Inheritance Tax Planning

How can I plan for Inheritance Tax?

It can be a sombre subject to plan for Inheritance Tax purposes, but with carefully implemented planning, you can rest easy knowing your loved ones can benefit from your estate tax-efficiently.

The following tax planning strategies can help you lower your inheritance tax liability:

1. Conduct a valuation of your estate to discover how much inheritance tax you would be liable for if you died today. Include the value of all your worldwide assets (such as cash, property, possessions etc) and deduct any debts you owe and expected funeral costs.
2. Be aware of any reliefs and exemptions you are entitled to and minus these from the value of your estate
3. Draft a will, distribute gifts and adopt strategies that will reduce your IHT liability.
4. Be careful of Capital Gains Tax

What reliefs and allowances exist for Inheritance Tax?

There are several different reliefs and allowances that can lower your IHT liability.

• Nil-Rate Band: Every taxpayer has a ‘nil-rate band’ of £325,000 which is how much your estate can be valued at before you are subject to IHT.
• Resident Nil-Rate Band: In addition to the £325,000 every taxpayer has, an additional £175,000 exists for those who are passing their family home to their children, grandchildren or other descendants, although this is reduced if your estate is more than £2m.
• Business Relief: This applies to the value of a business or its assets which have been owned for at least two years. The rules are changing such that from April 2026, relief of 50% to 100% of the market value of the asset, of assets up to £2.5m will be applicable; 50% relief of assets above £1m, with the allowance transferable between spouses.
• Agricultural Relief: This applies where your estate includes a farm or woodland area. This portion of the estate can be passed down IHT free and has to have been owned for two years by the owner or 7 if occupied by someone else. Similar to Business Relief, the relief is changing from April 2026 such that relief of 50% to 100% of the agricultural value of the asset up to £1m will be applicable; 50% relief of assets valued above £1m.

Please note, it can be difficult to know whether these reliefs will apply to you due to the existence of multiple disqualifying events. Professional assistance from Stratos is always recommended to determine whether these reliefs qualify and how they will affect your IHT liability.

How can I lower my IHT liability?

There are multiple ways to lower your IHT liability before you pass, including, but not limited to:

• Making gifts: Gifting portions of your estate to your spouse or civil partner is exempt from IHT. Making gifts to other people are generally taxable, if they exceed the value of £3,000 and you die within 7 years of the transaction. However regular gifts out of income will be automatically outside the scope of IHT, but there are a number of points to be aware of for this particular relief. It is important to ensure that any gifts do not inadvertently trigger a capital gains tax liability e.g. gift of property or shares.
• Leaving money to Charity: If you leave at least 10% of your estate to charity, then the rate of IHT your estate will face will be 36%, rather than the standard rate of 40%.
• Leaving your estate to your spouse: Any inheritance received by your spouse or civil partner will not be liable to IHT. If your estate is valued below the nil-rate band (325,000), any unused threshold can be added to your partner’s threshold following your death.

Why Stratos?

At Stratos we can provide you with a range of bespoke IHT solutions such as:

• Advising you how to make gifts efficiently.
• Conducting detailed valuations of estates.
• Review the services of and collaborate with private client solicitors.
• Provide tailored tax planning for your estate.

Advice on inheritance Tax planning will inherently depend on the nature of the assets involved, and, most importantly, your preferences for how and when your estate should be passed on.

When planning to mitigate IHT, quite often Capital Gains Tax can be a barrier when gifting capital assets, such as properties and listed shares. Stratos are experienced in understanding when CGT could impact and how it might be avoided.