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Can I avoid inheritance tax issues when investing money?


Leaving an inheritance to loved ones can be an expensive business. In some cases, inheritance tax is not owed: if your estate is below the current £325,000 threshold, or if anything over this threshold is left to a spouse or civil partner, a charity, or a community amateur sports club. 

However, a standard rate of 40% inheritance tax is charged on the part of your estate that is over the threshold. For some, this can amount to tens of thousands of pounds – or even more – but there are (legal) ways in which this sum can be reduced. 

  1. Setting up a trust

There is a common misconception that inheritance tax can be avoided altogether by putting your estate into trust – this is not the case. The Which? website features an explanation of how inheritance tax on trusts works. They state that, as long as you live for seven years after your assets are placed into trust, they will not be counted as part of your estate for inheritance tax purposes. However, tax could be levied on set-up, at each 10 year anniversary and at exit, meaning that payments could be higher than expected. 


  1. Annual gift allowances

Rather than investing in your own name, it is possible to give tax-free annual cash gifts to your children or grandchildren for them to invest themselves. The Money Advice Service provides more details, explaining how you can give away up to £3,000 per tax year (your “annual exemption”). Wedding gifts up to a certain value (depending on the recipient) can also be given, and will not be included in this £3,000 allowance. While there is no guarantee that the recipient will invest the money, it is an option that will avoid inheritance tax charges. 


  1. Inheritance tax investments

Certain investment types – generally fairly complex in nature – can help you to legally avoid paying inheritance tax. Woodruff Financial Planning go through these in detail: from business relief investments (buying shares in private companies that are not listed on a recognised stock exchange) to Enterprise Investment Schemes, whose qualification for Business Relief makes them 100% exempt from inheritance tax. 

Ultimately, every situation is different: the important thing is working out which form of investment is right for you with your potential inheritance tax bill in mind. 


“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”


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