Inheritance Tax Planning
Thoughtful, structured planning that safeguards your legacy and ensures your wealth is transferred with confidence and control.
Overview...
Inheritance Tax (IHT) has been part of the UK tax system for over a century. Once considered a concern only for the very wealthy, it is now drawing in far more families due to frozen allowances and rising asset values.
The nil-rate band remains fixed at £325,000 per individual (frozen since 2009), with an additional residence nil-rate band of up to £175,000 when a main residence passes to direct descendants. Together, married couples can pass up to £1 million free of IHT, but estates above this are taxed at 40%.
With house prices and investment values rising, more families than ever are being drawn into the IHT net, particularly in areas such as London and the South East. HMRC receipts from IHT are now at record highs, underlining the importance of forward planning.
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Why it matters
Inheritance Tax is charged at a standard rate of 40% on the value of an estate above the available allowances. For families whose wealth is tied up in property, businesses, or investment portfolios, this can translate into a significant tax bill, often due shortly after death.
Without proper planning, this liability may need to be funded by selling family assets or borrowing at an inopportune time.
For those who have worked hard to build their wealth, IHT represents not only a financial challenge but also a question of legacy: how to pass on assets efficiently, fairly and in line with personal wishes, rather than seeing a large portion lost to taxation.
The Planning Opportunity
The good news is that with early, strategic advice, exposure to Inheritance Tax can often be significantly reduced, or even eliminated entirely. There’s no single “one-size-fits-all” approach, but rather a combination of complementary techniques tailored to each family’s unique circumstances.
At Sterling Ridge Wealth, we begin by gaining a clear understanding of your estate, family structure, and long-term objectives. From there, we assess potential tax exposures, identify relevant allowances and reliefs, and design a bespoke strategy that brings together the most suitable planning methods in a compliant and structured way.
This may include a blend of lifetime gifting, trust arrangements, targeted investments, protection planning, and insurance-based solutions, all working together to reduce liability while preserving control and flexibility.
Our role is to simplify complexity, coordinating each of these elements into a clear, practical roadmap. We review plans regularly to ensure they remain effective as legislation, markets, and family situations evolve.
The result is a well-structured estate plan that not only minimises unnecessary tax but also provides lasting clarity, control, and peace of mind, for you and for future generations.
Key Considerations:
Understanding the main inheritance tax thresholds and rules helps ensure your estate is passed on as efficiently as possible.
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Nil-Rate Band (NRB): The first £325,000 of an individual’s estate is taxed at 0%.
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Transferable Nil-Rate Band (TNRB): Any unused NRB can be transferred between spouses or civil partners, increasing the total combined allowance to £650,000.
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Residence Nil-Rate Band (RNRB): An additional allowance of up to £175,000 per person applies when leaving a main residence to direct descendants.
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Taper Threshold: For estates valued above £2 million, the RNRB is reduced by £1 for every £2 over this limit.
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Inheritance Tax Rate: 40% is charged on the portion of the estate above available allowances
What we do
Gifts & Exemptions
Gifting allowances and exemptions remain one of the most straightforward and effective ways to reduce the taxable value of an estate over time. When integrated into a broader estate plan, they can help families transfer wealth in a structured and tax-efficient manner.
Key allowances include:
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Nil-Rate Band (NRB): The first £325,000 of an individual’s estate is taxed at 0%.
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Residence Nil-Rate Band (RNRB): An additional £175,000 per person may apply when passing the family home to direct descendants, allowing couples to combine allowances of up to £1 million.
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Spousal Exemption: Transfers between spouses or civil partners are typically exempt from IHT, allowing wealth to pass tax-free between couples.
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Charity Exemption: Gifts to registered UK charities are exempt, and leaving 10% or more of the net estate to charity can reduce the IHT rate from 40% to 36%.
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Annual Exemption: Up to £3,000 per tax year can be gifted outside the estate.
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Small Gifts: Unlimited gifts of up to £250 per person per year are exempt.
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Wedding Gifts: Specific exemptions apply to gifts made on marriage or civil partnership (£5,000 to a child, £2,500 to a grandchild, £1,000 to others).
