Trusts and pensions are two other ways to reduce IHT. Most pensions don’t form part of your taxable estate so they can be a very tax-efficient way of passing on your wealth to your family, especially if you can leave some or all of your pension pot untouched and fund your retirement by other means.

If you die before your 75th birthday, then usually the entire pot can be passed on without your beneficiaries incurring income tax, provided they claim it within two years. If you’re 75 or older when you die, your pension won’t be subject to inheritance tax, but it’s likely your beneficiaries will have to pay income tax at their marginal rate.

Trusts are a good way to pass on money, especially if you feel your beneficiaries are too young to be able to cope, too irresponsible to be able to use it wisely, or you feel the money could end up in the wrong hands. In these circumstances you can make a gift in a discretionary trust that allows you control, even from beyond the grave, when and how they can use the money. Many trusts are quite complex, so it pays to get advice on the various options available.

Life assurance has long been a popular choice among people looking to offset their Inheritance Tax liabilities. You can take out a life assurance policy, written in trust, that will provide your beneficiaries with a pre-agreed lump sum when you die.

This lump sum, which remains outside of your estate, can cover all or part of the Inheritance Tax bill and ensures your family or other beneficiaries don’t need to find the cash to settle the tax bill by selling off assets such as your property.

If you own shares in unquoted companies such as those listed on the Alternative Investment Market (AIM), own a business or have an interest in one, you may be able to reduce your IHT bill.

You will need to have owned the assets for at least two years before you can claim Business Relief on them, but there is no limit to the amount that could be passed on after your death. You may also get 50% Business Relief on any land, buildings or machinery owned by a business in which you have an interest.

The rules are complex and there are a number of exceptions, and investing in smaller companies can pose a higher risk, so it always better to seek advice where the full range of Business Relief options available can be considered.

Some gifts are excluded from the value of your estate and become exempt from IHT if you live for seven years or longer after the date you originally gave the gift. Known as Potentially Exempt Transfers (PETS), there is usually no restriction on the size of these gifts.

In the event that you die before the third anniversary of your gift, if there’s any Inheritance Tax to pay, it will be charged at 40%. However, gifts made three to seven years before your death benefit from taper relief which is taxed on a sliding scale from 32% down to 8%, based on the time between the gift and your death.

Inheritance Tax is a tax on the combined value of all your property, possessions, investments, savings, cash and any other types of assets that fall within your estate. It is payable when those assets are transferred to members of your family or other beneficiaries. The standard threshold or nil rate band for IHT is currently £325,000, beyond which you will typically pay 40% IHT. If your estate is worth more, you can leave it all to your spouse or civil partner without incurring the tax.

There is also an allowance called the Residence Nil Rate Band (RNRB) that applies if you pass on your family home to direct descendants. The RNRB was increased to £175,000 in April 2020, and is reduced for people who have estates that are valued at over £2 million. Both allowances can be transferred between married couples and civil partners when one partner dies.