How to Pass Wealth to the Next Generation Tax-Efficiently
By Legacy Wealth Planning, Essex
Passing on your wealth is more than just a financial transaction—it’s a lasting legacy. But without careful planning, a significant portion of your estate could be lost to Inheritance Tax (IHT), which currently stands at 40% on anything above the tax-free threshold.
The good news? There are several legitimate, FCA-compliant strategies you can use to reduce the tax burden on your loved ones. In this article, we explore smart, tax-efficient ways to pass on wealth—giving future generations the best possible start.
1. Understand the Inheritance Tax Thresholds
Inheritance Tax in the UK applies at 40% on estates above:
£325,000 (Nil Rate Band)
Up to £500,000 if passing your main residence to a direct descendant (Residence Nil Rate Band)
Married couples can combine their thresholds, potentially passing on up to £1 million tax-free.
✅ Tip:
Review your estate’s total value—including property, savings, investments, and life insurance not written in trust—to see how much may be liable for IHT.
Source: HMRC – Inheritance Tax Thresholds
2. Use Your Annual Gifting Allowances
Gifting is one of the simplest ways to reduce the value of your estate over time. HMRC allows:
£3,000 per person per year (annual exemption)
Unlimited small gifts of up to £250 to different individuals
Wedding gifts: up to £5,000 to a child, £2,500 to a grandchild
Potentially Exempt Transfers (PETs): larger gifts become IHT-free after 7 years
✅ Tip:
Keep clear records of gifts and dates to ensure they qualify under HMRC rules.
3. Consider Trusts for Greater Control and Tax Efficiency
Trusts allow you to set aside assets for beneficiaries while still controlling how and when they receive them. They can also remove assets from your estate for IHT purposes—depending on the type of trust used.
Popular options include:
Bare trusts: for young children/grandchildren
Discretionary trusts: for flexibility and control
Gift & loan trusts: to retain access to capital
⚖️ Note: Trusts are complex and must be set up correctly to comply with tax rules and regulations. It’s essential to seek guidance from a regulated financial adviser and legal professional.
4. Use Life Insurance (Written in Trust)
A life insurance policy written in trust can be used to cover any IHT liability, ensuring your heirs receive the full value of your estate without needing to sell assets to pay tax.
✅ Tip:
Because the policy is written in trust, it doesn’t form part of your estate, and the payout is typically free from IHT and paid out quickly.
5. Make Use of Business Relief (If Applicable)
If you own a business or certain qualifying assets, you may be able to pass them on free of Inheritance Tax under Business Relief—as long as you’ve owned them for at least 2 years.
Eligible assets include:
Shares in an unlisted company
Business property or equipment used in a business
✅ Tip:
If you’re unsure whether your assets qualify, speak to a financial planner or estate specialist who can assess your position.
Source: HMRC – Business Relief Guidance
6. Start Early and Plan Proactively
Estate planning isn’t just for the wealthy or elderly. The earlier you begin, the more tools you have at your disposal to mitigate tax, gift meaningfully, and support your family’s future.
✅ Tip:
Create or update your will
Regularly review your estate plan
Discuss your intentions with your family to avoid confusion later
Final Thoughts
Passing on wealth to the next generation doesn’t have to come with a hefty tax bill. With proactive, professional planning, you can ensure that more of your legacy ends up with the people and causes you care about.
At Legacy Wealth Planning, we specialise in creating tax-efficient strategies that are fully aligned with FCA guidelines and your personal values. Let’s help you protect what you’ve worked so hard to build.
Book Your Estate Planning Review
Contact us today for a confidential consultation with our experienced adviser, Richard—based in Essex with over 30 years of financial planning experience.
📚 Sources Referenced:
HMRC – Inheritance Tax Thresholds
HMRC – Gifts and exemptions
MoneyHelper – Trusts and estate planning
*The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
*HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
*Trusts and Taxation are not regulated by the Financial Conduct Authority.