Small, steady steps beat grand gestures. Use the easy wins every year, record what you do, and deploy trusts where they add control or protection.
Quick wins you can use every year
Annual exemption – £3,000 p.a.
Give up to £3,000 each tax year (you can carry forward last year’s unused amount once).
Small gifts – £250 per person
As many people as you like, provided you haven’t used the £3,000 exemption on the same person.
Wedding gifts
£5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
Gifts to charity
Always IHT-free. Leave 10%+ of the estate to charity and the IHT rate on the rest can drop from 40% to 36%.
Gifts to spouse/civil partner
Normally IHT-free (watch the non-UK resident nuances in cross-border cases).
Bigger gifts: how the 7-year clock works
PETs (Potentially Exempt Transfers)
Larger outright gifts to individuals are outside your estate if you survive 7 years.
- Taper relief (years 3–7) reduces the tax on the gift, not the value included, if IHT becomes due.
- Consider life cover for the 7-year window if the amounts are significant.
GROB trap (Gifts with Reservation of Benefit)
If you “gift” an asset but still use it (e.g., give away the house and carry on living there rent-free), HMRC treats it as not gifted. Clean gifts only, or market-rent arrangements that actually get paid.
The powerhouse: “normal expenditure out of income”
- Regular gifts from surplus income (not capital) can be immediately outside IHT.
- To qualify, they must be habitual, from genuine surplus, and not reduce your normal standard of living.
- Paperwork matters: keep a simple schedule (who/when/why), plus bank statements and a one-page “this is our surplus” note. (Lucy can send a template.)
Trusts: when they help, and the tax you need to know
Trusts are for control and protection (young/vulnerable beneficiaries, second marriages, asset-protection, pacing inheritances). They’re brilliant tools when used for the right reasons—just know the tax mechanics and admin.
Bare trusts
Simple nominee arrangement; for IHT, an outright gift (usually a PET). Beneficiary owns absolutely at 18 (England/Wales).
Interest in Possession (life-interest) trusts
Someone gets income/use now; capital goes elsewhere later. Lifetime creation is generally a Chargeable Lifetime Transfer (CLT) using your nil-rate band; there can be periodic (10-year) and exit charges. Very useful in Wills (e.g., life-interest over the home for a spouse, capital protected for children).
Discretionary trusts
Trustees choose who benefits and when. Lifetime transfers are CLTs (use the nil-rate band; above it, a 20% lifetime charge can arise). Expect 10-year and exit charges (max ~6% on relevant property), plus admin. Great flexibility; don’t set and forget.
Vulnerable/disabled beneficiary trusts & bereaved minors trusts
Special regimes can reduce tax and give protection—worth exploring where appropriate.
Planning notes (the real-world bits):
Use the nil-rate band deliberately
Use the nil-rate band deliberately if you’re settling assets into discretionary/life-interest trusts during life—stage transfers over tax years, and track previous CLTs.
Wills + trusts + Letter of Wishes play well together
Keep the Will clean, and use the Letter of Wishes for the “who/when/how much” colour that changes over time.
Business/farm assets
Reliefs still exist but are tightening; if you’re thinking of trusts here, check how the relief allowances and ongoing trust charges interact with your numbers.
Coordinate with pensions
Coordinate with pensions (given the 2027 changes) and life cover (ideally in trust) so your overall plan still does what you expect.
Property & home allowances (easy to miss)
- Residence Nil-Rate Band (RNRB) up to £175,000 each if the home passes to direct descendants (subject to taper above £2m estates).
- Downsizing addition: sell or downsize and you may still keep the RNRB—but keep records of sale values and timing.
Records = reliefs
Most reliefs are use-it-or-prove-it. Keep a gift log, copies of Letters of Wishes, and a simple annual “estate snapshot” with your personal balance sheet.
Practical tip: Start with what’s easy: use the £3,000 exemption, set up a small regular (out-of-income) gift, and keep a one-page record. Then decide if a trust would add control/protection you actually need.
Call to action: If you’d like, we’ll map your allowances (what you’ve used, what’s available), sanity-check any trust idea for tax and admin, and give you Lucy’s gift-recording template so HMRC won’t argue later.
Back to You are not Immortal – a practical guide to a delicate topic – IHT
