Is Inheritance Tax Voluntary?

28th May 2021

1 in 20 estates in the UK pay inheritance tax (source: HMRC), you could save your family hundreds of thousands of pounds with careful financial planning.

It is worth letting your family know that Whitechurch could offer them free or discounted advice so that you know your legacy is looked after properly.

Having worked hard to accumulate wealth, many people want to protect at least some of their assets for the benefit of their loved ones, but Inheritance Tax can have a signficant impact on the amount you leave behind. In the depths of a winter lockdown, it may have felt like it would never come, but the snowdrops came and went, the daffodils are out, and spring is well and truly upon us. Spring brings with it the feel of a fresh start, a new lease of life, and as we all know, a new financial year and fiscal budget announcements. Like the rest of the financial world,Whitechurch speculated on the range of taxes that we expected to see rise following the fiscal budget. Much to our (pleasant) suprise, many of the tax thresholds such as Inheritance Tax (IHT) and Capital Gains Tax have been frozen until 2026.

The subjects of estate planning and inheritance tax can be delicate ones, balancing the desire to pass on some wealth whilst enjoying life and not overpaying tax. Considering what you’d like to happen and writing a will are good start points and thereafter there are the more detailed aspects. Some considerations might be:

  • Are you concerned about the certainty of someone receiving a gift in your will?
  • Have you children from a previous marriage that need to be considered?
  • Have you business assets that would need to be included?
  • Is your estate of a size that would incur inheritance tax?

Gifting and the use of trusts can help with these aspects and we recommend professional advice. According to HMRC, 1 in 20 estates in the UK pay inheritance tax and with frozen tax thresholds more estates may be subjected to IHT, so prudent planning where possible is often advisable.

Inheritance Tax

IHT is often perceived as a voluntary tax. This is because with careful planning, it is possible to reduce or remove any liability altogether. Despite being frozen, IHT is a significant amount at the rate of 40%. This is essentially a tax levied on any transfer of assets to other people or trusts. It is mostly paid in respect of an individual’s estate on death, but it can also apply in respect of certain transfers of assets during life. This means that although the tax threshold is currently frozen, if the tax percentage is increased in 2026 you could be paying significant IHT on certain asset transfers that you make now.


We have listed some examples below, but there is much more to IHT than we can fit on this blog. It’s important to speak to an adviser to find out what is right for you.


Exemption transfers are those which can be made without a tax liability. The most important include:

  • Spouse exemption – transfers between UK domicile spouses and registered civil partners whether during life or on death.
  • Annual exemption – lifetime transfers of up to £3,000 each tax year are exempt.
  • Small gift exemption – outright gifts of up to £250 in any one tax year to any number of people are exempt.
  • Normal expenditure out of income – lifetime gifts which are of a regular nature, and made from net income, qualifies for an exemption if they do not affect your normal standard of living.
  • Marriage gift exemption – gifts made by certain people in consideration of a marriage or civil partnership taking place are exempt:
    - from a parent £5,000
    - from a grandparent £2,500
    - from others £1,000
  • Charities – Gifts and bequests to a UK registered charity or other qualifying body.
  • National Benefit – Gifts and bequests to certain national institutions such as the National Gallery or British Museum.
  • Political Parties – A transfer of value to a qualifying political party.


Tax Relief

Certain assets get relief from IHT. The most important include:
Business property relief – 100% relief is available in respect of a sole trader’s business, the interest in a business of a partner, or a shareholding in an unlisted company. Land, buildings, machinery or plants owned personally by an individual, or a controlling shareholder, qualifies for 50% relief. You can only get relief if the deceased owned the business or asset for at least two years before they died.
Agricultural property relief – 100% relief is available in respect of the agricultural value of land and farm buildings.

Use of Trusts

  • There are a number of trusts which can be used. Some of the reasons for establishing a lifetime trust include:
  • The ability to make a gift of assets while maintaining control.
  • Providing for minor children who are too young to take legal responsibility for gifted assets.
  • Avoiding or reducing IHT, capital gains tax and income tax.
  • Providing a flexible environment for the future.


Potentially Exempt Transfer (PET)

This is a term which describes gifts of cash and assets which, subject to certain conditions, will not incur a liability to IHT. Gifts between individuals or into bare trust arrangements are termed PETs. A PET made more than seven years before death becomes an exempt transfer. If death occurs within seven years, then the gift falls into the estate and potentially becomes taxable, subject to any taper relief and the nil rate band.

Life Assurance

Whole of Life Assurance is the oldest established and, arguably, the most effective method of meeting an IHT liability. As the date of death is uncertain, a Whole of Life policy is affected to make sure that capital is available at death to meet the IHT bill. Policies are normally written under a suitable trust arrangement to make sure the policy proceeds do not compromise the deceased’s estate upon death.


With the changes to pension rules that came into effect from 6th April 2015, a pension can potentially also be used to pass on benefits without tax.

We have covered only a few basics of IHT planning as this is a complex area and you should seek professional advice to make the most of your options.

You may wish to make your loved ones aware of what you have in place so that they can carry out your wishes. If you are planning to leave inheritance to others, it can be just as complicated to know what to do with the money when you receive it.

It is worth letting your family know that Whitechurch could offer them free or discounted advice so that you know your legacy is looked after properly.

There is much more to IHT than we can fit on this blog. It’s important to speak to an adviser to find out what is right for you, meantime we have noted a checklist of considerations:


Important Notes: This publication is approved by Whitechurch Securities Limited which is authorised and regulated by the Financial Conduct Authority. All contents of this publication are correct at the date of printing. We have made great efforts to ensure the accuracy of the information provided and do not accept responsibility for errors or omissions. This publication is intended to provide helpful information of a general nature and is not a specific recommendation to invest. The contents may not be suitable for everyone. We recommend you take professional advice before entering into any obligations or transactions. Past performance is not necessarily a guide to future performance. Investment returns cannot be guaranteed and you may not get back the full amount you invested. The stockmarket should not be considered as a suitable place for short-term investments. Levels and bases of, and reliefs from, taxation are subject to change and values depend on the circumstances of the investor.