Inheritance Tax: The Voluntary Tax You Can Avoid with Proper Planning

For many families, Inheritance Tax (IHT) is an unexpected financial burden that reduces the wealth passed on to loved ones. But what if we told you that IHT is often referred to as a voluntary tax? That’s because, with the right estate planning, much of it can be legally reduced or even avoided altogether.

At Toucan Law, we believe that your estate should go to your family, not the taxman. With careful planning, you can take full advantage of exemptions, reliefs, and allowances to minimise your IHT liability and protect your legacy.

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax charged at 40% on estates worth more than £325,000. This threshold is known as the nil-rate band. Anything above this amount is taxed unless exemptions or reliefs apply.

However, with strategic estate planning, most people can reduce their IHT bill or eliminate it entirely.

Projections indicate that IHT receipts are expected to reach £8.3 billion in the 2024-25 tax year

Why is Inheritance Tax Called a Voluntary Tax?

The phrase "Inheritance Tax is a voluntary tax" was famously used by Lord Roy Jenkins, a former Chancellor of the Exchequer, to highlight that those who plan ahead can largely avoid it. While IHT isn’t technically optional, smart estate planning ensures that you legally reduce your tax liability and leave more to your loved ones instead of the government.

Here’s how:

✅ Utilising the Nil-Rate Band & Residence Nil-Rate Band (RNRB) – Married couples and Civil Partners can pass on up to £1 million tax-free under certain conditions. This does not apply to couples who are living together but are unmarried.

✅ Gifting Assets During Your Lifetime – Gifts made seven years before death fall outside your estate for IHT purposes, provided you do not retain any benefit.

✅ Using Trusts to Protect Wealth – Placing assets into trusts removes them from your taxable estate.

✅ Leaving a Charitable Legacy – Donating 10% or more of your estate to charity reduces IHT from 40% to 36%.

✅ Business & Agricultural Reliefs – Business owners and farmers can qualify for 100% IHT relief on certain assets.

How to Legally Reduce Your IHT Liability

1. Make Use of Tax-Free Allowances

• Annual Gifting Allowance – You can gift up to £3,000 per year tax-free.

• Small Gifts Exemption – You can give up to £250 per person each year to an unlimited number of individuals.

• Wedding Gifts – Parents can gift £5,000 to a child getting married without it counting towards IHT.

2. Use Trusts to Remove Assets from Your Estate

Trusts allow you to control how your wealth is distributed while reducing IHT exposure. Popular options include:

• Bare Trusts – Effective for passing wealth to younger generations.

• Discretionary Trusts – Ideal for protecting assets from creditors, divorce, or financial mismanagement.

• Interest in Possession Trusts – Allow a beneficiary to receive income while preserving capital for future generations.

3. Consider Gifting Your Home to Reduce IHT

Your family home is often the largest asset in an estate, making it a key focus for IHT planning. Strategies include:

• Transferring ownership to family members (subject to the seven-year rule and avoiding Gift with Reservation of Benefit rules).

• Using the Residence Nil-Rate Band to increase your tax-free threshold if passing property to direct descendants.

• Placing the home into a trust under specific legal guidance.

4. Plan for Business & Agricultural Relief

If you own a business or agricultural land, you may qualify for 100% IHT relief under Business Property Relief (BPR) or Agricultural Property Relief (APR). These reliefs ensure that family-run businesses and farms can be passed on without a huge tax bill.

5. Leave a Charitable Legacy

Leaving 10% or more of your estate to charity reduces the IHT rate from 40% to 36%, providing a tax-efficient way to support causes you care about while benefiting your beneficiaries.

Why Planning Ahead is Crucial

IHT planning isn’t just for the ultra-wealthy. With rising property prices, more and more families are being caught in the IHT net—often without realising it.

✅ Your home, savings, investments, and even life insurance payouts can all be subject to IHT.

✅ The earlier you start planning, the more options you have to protect your wealth.

✅ Without a Will, your estate will be distributed according to intestacy rules, potentially creating an unnecessary IHT liability.

How Toucan Law Can Help

At Toucan Law, we specialise in reducing your IHT liability and ensuring your estate goes where you want it to—not to HMRC. Our expert team provides:

✅ Tailored IHT planning – Strategies designed to fit your unique circumstances.

✅ Trust & estate planning – Protecting assets for future generations.

✅ Transparent pricing & flexible appointments – Meet us in Weston-super-Mare, at home, or online.

With nearly 30 years of experience, Kylie Cox and the Toucan Law team provide expert, jargon-free advice that makes IHT planning stress-free.

Take Action Today: Don’t Let Your Family Pay the Price

IHT is called a voluntary tax because with the right planning, you can reduce or eliminate it legally. Don’t leave it to chance—let Toucan Law help you secure your family’s financial future.

📞 Call us: 01934 271027

📧 Email us: [email protected]

🌍 Visit us: www.toucanlaw.co.uk

Protect your wealth. Reduce your tax. Secure your family’s future.