If your estate is worth over £325,000 and it’s not left to your spouse or civil partner, Inheritance Tax might need to be paid before it can be passed on.

Your estate typically includes money, property and other belongings like a car and furniture – minus any debts.

There are also other allowances which can mean an estate worth up to £1 million can be passed on without paying Inheritance Tax. 

For more information, see our guide to Inheritance Tax in the UK.

If you’re worried about your estate being subject to Inheritance Tax after you die, you could consider reducing its value by giving some of it away while you’re alive.

Each tax year (6 April to 5 April), you’re allowed to give away:

• unlimited amounts to your spouse or civil partner if they live in the UK

• unlimited amounts to a registered charity – if you leave at least 10% of your estate to charity when you die, the Inheritance Tax rate might reduce from 40% to 36%

• up to £3,000 to other people, or up to £6,000 if you did not use the previous year’s allowance.

There are also separate allowances that do not use up your overall £3,000 annual limit:

• small gift allowance – this lets you gift up to £250 per person, as long as another allowance has not been used for them 

• gifts for a wedding or civil partnership – this lets you give (on or shortly before the wedding date) up to: 
  • £5,000 to your child
  • £2,500 to your grandchild or great-grandchild
  • £1,000 to anyone else

• regular gifts from your income – this lets you give unlimited amounts to someone as long as you can evidence that:
  • the money comes from your regular monthly income
  • you can afford the gift after covering your living costs.

Find out more about Inheritance Tax and giftsOpens in a new window on GOV.UK.

If you give away more than your annual allowance, these amounts will still be added to your estate if you die within seven years of making them. 

This means those gifts will still count when calculating if Inheritance Tax needs to be paid.

Any gifts that need to be added to your estate will use up any tax-free allowance you’re entitled to first. 

For example, if you only qualify for the standard £325,000 tax-free allowance for Inheritance Tax and the total of all your gifts over the last seven years is:

• less than £325,000, those gifts will reduce the tax-free allowance available for the other assets you’re passing on – so your beneficiaries might pay more tax and receive less

• more than £325,000, there would be no tax-free allowance available for the rest of your estate.  

There are some gifts, such as large gifts to trusts, which might mean you have to pay Inheritance Tax when you make the gift.

If Inheritance Tax needs to be paid on a gift you’ve given, the person who received it usually needs to pay the tax. You might want to tell the person receiving the money that there could be tax to pay later, so they can set some aside if possible.

The rate they’ll need to pay depends on the time between the gift and your death. This is called taper relief.

Giving some of your estate away might help reduce Inheritance Tax, but it’s never a decision to rush into. 

There are potential downsides to consider to, including:

• if you’ll keep enough money to live on, especially if you live longer than expected

• if giving away money could cause family problems, including if you cannot afford to give everyone the same 

• the money gift being used in a way you do not agree with – or lost if the person gets divorced or goes bankrupt

• if you want to apply for funding for long-term care, councils can still count gifts when deciding if you’re eligible

• care costs in later life might reduce your estate anyway.

Remember that tax rules, your personal situation and the value or your estate can change over time.  

A regulated financial adviser can give you personalised advice on Inheritance Tax, including:

• explaining the rules that apply to you

• making sure you’re using all the available tax allowances 

• recommending ways to reduce tax on your estate after you die.

For more information, see our guide How to choose a financial adviser.

To help set up a trust, you can find a solicitor in:

• England and Wales on  The Law SocietyOpens in a new window

• Scotland on The Law Society of ScotlandOpens in a new window

• Northern Ireland on Law Society of Northern IrelandOpens in a new window