The sooner you start thinking about Inheritance Tax the more tax you will save your children and beneficiaries after your death. Without any planning, all of your estate over the current threshold of £325,000 will be taxed at 40%. Much of this tax can be avoided with a little careful planning.

Firstly it is worth remembering assets can normally be passed to a spouse on death without a tax charge and without using up any of your £325,000 allowance. Also, if you do not use your full tax-free allowance the unused percentage can be passed on to your surviving spouse, increasing their allowance by that percentage at the time of their death.


Retirement might be the ideal time to consider gifts to your children and grandchildren. First make sure you are comfortable you are not giving away money you might need yourself.

Gifting could create Inheritance Tax (IHT) consequences. However, you are allowed to give away £3,000 IHT free each year.

Gifts in excess of £3,000 are normally chargeable to IHT unless you survive seven full years. After you have survived three full years from making the gift the amount of tax you pay is tapered down. It therefore makes sense to make gifts of this nature earlier in retirement rather than later.

As well as the £3,000 limit mentioned above you can also make IHT free gifts from surplus income (known as gifts out of normal expenditure), i.e. the gift does not affect your usual standard of living.

Surplus income could be invested for your children or grandchildren. The money could be used to fund Child Trust Funds or Junior ISAs, or to invest in unit trusts with your grandchild designated as the account beneficiary.

Alternatively you could start a pension for them. They will enjoy all the normal tax benefits of pensions and you could lay firm foundations for them for their retirement.

Most gifts to charities are also exempt from IHT.

For more on the thresholds of Inheritance Tax, review our helpful tax pages.