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Potentially Exempt Transfers (PETs): Larger gifts can become fully exempt if the donor survives seven years from the date of the gift.
At Sterling Ridge Wealth, we advise clients on how to apply these allowances strategically and in combination with other estate planning solutions. By tailoring gifting strategies to each client’s circumstances, we help reduce future IHT liabilities while maintaining control over how and when wealth is passed on.
Trusts
Trusts are a cornerstone of effective estate planning, providing structure, control, and flexibility when passing wealth to future generations. When used correctly, they can help reduce the taxable value of an estate while ensuring assets are distributed in line with the settlor’s wishes.
Common trust options include:
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Bare (Absolute) Trusts: The simplest form of trust, where named beneficiaries have an immediate and absolute right to both income and capital. Assets are outside the estate after seven years, assuming no reservation of benefit.
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Discretionary Trusts: Trustees control how and when assets are distributed among a class of beneficiaries, offering flexibility and potential IHT advantages. While entry charges may apply if contributions exceed the nil-rate band, they can be effective for long-term planning.
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Loan Trusts: Allow individuals to retain access to their original capital via loan repayments, while growth on the invested amount falls outside the estate.
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Discounted Gift Trusts: Provide an immediate reduction in the taxable estate (the “discount”) for those in good health, while also generating a regular income stream for the settlor.
We assess each client’s objectives, family dynamics, and tax position to determine whether trust planning is appropriate and, if so, which trust structures best support their goals. Trusts must be established and administered correctly, and our role is to ensure they are integrated seamlessly into the wider financial plan.
Business Relief (BR)
Business Relief (BR) offers investors a powerful route to reduce inheritance tax while retaining ownership and control over their capital. By investing into qualifying trading businesses, it is possible to secure significant IHT relief after a minimum holding period of just two years, making BR one of the most flexible and time-efficient estate planning strategies available.
Specialist BR investment solutions enable individuals to invest in portfolios of carefully selected unlisted trading companies, managed by experienced providers who focus on diversification, liquidity planning and compliance with BR rules to maintain relief eligibility.
Strategic advantages include:
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Fast qualification period: Relief is typically available after two years, compared to seven for most gifting strategies.
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Retention of ownership: Assets remain in the investor’s name, allowing continued access to capital and control.
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Flexibility: Investments can often be restructured or withdrawn if circumstances change.
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Integration with wider planning: BR can be combined with gifting, trusts and life insurance to build a layered, tax-efficient estate plan.
At Sterling Ridge Wealth, we assess suitability on a case-by-case basis and only recommend BR investments where they align with a client’s objectives, capacity for loss and estate planning strategy. For the right client, BR solutions can provide a highly effective, though higher-risk, key component of an overall inheritance tax plan.
Life Insurance
Life insurance can play a strategic role in inheritance tax planning by providing a guaranteed, tax-free lump sum to meet future IHT liabilities. This ensures beneficiaries receive their inheritance intact, without the need for forced sales of assets.
Key considerations include:
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Whole of Life Policies: Designed to pay out whenever death occurs, making them well-suited to covering a future tax bill.
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Writing Policies in Trust: By placing the policy in trust, proceeds fall outside the estate and can be paid quickly without waiting for probate.
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Joint Life Second Death: Commonly used by couples, these policies pay out on the second death, when IHT typically arises.
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Flexible premium structures: Policies can be funded through regular premiums or a single lump sum to suit the client’s cash flow.
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Strategic integration: Life insurance can complement gifting, trusts or BR investments to provide liquidity alongside other planning techniques.
As advisers, we determine the appropriate policy structure, trust arrangement and funding method based on each client’s estate size, objectives and tax position. Life cover provides certainty, ensuring IHT can be met without disrupting the intended legacy.
***Risk Warnings: Trusts are not regulated by the Financial Conduct Authority. Inheritance Tax Planning is not regulated Financial Conduct Authority.
Want to find out more about inheritance tax planning?
Inheritance Tax can have a significant impact on the legacy you leave behind. With careful planning, you can reduce the burden and make sure more of your wealth goes to the people you care about. Book a free consultation today to explore your options with a qualified adviser.
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