Posted: Monday, 27 April 2026 @ 10:12
Small Wins – Helping Clients Reduce Their IHT Exposure
Practical, everyday reliefs that add up to significant savings
When advising clients with an inheritance tax exposure there's a natural tendency amongst Will writers and solicitors to advise on the bigger techniques, such as nil rate band discretionary trust planning, gifting second homes away, lifetime settlement planning, etc.
It's worth bearing in mind that there are a number of inheritance tax reliefs which are available to clients which, if added up, can make a significant impact in their exposure over the long term.
It's certainly worth advising clients on the following.
Potentially Exempt Transfers
One piece of advice to clients is that if they gift assets or capital to others from their estate then that value given away is out of their estate for inheritance tax purposes.
Of course, HMRC would consider the loss to the estate as what is known as a potentially exempt transfer; providing the transferor survives seven years then that gift is not included in their estate. But of course if the transferor dies within that seven year period the value is considered part of the estate for inheritance tax calculation purposes, subject to taper relief.
It's also worth bearing in mind that a failed potentially exempt transfer (i.e. the client dies within that seven year window) can eat into the nil rate band available on death.
It's arguable whether it is better to try to remove capital from the estate and hope they survive the seven year timeframe, as opposed to simply keeping the capital, where it will certainly be part of the death estate for inheritance tax purposes.
Annual Exemption
Each person can gift up to £3,000 to whoever they choose each tax year. Importantly the transfer of £3,000 is not considered to be a potentially exempt transfer.
This is quite usual. For a typical couple, each taking advantage of their exemptions for say ten years, this amounts to a reduction in their estate of £60,000. Or put another way a possible inheritance tax saving of up to £24,000.
One surprising quirk of the relief is that it does not have to be a single payment of £3,000 to one individual but can be split over several people.
Small Gifts
Put simply, this allows a client to make any number of small gifts up to the value of £250 to any number of people. Again, although the amount is not large at all, gifting this to for example grandchildren, nephews and nieces, their own children, etc. can make a small but nevertheless significant dent in the value of the death estate for inheritance tax purposes.
This might be useful for customary occasions such as Christmas, birthdays, etc.
Gifts from Surplus Income
A little more complex, but nevertheless, another useful exemption.
If for example the client is in receipt of income, such as a pension, but part of that income is never spent, then that element is considered to be surplus income.
Again, that surplus income can be given away to whoever the client chooses, thus reducing the estate down again.
There are a number of rules which HMRC will apply as to whether the gifted surplus income is truly surplus, or not.
HMRC Rules for Surplus Income Gifts:
- On the death of the client, HMRC will require evidence that the gifting of surplus income was a pattern over a tax year. The evidence presented must definitively show the gifts were from income and not from savings.
- That the client did not artificially change their spending patterns to free up more income, in order to gift what more of what they now considered to be surplus. In effect HMRC will require evidence that the client's standard of living had not suffered in order to facilitate the shedding of income.
Wedding Gifts
One should not encourage the kids to get married just to take advantage of an inheritance tax exemption(!) but nevertheless when someone enters marriage or a civil partnership the following gifts can be made:
- Where a child gets married/enters into a civil partnership: £5,000
- Where a grandchild or great grandchild gets married/enters into a civil partnership: £2,500
- Anyone else: £1,000
Keeping Records
One of the executor's duties is to account to HMRC for the value of the death estate and calculate any tax arising. This exercise requires them to factor in the various reliefs available. After all, the beneficiaries will not be happy to receive less but for the failure of the executors to take advantage of any reliefs available!
So, it would be a good idea for the client to keep records of any gifts they have made, the date, purpose and recipient. This saves the executors having to attempt to go through each financial transfer over the previous seven years in order to see what reliefs they can apply!
What Are the Rumours Regarding Changes to Reliefs?
To stress, there are no formal or official plans to implement any of what follows. Nevertheless, HMRC / the Government reviews what reliefs are available to determine whether they are fair and need to be amended, or whether there's opportunity for a greater tax take.
- There is some talk that the seven year potentially exempt transfer period could be extended to ten years.
- Concerning taper relief, another speculation is that it could be adjusted or removed entirely, creating what is considered to be a 'cliff edge' scenario. If the client dies within six years (or ten years?) and 364 days that gift is considered part of the estate. Survive the prescribed period and it falls outside.
- Another rumour is that there might be a single cap applied across all of the reliefs identified in this article. The figures being talked about are as wide as £50,000 up to £200,000.
It is important not to over speculate and certainly not to advise clients on changes which are merely being tested for reaction in the professional domain. The reliefs as described in this article remain applicable for the foreseeable future.
The Takeout
Regardless of what happens in the future to inheritance tax reliefs, it's worth pointing out to clients the small wins they could perfectly easily achieve if they have excess capital or surplus income which they are happy to offload from their estate.
Technical Support: Paul Tansley
Disclaimer: This article provides general information for educational purposes. It does not constitute legal advice. Professional guidance tailored to individual circumstances is essential.