How to Reduce Inheritance Tax (UK)

Use the tax-free thresholds fully

The first way to reduce an inheritance tax bill is to make sure the existing tax-free bands are fully used. Each person has a nil-rate band of £325,000, and a residence nil-rate band of up to £175,000 where a home passes to children or grandchildren. Together these can reach £500,000 per person, and up to £1,000,000 for a married couple or civil partners (gov.uk, as at June 2026, subject to change).

These bands are frozen until the end of the 2030-31 tax year (5 April 2031), while many estate values continue to rise, so more families may be drawn into inheritance tax over time (gov.uk, as at June 2026, subject to change). The residence band also reduces by £1 for every £2 of estate above £2,000,000, so larger estates may lose part of it. Our Inheritance Tax Thresholds and Allowances 2026/27 guide sets out how each band works in more detail.

Make gifts within the exemptions

Giving assets away during your lifetime can reduce the value of an estate, and some gifts are exempt straight away. The annual exemption lets you give away up to £3,000 of gifts each tax year without them being added to your estate, and a separate small gifts allowance lets you give as many gifts of up to £250 per person as you like each year, to different people (gov.uk, as at June 2026, subject to change).

There are also specific exemptions for wedding or civil partnership gifts, and for regular gifts made out of surplus income. The table below sets out the headline exempt amounts.

Exemption	Amount (June 2026)
Annual exemption (per tax year)	£3,000
Small gifts (per person, per year)	£250
Wedding gift to a child	Up to £5,000
Wedding gift to a grandchild or great-grandchild	Up to £2,500
Wedding gift to any other person	Up to £1,000

Exemption

Amount (June 2026)

Annual exemption (per tax year)

£3,000

Small gifts (per person, per year)

£250

Wedding gift to a child

Up to £5,000

Wedding gift to a grandchild or great-grandchild

Up to £2,500

Wedding gift to any other person

Up to £1,000

Source: gov.uk/inheritance-tax/gifts, as at June 2026, subject to change. Gifts out of regular surplus income can also be exempt where conditions are met.

Understand the 7-year rule and taper relief

Larger gifts that are not otherwise exempt are usually treated as potentially exempt transfers. No inheritance tax is due on them if you live for seven years after making the gift. If you die within seven years, the gift can count towards your estate, though taper relief may reduce the tax on gifts made more than three years before death (gov.uk, as at June 2026, subject to change).

Taper relief reduces the tax rate on the gift itself, not the value of the gift, and it only applies where the total of gifts is above the nil-rate band. The rates by the number of years between the gift and death are set out below.

Years between gift and death	Tax charged on the gift
Less than 3 years	40%
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more years	0%

Years between gift and death

Tax charged on the gift

Less than 3 years

40%

3 to 4 years

32%

4 to 5 years

24%

5 to 6 years

16%

6 to 7 years

7 or more years

Source: gov.uk/inheritance-tax/gifts, as at June 2026, subject to change. Taper relief applies only where the running total of gifts exceeds the nil-rate band. Our Gifting and the 7-Year Rule for Inheritance Tax guide works through how this applies in practice.

Charity giving and the spouse exemption

Gifts to qualifying UK charities are generally free of inheritance tax, whether made during life or in a will. Beyond that, leaving 10% or more of the net estate to charity can reduce the rate on the rest of the estate from 40% to 36% (gov.uk, as at June 2026, subject to change). It does not remove the whole bill, but for people who already plan to give, it can change how much tax the remaining estate pays.

Separately, transfers between spouses and civil partners are generally exempt, and any unused nil-rate band and residence nil-rate band can transfer to the survivor. That is why a married couple can often reach the combined thresholds on the second death (gov.uk, as at June 2026, subject to change).

Consider whether a trust fits

A trust lets trustees hold assets for beneficiaries, and in some cases assets placed in trust may no longer count as part of your estate for inheritance tax. Trusts can also help control when and how younger or vulnerable beneficiaries receive what you leave. The rules are complex, trusts carry their own tax and reporting, and an unsuitable trust can cost more than it saves (gov.uk, as at June 2026, subject to change).

Because of that, trusts are one area where many people choose to take advice from a solicitor, a STEP practitioner, or an accountant before acting. Our Inheritance Tax Explained guide covers where trusts commonly fit within a wider plan.

A worked example (illustration only). A widow has an estate of £900,000, including a home worth £400,000 that will pass to her children. On the second death her estate may have access to two nil-rate bands (£325,000 each) and, where the home passes to children, two residence nil-rate bands (£175,000 each), transferred from her late husband, up to £1,000,000 in total. In this illustration the £900,000 estate could fall within those combined thresholds, with no inheritance tax due. If instead the estate were £1,200,000, the £200,000 above £1,000,000 could be taxed at 40%, which is £80,000, before considering any gifts, charity giving or reliefs. Every estate is different, the residence band tapers above £2,000,000, and the figures change (gov.uk, as at June 2026, subject to change), so this is general information rather than a calculation for any individual estate.

Reducing inheritance tax is rarely one big move. It is usually the ordered use of allowances, gifts and timing, considered together.

Reducing inheritance tax in Scotland and Northern Ireland

Inheritance tax itself is a UK-wide tax, so the thresholds, gift exemptions and rates described here apply across the UK. The surrounding law differs. Scotland has its own succession law, including legal rights that can entitle a spouse and children to a fixed share of an estate, and it uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate crosses more than one jurisdiction, it can be worth taking advice in each.

Frequently asked questions

What is the simplest way to reduce inheritance tax?

For many people the simplest starting point is making full use of the tax-free thresholds and the annual gift exemptions, rather than any complex structure. Making use of the £3,000 annual exemption and small gifts of up to £250 per person each year, and leaving a home to children so the residence nil-rate band applies, are common first steps (gov.uk, June 2026, subject to change).

How much can I gift without paying inheritance tax?

You can give away up to £3,000 of gifts each tax year under the annual exemption, plus as many small gifts of up to £250 per person as you like to different people. Larger gifts can be free of inheritance tax if you live for seven years afterwards. Amounts are current as at June 2026 and subject to change (gov.uk).

Does leaving money to charity reduce inheritance tax?

Gifts to qualifying UK charities are generally free of inheritance tax. In addition, where 10% or more of the net estate passes to charity, the inheritance tax rate on the rest of the estate can fall from 40% to 36%. It does not remove the whole bill, and the effect depends on the estate, so many people discuss it with a qualified professional (gov.uk, June 2026, subject to change).

Can a trust reduce inheritance tax?

In some cases assets placed in a trust may no longer count as part of your estate for inheritance tax, though trusts carry their own tax and reporting rules and are not right for everyone. An unsuitable trust can cost more than it saves. Because the rules are complex, planning of this kind is generally discussed with a solicitor, a STEP practitioner or an accountant first (gov.uk, June 2026, subject to change).

What is the 7-year rule on gifts?

Larger gifts that are not otherwise exempt are usually free of inheritance tax if you live for seven years after making them. If you die within seven years, the gift can count towards your estate, though taper relief may reduce the tax on gifts made more than three years before death, depending on the running total of gifts (gov.uk, June 2026, subject to change).

Do married couples pay inheritance tax?

Transfers between spouses and civil partners are generally exempt from inheritance tax, and any unused nil-rate band and residence nil-rate band can pass to the survivor. This is why a married couple can often pass on up to £1,000,000 before inheritance tax where a home goes to children. The position depends on circumstances and current thresholds (gov.uk, June 2026, subject to change).

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at June 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider individual circumstances.

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