Dealing with inheritance tax: the four strategies

Inheritance tax planning has a mystique it doesn't deserve. Behind every scheme, trust and acronym, there are really only four strategies — and every effective estate plan is built from some combination of them.

Before the four, a reminder of what you're planning against. IHT is charged at 40% on your estate above your allowances: a £325,000 nil rate band each, up to £175,000 more each where a home passes to direct descendants, and full exemption for anything left to a spouse or civil partner. A married couple can often pass on £1 million before tax — but frozen allowances, rising asset values, and pensions being brought into the IHT net from April 2027 mean more North East families cross the line every year.

Strategy 1: Spend it

The strategy nobody sells, because nobody earns a fee from it. Every pound you spend on your own life is a pound taxed at 0% instead of 40%. Serious IHT planning starts with an honest question: are you underspending out of habit or fear, and would knowing your real numbers give you permission to enjoy more of your own money? Cashflow planning — projecting your income, spending and capital across the rest of your life — often reveals that the "problem" estate exists because its owners are living far below their means.

Best for: almost everyone as a starting point. Limitation: most people can't (and shouldn't) spend their way out of a large IHT liability, and care costs mean you need a margin of safety.

→ Deep dive: Spending it — the IHT strategy hiding in plain sight

Strategy 2: Give it away

The heavyweight. Outright gifts fall out of your estate after seven years; a menu of exemptions (£3,000 a year, wedding gifts, and the powerful unlimited exemption for regular gifts from surplus income) work immediately. Where handing over control worries you, trusts let you give assets away while trusted people manage the timing — and specialist structures like loan trusts and discounted gift trusts square the circle of reducing your estate while keeping access to capital or income.

Best for: those with clear surplus they'll never need. Limitation: gifts must be genuine — give it away and keep using it and the taxman ignores the gift. And you need to live with less.

→ Deep dive: Giving it away — gifts, the seven-year rule and trusts

Strategy 3: Insure it

Sometimes the right answer isn't avoiding the tax but pre-funding it. A whole-of-life insurance policy, written in trust, pays out on death exactly when the IHT bill lands — turning an unpredictable 40% hit on your family into a fixed monthly premium during your lifetime. A cousin of this idea, gift inter vivos cover, insures the temporary risk on large gifts during their seven-year clock.

Best for: those who want certainty, whose wealth is tied up in assets they don't want to give away (the family home, a business), or alongside gifting as a belt-and-braces plan. Limitation: premiums are a real lifelong cost, and cost more the later you start.

→ Deep dive: Insuring the liability — whole-of-life cover and gift insurance

Strategy 4: Hold assets that qualify for relief

Certain assets — trading businesses, some farmland, and shares in qualifying unquoted or AIM-listed companies — attract Business Relief or Agricultural Relief, reducing the IHT on them after a qualifying holding period (usually two years for Business Relief). For business owners this relief is often the cornerstone of their estate plan. For investors, specialist Business Relief portfolios offer a way to shelter capital from IHT in just two years while keeping the money in your own name — but make no mistake, these are high-risk investments, and the rules have recently tightened significantly.

Best for: business owners; and, selectively, older investors who need IHT efficiency but can't or won't give capital away. Limitation: genuine investment risk, illiquidity, and a relief regime that government has shown willingness to cut.

→ Deep dive: Business Relief — the two-year IHT shelter and its risks

How the four fit together

Real plans blend strategies. A typical shape: cashflow planning establishes what you can safely spend and give; regular gifting moves the surplus out; a whole-of-life policy in trust covers the residual liability on assets you're keeping; and Business Relief handles the family company or a slice of capital you need to retain access to. The right blend depends on your assets, health, family and appetite for risk and complexity — which is exactly why this is advice territory.

One thing all four strategies share: they reward early action. Seven-year clocks, two-year holding periods, insurance premiums priced on your age and health — in IHT planning, time is the raw material. The families who start in their 60s have every option; the families who start in their 80s have two or three.

Explore the four strategies

• Spend it — cashflow planning and permission to enjoy your money
• Give it away — exemptions, the seven-year rule and trusts
• Insure it — whole-of-life cover and gift inter vivos policies
• Hold qualifying assets — Business Relief, honestly assessed

This article is for general education only and isn't personal advice. If you'd like to understand which of these strategies fit your situation — and what your estate's IHT position actually looks like — try our IHT calculator, then get in touch.