How to Avoid Inheritance Tax on Property with the New 2025 Thresholds 🚀

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Inheritance tax (IHT) can significantly impact the value of an estate passed to heirs. With the 2025 inheritance tax thresholds in effect, understanding tax-efficient estate planning is crucial. This guide provides actionable strategies to legally reduce or avoid IHT on property while complying with HMRC guidelines.



🚨 New Inheritance Tax Policy Updates for 2025

Policy UpdateDetailsEffective DateSource
Nil-Rate Band Freeze£325,000 per individual; £175,000 for the residence nil-rate band (unchanged until 2030).April 2025HMRC
Agricultural and Business Property Relief Cap100% relief capped at £1 million; 50% relief for excess assets.April 2026Deloitte
Residency-Based IHTUK residents for 10 of the last 20 years are subject to global IHT liability.April 2025Withersworldwide

🏡 Smart Strategies to Reduce Inheritance Tax on Property

1️⃣ Utilize the Residence Nil-Rate Band (RNRB)

If you pass your main home to direct descendants (children or grandchildren), you can claim up to £175,000 in tax-free allowance.

Example:

  • Estate Value: £600,000

  • Standard Nil-Rate Band: £325,000

  • Residence Nil-Rate Band: £175,000

  • Taxable Estate: £100,000

  • IHT at 40% = £40,000 saved!



2️⃣ Gifting Property & Lifetime Transfers

You can gift property to family members, but it must be given at least 7 years before death to be IHT-free.

Years Before DeathIHT on Gifted Property
0-3 years40%
3-4 years32%
4-5 years24%
5-6 years16%
6-7 years8%
7+ years0%

🚀 Tip: Set up a Trust Fund to legally control property distribution while avoiding immediate IHT!



3️⃣ Leverage Business and Agricultural Property Relief

If you own business or agricultural property, you may qualify for 100% relief on up to £1 million, with 50% relief for excess assets.

📌 Example:

  • Farm worth £2 million

  • £1 million fully tax-free

  • Remaining £1 million at 50% relief = £500,000 taxable

  • 40% IHT on £500,000 = £200,000 saved!



4️⃣ Joint Ownership & Spousal Transfers

Spouses & civil partners can inherit tax-free, and unused allowances can transfer between partners.

Example:

  • If a husband leaves his estate to his wife, she pays no IHT.

  • She inherits his unused nil-rate band, effectively doubling her threshold to £650,000.

5️⃣ Use Equity Release to Reduce Estate Value

If your property value is pushing your estate above the IHT threshold, consider a Lifetime Mortgage (Equity Release) to withdraw funds tax-free while reducing taxable assets.

🔥 Industry Impact & Expert Opinions

  • 4.39% of UK estates paid IHT in 2021-2022, totaling £5.99 billion in liabilities. (GOV.UK)

  • London property owners are twice as likely to face IHT compared to other UK regions. (IFS)

❓ FAQs on Inheritance Tax Planning

1. Can I gift my home to my children tax-free?

Yes, but you must move out or pay market rent; otherwise, it remains part of your taxable estate.

2. How does a Trust help avoid IHT?

A Discretionary Trust lets you transfer assets while avoiding IHT, provided you live 7 years after gifting.

3. What happens if my estate exceeds £1 million?

Any excess over £1 million (for couples) is taxed at 40%, unless mitigated with tax relief strategies.

📞 Get Expert Inheritance Tax Advice!

Navigating inheritance tax rules can be complex, but with strategic planning, you can minimize liabilities and protect your estate. Our experts at MA & Co Accountants specialize in estate tax planning and IHT reduction strategies.

📅 Book a Free Consultation: Schedule Here 📅

📍 Learn more about our services or visit our blog for more financial insights!

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Location: Croydon, UK

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