09 July 2025
When planning for the future, one common concern for many families is Inheritance Tax (IHT). In the UK, if your estate is valued above a certain threshold, it could be subject to tax potentially reducing what you leave behind for loved ones. The good news? With the right planning, it may be possible to avoid or significantly reduce the impact of IHT.
What Is Inheritance Tax?
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. As it stands, no tax is due if your estate is worth less than £325,000 – this is known as the nil-rate band. Anything above this threshold is typically taxed at 40%. However, a range of legal strategies can help reduce or eliminate this liability.
Ways to Reduce or Avoid Inheritance Tax
There’s no one-size-fits-all approach, but here are some commonly used methods:
1. Leave Your Estate to a Spouse or Civil Partner
Assets left to a legally recognised spouse or civil partner are exempt from IHT. Additionally, any unused nil-rate band can be transferred to the surviving partner.
2. Make a Valid Will
A well-drafted will ensures your estate is distributed according to your wishes and it can also help you take full advantage of tax allowances. For instance, strategic gifts or charitable donations written into a will can reduce the IHT burden.
3. Use Trusts Effectively
Placing assets into a trust can remove them from your estate, so long as you survive for at least seven years after the transfer. Trusts can offer control and tax efficiency but should be managed with professional advice due to their complexity.
4. Make Lifetime Gifts
Gifting during your lifetime is a popular way to reduce the size of your estate:
5. Donate to Charity
Leaving 10% or more of your estate to a registered charity can reduce the overall IHT rate from 40% to 36%. Plus, the charitable gift itself is tax-free.
6. Consider Life Insurance
A whole-of-life insurance policy held in trust can be used to pay your IHT bill. The proceeds fall outside of your estate and can provide beneficiaries with funds to settle tax liabilities without selling assets.
7. Use Your Pension Wisely
Pension pots are usually outside of your estate for IHT purposes. Passing them on can be a tax-efficient way to transfer wealth, depending on your pension scheme and age at death.
8. Explore Equity Release (Carefully)
Equity release allows homeowners to access cash tied up in their property, reducing the value of their estate. However, it comes with risks and may not always be the most cost-effective option. Professional advice is essential.
Other IHT Reliefs to Know About
Glastonbury Founder Takes Steps to Minimise Inheritance Tax
Recent reports have emerged about Glastonbury Festival founder Sir Michael Eavis’s succession plans, which include passing control of the iconic event and the wealth it has generated to his daughter, Emily Eavis.
With various speculative valuations of the festival circulating, legal experts note that recent changes to Inheritance Tax (IHT) rules mean both the company behind the festival and the land at Worthy Farm would likely face a significant tax liability upon Sir Michael's death.
In an effort to mitigate this, Eavis has already transferred his shareholding in Glastonbury Festival Events Ltd to Emily. Under the seven-year rule for potentially exempt transfers, these shares could avoid IHT if he lives for at least another seven years. Additionally, a majority stake in Glastonbury Festivals Limited, the festival’s holding company, has been placed into a trust another strategy often used in estate planning to reduce IHT exposure.
It’s estimated these steps could collectively save the family up to £80 million in potential tax, depending on the eventual valuation of the festival and its assets.
A spokesperson for Glastonbury confirmed the move, stating:
“With his 90th birthday approaching, Michael Eavis has proceeded with his long-held plan to pass control of the festival over to his daughter, Emily. The past few years have already seen Emily take over the day-to-day organisation of the event, and this latest change was simply another part of that process.”
Legal professionals have praised the Eavis family’s forward planning, calling it a textbook example of effective estate management considering evolving tax legislation.
Why Planning Matters
IHT rules are subject to change, and what works for one person may not suit another. That’s why tailored estate planning is crucial. Whether it’s setting up a trust, reviewing your will, or simply making use of available exemptions, taking proactive steps now can make a big difference to your family’s future.
Need Advice on Inheritance Tax Planning?
At Aldridge Brownlee Solicitors our experienced team can guide you through the complexities of estate planning and Inheritance Tax. We’re here to help you make informed, tax-efficient decisions that protect your legacy.
Contact us today to arrange a confidential consultation.
