As with all IHT planning, there’s a balance between providing for yourselves, your beneficiaries, and minimising tax.

It’s good to know what you’re in line for before you start spending, gifting, sheltering and so on – IHT is paid on anything that’s inherited above the value of £325,000, with an extra £175,000 if you’re passing on your home to a direct descendant. Where a married couple jointly owns a family home and wants to leave it to their children, for example, the total IHT exemption would be a cool £1m. That’s little comfort to unmarried couples, those who are single, or those with no direct descendants, so the best thing is to be on the front foot and get planning.

More info on Oxfordshire-based Wise Investment.

Want even more financial wizardry? Read Five mistakes you’re probably making with your pension

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