Preparing for your “great wealth transfer”: 5 practical steps to protect your estate from Inheritance Tax

As you may have read in our previous article, an estimated £7 trillion is expected to transfer between generations over the next 30 years.

This movement of money, which is being referred to as the “great wealth transfer”, will have significant implications on those living in the UK, especially for families looking to pass on their hard-earned wealth as tax-efficiently as possible.

Read more: Are you prepared for the “great wealth transfer”? 3 essential family conversations you need to have

Inheritance Tax (IHT) is perhaps one of the most important factors to account for when planning how to pass on your wealth.

As of 2025/26, the “nil-rate band” – the amount of your estate you can pass on without incurring IHT – stands at £325,000.

Additionally, you can benefit from the residence nil-rate band of £175,000 if you leave your primary residence to a direct lineal descendant, effectively bringing your tax-free allowance to £500,000.

Then, any wealth above these thresholds is typically taxed at 40%.

While you may not be able to avoid IHT entirely, you could take proactive steps today to reduce its effects on your estate.

Continue reading to discover five ways to protect your estate from IHT and ensure more of your wealth ends up with your loved ones after you pass away.

1. Giving gifts during your lifetime

Perhaps one of the simplest ways to reduce the value of your estate is by gifting capital during your lifetime.

As of 2025/26, you can use your annual exemption to gift up to £3,000 each year without it forming part of your estate.

If you didn’t use this allowance in the previous tax year, you can typically carry it forward once, allowing for a total gift of £6,000. Better yet, you can usually combine this with your spouse or civil partner, effectively doubling your allowance.

There are also other allowances – such as wedding gifts or smaller gifts – which we will explore in more detail in the following article in this series.

Still, gifting from capital during your lifetime isn’t just tax-efficient but also rewarding.

Indeed, you get to witness your wealth help a child or grandchild get onto the property ladder, fund higher education, or even start their own business.

2. Regularly gifting from income

While one-off gifts can reduce the value of your estate, a perhaps overlooked option allows you to make ongoing gifts from your surplus income. These potentially limitless gifts are exempt from IHT, provided they meet certain conditions.

To qualify, you must demonstrate that these gifts are made from your extra income, not savings, and that they don’t affect your normal standard of living.

For instance, if you cover your day-to-day expenses comfortably, and have leftover income each month, you could choose to give this to your children or grandchildren.

These gifts must also be regular – ideally monthly or annually – and you may need to keep records to prove this.

If you know you’ll be comfortable for the rest of your life, you may find that, rather than adding more wealth to the value of your estate, you could pass it down as a gradual, potentially tax-free inheritance instead.

3. Placing wealth in trust

Even with the tax-free gifting allowances, you may find it prudent to place some of your wealth in a trust.

A trust is essentially a legal arrangement that removes assets from your estate. Depending on the type, you may still be able to dictate how and when your beneficiaries receive the wealth held in a trust.

Once in a trust, assets are no longer considered part of your estate for IHT purposes. Moreover, you can appoint trustees to manage the funds and decide when your beneficiaries receive them.

For example, you might stipulate that a child only receives the funds within a trust when they turn 21, or once they’ve completed university.

This could be especially handy if you’re worried about a beneficiary’s financial responsibility, or if your family has complicated needs.

Just note that trusts can be incredibly complex to set up, and you could still face a 20% upfront or ongoing IHT charge on some types.

As such, it’s always worth speaking to a financial planner before you place your wealth in a trust.

4. Writing whole-of-life cover into a trust

On the topic of trusts, another effective way to deal with your estate’s potential IHT liability is by writing whole-of-life cover into one.

This form of financial protection offers a tax-free lump sum when you pass away, provided you keep up with premiums during your lifetime.

Usually, the payout would fall within the value of your estate, increasing the IHT your loved ones face.

By writing it into a trust, however, the payout will fall outside your estate and not be counted towards your IHT liability.

This could allow your loved ones to settle a tax bill without having to access their inheritance or sell assets to raise funds.

Whole-of-life cover in a trust could also reduce the time it takes for your beneficiaries to receive an inheritance. This is because money from your estate typically can’t be released until IHT is settled, which can take some time.

Meanwhile, protection typically pays out within weeks of your passing, allowing your beneficiaries to use your wealth sooner.

5. Leaving a charitable legacy in your will

If you’ve ever been moved by the incredible work charities do, you could leave some of your wealth to one in your will.

As well as supporting a cause close to your heart – perhaps a charity that has helped you through a difficult time or had a positive effect in your local community – leaving money to a charity could allow you to reduce the rate of IHT your estate is subject to.

Indeed, if you leave at least 10% of your estate to charity, the rate of IHT your loved ones pay could fall from 40% to 36%. This is the case so long as you leave your gift to a qualifying UK organisation, such as a:

• UK-registered charity
• Community amateur sports club
• Political party.

These charitable donations could also reduce the overall value of your estate, which could help bring it under the IHT thresholds altogether.

Get in touch

We could help you manage your IHT liability and ensure your loved ones can make the most of your wealth as much as possible.

Please email us at info@logicfinancialservices.co.uk or check with your adviser to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.