The question that matters more than “How do I avoid IHT”?

I'm having more conversations about inheritance tax and gifting money to loved ones at the moment, partly because of the changes coming in April 2027. From then, pensions will count as part of your estate, which could pull more of your wealth into the scope of inheritance tax - and it's got a lot of people thinking about gifting while they're still alive as a way to reduce that bill.

But here's the thing I always come back to: inheritance tax shouldn't be the driver for anything you do. The reality is that far fewer people end up paying it than think they will, even though more people are being drawn into it than used to be the case. So before we talk tax, I want to talk about purpose.

Money should have a purpose

I think about your money as having two jobs. The first is to enable you enjoy your own life to the best of your ability. The second is to help the people you want to help, at the right time for them. Inheritance tax doesn't create either of those purposes - it just sharpens the focus, because any money you haven't used for either is the money HMRC will take a share of on your passing.

Once you start from purpose rather than from tax, the conversation changes. It stops being about how to shelter money from HMRC and starts being about what you actually want that money to do.

There's a hierarchy, and it starts with spending

When people ask me what to do about inheritance tax, I talk them through five options. The first is to spend it - give your own life purpose with it. Second, give it away. Third, look at trusts. Fourth, restructure into assets that carry IHT relief. Fifth, insure against the bill.

The first two matter most because neither one costs you anything beyond the money itself. Everything after those two introduces a cost of some kind, whether that's complexity, risk, or a premium. Spending it and gifting it are simply the most efficient ways to make sure that money ends up doing what you want it to do.

Give it when it's needed, not just when it's convenient

On gifting, my advice is almost always the same: give when it's needed, not necessarily as early as possible. If you're helping a child onto the property ladder, or a grandchild through university, there's real value in doing that while you're alive to see it land, rather than leaving it to be discovered in a will. I've seen the difference that makes for families first-hand - the joy of helping someone at the moment they actually need it is worth far more than the same amount arriving later with no context behind it.

That said, timing still matters. If someone is going through a divorce, for instance, handing over a lump sum before the settlement is finalised can simply turn it into a marital asset - so sometimes the right answer is to have the money ready and wait for the right moment, rather than rushing to give it away.

Fair doesn't have to mean equal

This is the bit families often get stuck on. If you've got more than one child or grandchild, it can feel like fairness means splitting everything down the middle. I'd push back on that. Fairness is about the outcome being equal, not the amount. One child might be financially secure already; another might need real support to get started. Giving them different amounts, in proportion to what they need, is often the fairer outcome - even though the numbers on paper look uneven.

What makes that work is being honest about it. If you're planning to give unequal amounts, talk to your family about why, while you're still around to explain it. It's a far better conversation to have now, in your own words, than to leave people trying to make sense of it after the event.

Trusts, restructuring and insurance - further down the list for a reason

Trusts aren't as popular as they once were, but they still have a place, particularly for clients who are nervous about gifting outright because of future costs such as care. A loan trust, for example, can move future growth outside your estate while still giving you access to the original capital if you need it later.

Restructuring into assets that qualify for Business Relief or Agricultural Property Relief is another option, though recent changes have made this less attractive than it used to be, with the benefit now more limited and generally only available on unlisted, less liquid investments, which brings its own risks.

And then there's insurance. A straightforward seven-year term policy can be a sensible, low-cost way to cover the tax on a specific gift. But whole-of-life cover is a different matter - premiums can run into tens of thousands of pounds a year and tend to climb over time, which makes it a poor use of money for most people. Insurance is usually the answer when the first four options genuinely don't work.

The real question isn't "how do I avoid the tax?"

It's "What do I want this money to do, and when?" Get that right, and the tax bill tends to take care of itself. 

If you'd like to talk through what any of this means for your own plans, please get in touch and we'll talk it through.