Tax year-end: What you need to know to plan for the future

Feel confident about your future and prepare now for Inheritance Tax. Learn how to pay the least and leave more money to the people you care about.


  • With thoughtful estate planning and expert advice, you could reduce or even avoid paying a significant amount of Inheritance Tax.
  • Making use of all allowances, exemptions, tax-free gifting opportunities and Trusts could be beneficial.
  • Making sense of the intricate rules around Inheritance Tax is easier with financial advice.

How much money does IHT bring in?

In 2021/22, IHT generated close to £6 billion, an increase of almost £500 million from the year before.1 In terms of your finances, the first £325,000 of your estate is tax-free. Then, the general rule is to remember that all of your assets, including money, jewellery, property and valuable art, may be liable to 40% IHT above this amount.

But, by taking full use of allowances, gifting and other tax-efficient investments, as well as beginning your estate planning early, you have the ability to mitigate most of what you may owe HMRC.

Planning ahead is the best way to avoid IHT, so here are our top five things you need to know about it.

1. Planning with Inheritance Tax in mind now can greatly impact your later life

IHT is a highly complicated subject. Aside for qualified financial advisers, very few people are familiar with every rule, exception and allowance – let alone how to utilise them. By managing your money consistently in later life, you may prevent it from running out, while simultaneously making sure there will be assets left over to leave to your loved ones after your passing.

It’s important to know when to start preparing, and it’s not always helpful to suggest ‘the sooner the better’. As a general rule, start preparing as soon as your savings and assets start to accumulate. This typically happens when your daily costs decrease, such as when children move out or your mortgage repayments are almost completed.

2. Sometimes it’s all about timing

Understanding how the IHT thresholds work will help you reduce a significant portion of the potential IHT bill. The first £325,000, sometimes referred to as the nil-rate band, is tax-free. This can be passed to a spouse or civil partner making the first £650,000 of the survivors estate tax free when one partner dies.

There is no IHT liability if you leave everything over the £325,000 tax-free threshold to your spouse, civil partner, a charity or a local amateur sports club.

Other bits to know:

• If your estate is less than £2 million and you decide to leave it to your children, stepchildren or grandchildren, your tax-free threshold rises to £500,000. It’s important to seek financial advice if you’re thinking about doing this.

• You may only be required to pay a reduced IHT rate of 36% on specific assets if you donate 10% or more of the net estate’s value to charity.

3. Gifting is a common approach to mitigating IHT

Everyone benefits when you give gifts. You’re allowed to give away up to £3,000 (your ‘annual exemption’) each tax year, plus as many little presents as you like up to £250 per person. They won’t be included in your estate’s total tally after that. Nearly all gifts, no matter how large, become IHT-exempt if you live for seven years after the exchange.

In addition to lowering your IHT liability after death, you will be helping to support your family during your lifetime.

The facts about gifting:

•  Throughout your lifetime or after your death, gifts made to your spouse or civil partner are not subject to tax.

• Gifts given to other beneficiaries are subject to a tax-free allowance of up to £3,000 that is also back dateable. You could gift up to £6,000 if you carry the allowance over for one tax year.

• You, your partner or both of you may give a child up to £5,000 or a grandchild up to £2,500 if they are getting married. This is a fantastic way to kick-off a new marriage – and you may have already been considering it anyway.

• If you can demonstrate that the gifts you make from your regular income don’t lower your standard of living, they’ll be tax-free.

• If you live for seven years after making the gift exchange, gifts over the £3,000 limit are free from IHT. Gifts made between three and seven years before your death that are above the nil rate band are subject to a sliding scale of taxation known as ‘taper relief’. The longer the timeframe, the less money needs to be paid.

4. Using pensions will help to mitigate IHT

Pensions could play a major role if you’re searching for a tax-efficient approach to pass on money, as the majority of Defined Contribution pension schemes will not be included in your inheritance. You may decide to leave one or more pension pots, if you have any, to your children or grandchildren.

Your pension fund may be paid tax-free as a lump payment or as an income to any recipient if you pass away before age 75. Your beneficiaries will be required to pay tax at their marginal rate on withdrawals if you pass away after the age of 75.

5.Keep trusts in mind to make the most of IHT

Trusts are a tried-and-true IHT planning tool that help make sure that the right people receive the right money at the right time. Be aware that there are several types of trust and various methods for creating them. You can access the funds in some circumstances, but not in others.

Before you take any big steps, it’s important to know that trusts are a somewhat specialised and difficult area of financial planning, so please talk to us for advice.

Putting you in control of your estate plans

Making informed choices about estate planning while you’re still fit and healthy will help to create a better future for those you love. If you’d like to start discussing your options, please get in touch with us.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.


1 HMRC Tax Receipts and National Insurance Contributions for the UK – 24 January 2023

Wellesley is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. Wellesley is a trading name of Wellesley Investment Management Ltd.


SJP Approved 24/02/2023