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Estate over £1m? How to mitigate IHT

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.

With inheritance tax (IHT) set at 40% on the value of an individual’s estate over £325,000, it is easy to see why many people need to plan for this now. Today, hundreds of thousands of UK homes are valued over £1m. Many others have an estate worth over £1m when other assets are factored in addition to their home – such as ISAs, Buy-to-Let properties and shares in a general investment account (GIA).

What can you do to mitigate a future IHT bill if your estate is approaching – or over – £1m in value? Below, our financial planning team in Grantham offers some thoughts. We hope you find this content helpful. If you want to discuss your own financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 855 585


Combining IHT thresholds

Single people face a disadvantage when it comes to inheritance tax. In 2021-22, individuals in a married couple or civil partnership can pass any unused IHT allowance to their spouse after they die. For instance, suppose a wife dies and leaves everything to her husband. This passes her £325,000 IHT-free allowance to him. When he later dies, he can combine this with his own allowance to potentially leave a £650,000 IHT-free inheritance to beneficiaries.


The “enhanced” threshold

In 2021-22, there is a “residence nil rate band” (RNRB) which allows an individual to “extend” their IHT-free threshold by £175,000. The condition to do so is that your primary UK home must be left to direct descendants (e.g. children and/or grandchildren). For a single person with a child, for instance, this could allow them to leave £500,000 to their son/daughter IHT-free. Yet for a married couple or civil partnership, this could be combined to theoretically pass down a £1m estate to direct descendants – IHT free.


IHT-efficient investments

Quite often, a £1m+ estate is quite complex and requires a tailored financial plan to mitigate needless inheritance tax. For instance, perhaps the estate owner is not married and has no direct descendants – so cannot utilise the RNRB rules to extend their IHT threshold. Perhaps most of your wealth is not tied up in your home. As such, other options often need to be considered. One idea is to structure your investments in an IHT-efficient manner.

For example, certain investment schemes (or “vehicles”) offer exemptions from IHT. Certain business shares might qualify for the Enterprise Investment Scheme (EIS), which lets the investor exclude them from their estate (for IHT purposes) if held for at least two years. This is because most EIS shares qualify for Business Relief when your executor(s) value your estate using form IHT400 (Inheritance Tax account) and schedule IHT413.

Another option is to consider using your stocks & shares ISA to invest in AIM shares (shares listed on the UK’s Alternative Investment market). Some of these shares also qualify for Business Relief and can offer IHT exemption if held for a minimum period. However, with AIM shares – and also EIS investments – it is important to recognise that the risk can be greater compared to publicly traded companies. A financial planner can help you analyse the various investment options available for IHT planning and make recommendations based on your financial goals and risk tolerance.


Gifts & IHT

When you die your estate is, effectively, “gifted away” all at once to your beneficiaries. At this point, the estate is valued and IHT may be due. Alternatively, you could bequeath parts of your estate to loved ones before that time. Not only does this let you witness the joy and impact of your gift to the recipient, but it can also be more IHT-efficient.

In 2021-22, you can give away £3,000 via your “annual exemption” without being counted as part of your estate. This can be given all at once to a single person, or in multiple stages to different people. You can also make as many £250 individual gifts as you like, and there are specifications for weddings (e.g. £5,000 to a child and £1,000 to someone outside the family).

You might even be able to reduce your IHT rate of 40% down to 36% if you leave at least 10% of your net estate to charity. This can be a powerful way to contribute to good causes whilst potentially letting you leave a better legacy for your loved ones.


It is commonly misunderstood that placing your assets in a trust completely shields them from IHT. In fact, there are many types of trusts in the UK – each with their own set of rules. Some can be helpful with managing an IHT bill. For instance, you could place a life insurance policy within a specific trust structure to help ensure that the payout (intended to help cover your IHT bill) is not also counted within your estate when you die. However, it is best to seek professional advice when exploring this area for estate planning to ensure no costly mistakes are made.

Conclusion & invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585