Inheritance Tax Explained – and How to Reduce Your Exposure

What it means for your estate, and how smart planning can keep more in the family

If you’ve worked hard to build a successful career, grow a business, or accumulate wealth through property and investments, it’s only natural to want that value to benefit your loved ones – not the taxman.

But without proper planning, Inheritance Tax (IHT) can erode a significant portion of your estate.

This article breaks down what IHT is, who it affects, and most importantly – what you can do to reduce your exposure.

What Is Inheritance Tax?

Inheritance Tax is a tax charged on the value of your estate – everything you own – when you die.

As of 2025/26, the key thresholds are:

• £325,000: The standard nil-rate band (no IHT charged below this)
• £175,000: The additional residence nil-rate band if your home is left to direct descendants
• 40%: The standard IHT rate on anything above the thresholds

So, a single person can pass on up to £500,000 tax-free, or £1 million as a couple.

Anything above your Nil-rate band could face a 40% tax charge.

If an estate is valued over £2million the additional residence nil-rate band will be tapered down.

Personal Pension funds left on death will also soon be included in the IHT calculations.

What’s Included in Your ‘Estate’?

Your estate includes:

• Property
• Savings and investments. Including personal pensions from April 2027
• Business interests, albeit business relief may apply with some inheritance tax reliefs
• Life insurance policies not held in trust
• Personal possessions (cars, jewellery, etc.)

This means that many professionals – especially those with a home, pensions, and investment portfolios – may be caught by IHT without realising.

5 Ways to Reduce Your Inheritance Tax Exposure

1. Use Your Annual Gift Allowances

You can gift up to £3,000 per year (plus small gifts of £250 per person) without it counting towards your estate. Larger gifts may also fall outside your estate after seven years – known as the “seven-year rule”.

2. Put Life Insurance in Trust

Many life insurance payouts form part of your estate and are subject to IHT. Placing policies in trust ensures the payout goes directly to your beneficiaries – outside of your estate.

3. Make Use of the Residence Nil-Rate Band

If you leave your home to children or grandchildren, you may qualify for the additional £175,000 allowance. But it comes with conditions especially if your estate is worth more than £2 million, where the allowance tapers.

4. Establish Trusts

Trusts can be powerful tools to manage how and when assets are passed on, particularly for larger estates or complex family circumstances. They also offer tax advantages when used correctly.

Note: Trusts are not one-size-fits-all and should always be set up with specialist advice.

5. Invest in IHT-Efficient Assets

Some investments, such as those qualifying for Business Relief, can be exempt from 50% of IHT after just two years. These include certain AIM-listed shares or investments in unlisted trading companies.

They’re higher risk, but for some, they’re a valuable part of the planning toolkit.

Why This Matters for Healthcare Professionals

Healthcare professionals often fall into the IHT trap – with strong salaries, property equity, and undervalued pension pots, it’s easy to exceed thresholds unintentionally.

If you own a dental or medical practice, your business may also be part of your estate and could present significant planning opportunities, or unnecessary tax exposure, depending on how it’s structured.

Final Thought: The Sooner You Plan, the More Options You Have

Inheritance Tax doesn’t have to be a penalty – but it can become one if ignored. With the right strategy, you can:

• Minimise what’s lost to tax
• Maximise what your family receives
• Maintain control over how your wealth is passed on

At FTA Financial & Wealth Management, we help professionals like you plan with clarity and confidence so your legacy goes exactly where you want it to.

Want to reduce your IHT exposure?

Book a free, confidential call with our advisers and let’s start protecting your estate today.