In Part 1 of this article series from Utmost Wealth Solutions, we explored how Inheritance Tax (IHT) has evolved into a burden not just for the wealthy, but for many families with modest estates—largely due to the freezing of the Nil Rate Band (NRB) since 2009, despite a 74% rise in average UK house prices over the period.*
In this follow-up article, we turn our attention to how individuals and their financial advisers can take proactive steps to mitigate their exposure to IHT.
Three Broad Strategies
When it comes to IHT planning, clients typically fall into one of three categories:
- Do nothing – enjoy life and spend the money!
- Give it away – either outright or via trusts.
- Insure the liability – using life insurance to cover the tax bill.
Let’s explore each of these in turn.
1. Enjoy Life – Let the Kids Sort It Out
This approach is as straightforward as it sounds. Your client spends their wealth during their lifetime and passes the remainder to their spouse or civil partner (which is IHT-free). The surviving spouse or civil partner can then deal with the tax implications of the wealth left. However, if they are single, widowed, or divorced, their estate could face a 40% IHT charge on death. For example, if they have three children, each might receive 20% of the estate—while the UK government becomes the largest single beneficiary at 40%. While this may be a conscious choice for some, others may find it unpalatable that such a significant portion of their estate could be lost to tax.
2. Give It Away – With or Without Strings
Gifting is a powerful tool in IHT planning, but it comes with caveats:
- Outright Gifts: If your client survives seven years after making a gift, it falls outside their estate for IHT purposes. However, they must not continue to benefit from the gifted asset (e.g. living rent-free in a gifted home). The two main concerns here are affordability and trust—can your client live without the capital, and can they trust the recipient?
- Trust-Based Gifting: For those who want more control, trusts offer a structured way to gift assets while retaining some benefits. Common structures include:
- Loan Trusts: Your client loans money to a trust on an interest-free basis, which can be repaid over time, keeping the original loaned amount in their estate but removing the growth from their estate .
- Discounted Gift Trusts: Can offer immediate IHT savings on the value of the transfer into trust based on their health and also provide a regular “income” during their lifetime.
- Flexible Reversionary Trusts: Allows your client to retain a reversionary right under the trust which can be deferred whilst also giving the trustees flexibility to make payments to beneficiaries as and when needed, offering all-round flexibility and potential IHT savings.
- Gifting from Income: Gifts made regularly from surplus income (without affecting your client’s standard of living) can be immediately exempt from IHT. This is a valuable but often underused exemption.
Specialist solutions, such as those offered by Utmost, could allow clients to gift life assurance policies (e.g. unit-linked bonds) with restricted surrender rights—ensuring beneficiaries can receive income but not access the full capital.
3. Insure the Liability – A Practical Solution to Meet IHT Obligations
Another effective strategy is to take out a life insurance policy specifically designed to cover the IHT liability. These policies are typically written in trust, ensuring the payout is outside the client’s estate and available to settle the tax bill promptly. Some policies allow for indexing to keep pace with rising asset values. This approach is particularly useful for those clients who are asset-rich but cash-poor, or who want to preserve the full value of their estate for their heirs.
The Changing Landscape: April 2025 Reforms
The IHT landscape shifted significantly in April 2025. Now, anyone deemed a UK long-term resident (LTR)—defined as someone UK tax resident for 10 of the last 20 years—is liable to IHT on their worldwide estate.
This creates both opportunities and challenges:
- Non-LTRs can settle discretionary trusts without any immediate IHT charges, offering a valuable planning window.
- Returning UK residents have a 10-year window to plan before regaining LTR status.
- Departing UK residents may still face IHT for up to 10 years post-departure, and gifting during this period can extend the exposure by another seven years. Term assurance can help cover this “IHT tail.”
Conclusion: Plan Early, Plan Smart
IHT remains one of the UK’s most unpopular taxes—levied on death, often on assets that have already been taxed during life. But it is also one of the most avoidable taxes, provided your clients plan early and seek expert advice. With pensions, farms, and businesses increasingly being drawn into the IHT net, the need for proactive planning has never been greater. Whether through gifting, trust planning, or insurance, the sooner your clients act, the more options they will have—and the more of their estate they can preserve for their loved ones.
Utmost Wealth Solutions offers a comprehensive suite of tools—from trusts and bonds to insurance-based strategies—that can be tailored to help with individual needs. Whether your clients is looking to gift, insure, or simply structure their estate more efficiently, Utmost provides the flexibility and expertise to help you and your clients plan their legacy with confidence.
*As quoted in article 1 ‘The tax that’s stuck in the noughties’ – Written by Simon Martin.
Marc Acheson is Global Wealth Specialist at Utmost
