How to Reduce Inheritance Tax on Property — Gifts, Trusts, Insurance and Business Relief

Why IHT Planning Matters

The nil rate band has been frozen at £325,000 since 2009 and will remain frozen until at least 2030. Combined with sustained house price growth, a growing number of estates are drawn into the IHT net. For families with a property-heavy estate, the 40% charge above the threshold can represent tens or hundreds of thousands of pounds.

The good news is that IHT is one of the more flexible taxes in the UK. A range of legal strategies can reduce the bill — but most require time to be effective, which is why early planning is crucial.

Use our [Inheritance Tax Calculator](/inheritance-tax-calculator) to understand your current position before exploring these strategies.

1. Use Your Annual Gift Exemptions

Every individual can give away up to **£3,000 per year** free of IHT (the annual exemption). Unused allowance from the previous year can be carried forward once, giving a potential £6,000 in year one of a new gifting strategy. Small gifts of up to **£250 per person** per year are also exempt, as are wedding gifts within specified limits.

These amounts seem modest, but over a decade of consistent gifting, a couple can remove up to **£120,000** from their combined estates without any IHT risk.

2. Make Potentially Exempt Transfers (PETs)

Larger gifts to individuals become **potentially exempt transfers (PETs)**. They are exempt from IHT if the donor survives **7 years** from the date of the gift. If the donor dies within seven years, taper relief reduces the IHT charge progressively (see our separate guide on gifts and the 7-year rule).

Gifting a property — for example, a second home — can be a powerful strategy, but it must be done properly: the donor must not retain any benefit from the asset after the gift (for example, continuing to live in or receive rent from a gifted property creates a **gift with reservation of benefit**, which HMRC treats as if the gift was never made).

3. Set Up a Discretionary Trust

Assets placed in a discretionary trust are removed from the donor's estate for IHT purposes (subject to surviving 7 years and the relevant property regime rules). Trusts give the trustees flexibility to distribute income and capital to beneficiaries over time, which can be valuable where beneficiaries are young or where the donor wants to retain some control over how assets are used.

A trust does attract its own IHT charges — a 6% charge on assets above the NRB every 10 years, and an exit charge when assets leave the trust. These are generally lower than the 40% death charge, but professional advice is essential.

4. Business Property Relief (BPR)

Qualifying business assets — including shares in unlisted companies and certain AIM-listed shares — attract **100% Business Property Relief**, meaning they pass outside of the estate entirely. Agricultural land can attract similar relief under Agricultural Property Relief (APR).

BPR is a powerful tool but only relevant to estates that include qualifying assets. Specialist financial planners can help structure investments to maximise BPR eligibility.

5. Whole-of-Life Insurance Written in Trust

A whole-of-life insurance policy provides a lump sum on death. If the policy is written **in trust** (meaning it sits outside the estate), the payout goes directly to beneficiaries and is not subject to IHT. The policy does not reduce the IHT bill, but it funds the payment — ensuring beneficiaries receive their inheritance without having to sell the family home to pay HMRC.

6. Charitable Giving

Donating at least **10% of the net estate** to charity reduces the IHT rate from 40% to **36%**. For a large estate, the saving on the remaining estate can exceed the value of the charitable gift, making it a cost-neutral or even financially advantageous strategy.

Act Early

Most of the effective IHT strategies require time — the 7-year rule for gifts, the 10-year trust regime, and the growth of assets within trusts or pension wrappers. Waiting until a serious health diagnosis is often too late to use the most powerful tools.