Inheritance Tax Planning

Please note, the term “avoid” is used in some of the questions asked within this podcast, reflecting its use in Google searches relating to inheritance tax. This podcast is not advocating avoidance of inheritance tax, but intends to inform individuals who may be using this search term. Where “avoid” has been used within the podcast, this has been replaced with “mitigate” in the article below.

What is inheritance tax and what are your inheritance tax allowances?

Inheritance tax is a tax that’s applied in some scenarios to your estate after you die. It takes into consideration any property that you own, any money or valuable possessions.

If the total is over a certain value, a tax is payable depending on your circumstances. Thresholds are subject to change all the time, but at the time of recording in March 2026, if your estate is worth less than £325,000 you wouldn’t pay any inheritance tax.

How do you avoid inheritance tax in Scotland?

We never avoid inheritance tax. We might, however, set our arrangements to manage the liability and to make sure that we’re not paying more than we need to.

The rules vary depending on your circumstances and how you choose to set up your arrangements. There are different caveats to consider around who you leave your estate to, and specific rules around farms and Trusts, for example.

I can’t stress enough that you need personalised advice in this area. It’s complicated and the rules change – make sure that you’re managing your tax and not avoiding it.

Does a deed of variation mitigate inheritance tax?

No, but it can be used to manage the situation. It depends on the circumstances and how you use that. There is a facility there to change someone’s Will or wishes to be more tax-efficient.

Can I use equity release to mitigate inheritance tax?

If you die and you have used an equity release product, some of your equity in the property is actually due to the equity release company and would not form part of your estate. That might reduce your overall estate to below the threshold.

But I would suggest that equity release is more of a lifestyle choice whilst you’re still alive, rather than a mechanism to mitigate inheritance tax.

Should I get married to mitigate inheritance tax?

Obviously, you should get married because you love somebody very, very much. But the rules around spousal inheritance are different for those who aren’t married. It’s quite a neat way of managing the transfer of property, money and your estate to your spouse or partner.

Can I buy my parents’ house to mitigate inheritance tax? Can I give my house away to mitigate inheritance tax?

It is possible to give away a property to children or grandchildren. That will potentially give you more room within the inheritance tax threshold.

How much can I give away to mitigate inheritance tax and can executors donate to charity to mitigate inheritance tax?

Executors can make charitable donations that will change how your inheritance tax is calculated, and perhaps minimise it.

In terms of giving money away, this certainly forms part of an ongoing financial planning regime. Whilst somebody is still alive, if they have money that they’re unlikely to ever spend, we might start making use of gift allowances.

People can give away a certain amount each tax year to their family. We might start doing that ahead of time, to ultimately lead to a lower inheritance tax bill.

Can I mitigate inheritance tax with a self-invested personal pension (SIPP)?

This can be a helpful tool, but there are lots of rules and caveats to consider. It needs to be part of a bigger plan.

Does a joint bank account mitigate inheritance tax?

Not in and of itself, no. You need to be mindful of who the joint account is with. A spousal joint account is different from a joint account with a friend. It’s just so important to get individual advice.

What else do we need to know about inheritance tax?

As I’ve said throughout this, there really is no substitute for really good quality advice. This is quite a complicated area, so if your estate is going to be over the threshold, it’s a really good idea to be speaking to a financial planner.

At McKendry Dunion Financial, that ongoing advice is part of the service that we provide. We’re not specifically planning for everybody’s death, but we will consider that when we’re making your retirement plans, when considering investments and making sure that clients are aware of what they can and can’t do.

Key Takeaways:

• Inheritance tax (IHT) is a tax applied to an estate worth more than £325,000, with a tax rate of 40% applied to the excess.
• The primary objective in planning is to manage the IHT liability and minimise the tax paid, as the tax cannot be entirely mitigated.
• Due to the complexity and constantly changing nature of the rules, personalised, quality advice from a financial planner is essential, especially if your estate may exceed the threshold.
• Marriage is a straightforward way to manage the transfer of property and money to a spouse or partner because spousal inheritance rules are different than for those who aren’t married.
• Various planning tools, such as using gift allowances while still alive, executors making charitable donations, or structuring arrangements like a Self-Invested Personal Pension (SIPP) or a limited company, can help reduce the final IHT bill.