Inheritance Tax Planning

The Ultimate Guide to Inheritance Tax Planning

KLOFinancial |

If you own a large estate, it is likely that it will be subject to Inheritance Tax (IHT) when you pass away. This will include all property, possessions and money. 

Paying the Inheritance Tax (IHT) bill can be an enormous struggle for your family and could potentially cost them hundreds of thousands of pounds. With the right tax planning, it is possible to significantly reduce, or perhaps even avoid this tax.

At KLO Financial Services, we appreciate that inheritance tax planning is complicated, so we aim to make it easy for you! 

Our independent financial advisers offer specialist knowledge with an in-depth understanding of the reliefs and exemptions available. They will advise you on how to minimise the amount of IHT paid out on your estate to protect your family from any unnecessary expense when you pass away.

Am I liable for Inheritance Tax (IHT)?

Inheritance tax is a tax paid on your estate when you pass away. 

If your estate is small, it is unlikely that you will pay any IHT. Any estates that are valued below the Nil Rate Band (NRB) are exempt. This is the tax threshold, which is currently at £325,000. 

You are relieved from IHT if you leave everything above the £325,000 threshold to your spouse, civil partner or to an exempt beneficiary (e.g. a charity).

Leaving your estate to a spouse or civil partner

Not only are you exempt from IHT when you leave your estate to your spouse or civil partner, your unused NRB will also be transferred to them. This is known as a Transferrable Nil Rate Band (TNRB) and using this can double your partners NRB up to £650,000.

Leaving your estate to your children or grandchildren

If you are unable to leave your estate to your partner, there are options to reduce the tax paid when it is inherited by your children or grandchildren, such as placing your cash, property or investments into a trust.

Trusts are not liable for IHT, so any assets placed in one will be exempt. Although a trust cannot be used to benefit you or your spouse, it can be used for your children providing they are over 18 years old. There are two options for a trust: you can set it up right away, or have it stated in your will.

You could also take advantage of the Residence Nil Rate Band (RNRB), which is a new home allowance that can be used on top of the NRB or the TNRB. To be eligible for this exemption, either your home or a share of it must be passed on to your children or grandchildren. This can include those that are step or adopted. 

From 2020/21, this band is £175,000. This can be combined with the NRB and the TNRB, which means that IHT may not be due on up to £500,000 of your estate if inherited by your heirs. 

If you have an estate that is valued at £2 million or higher, the allowance alters slightly. After this threshold is crossed, the RNRB will decrease by £1 for every £2 above 2 million.


Gifts (e.g. cash or other assets) will be included in the estate value if given away during the 7 years prior to the estate owner’s death. This also includes reservations of benefits before 7 years. For example, if a house was gifted over 7 years prior to death, but the gift giver had continued to live in it, it would still be liable to IHT.

However, there are certain gifts that are exempt from IHT:

  • Each tax year, you can gift up to £3,000 that won’t be liable to inheritance tax when you die. If you don’t utilise this one-year, it will also be carried over, meaning you have £6,000 of tax-free gifted money the following year. 
  • You can gift £250 to any number of people annually, tax-free. This does not contribute to the £3,000 exemption.

Our independent financial advisers can help you utilise the benefits of intergenerational gifting, reducing the value of your estate and minimising the IHT paid when you pass away. 

Leaving to an exempt beneficiary (e.g. a charity)

If neither of the above applies, IHT is 40% on everything above the NRB. However, if 10% of the estate’s net value is given to charity, this is reduced to 36%.

Whole-of-Life Insurance Policy

We understand that you want to ensure your family’s future is secure after you are gone. 

whole-of-life insurance policy can be a great option for covering the cost of your IHT bill. This will help make things easier for your family and ensure that your home and other assets are protected in the event of your death and will not need to be sold to pay the IHT liability.

Our financial advisers can help you take out a life insurance policy with the intention of using it to pay the IHT on your estate. We will ensure that the policy is written in trust so you can guarantee that any money paid out on your life insurance goes to your beneficiaries, not your legal estate. 

This payout will then not be liable for IHT and can be used to cover the IHT on your estate.

KLO Financial Services

If you are interested in finding out more about reducing inheritance tax, get in touch with one of our financial advisers. 

Contact us by calling 01926 492 406 or email us at