Financial Planning

How you can pass money down to the next generation

16th September 2021

The Author: Paul Evans
Paul is both a client adviser and responsible for setting the strategy and vision for United Advisers.

There was once a time when inheritance tax was mostly paid by the very wealthy. But thanks to rising house prices and investments that have had decades to compound, even those who earn a modest income may be taxed on their estate when they pass away. 

Many people assume that inheritance tax can completely obliterate a person’s estate, meaning they end up with very little to give to their loved ones.

Thankfully, there are ways to reduce the tax bill and pass property, savings and investments down to the next generation. 

How does inheritance tax work?

inheritance tax

When you pass away, your home, savings and other assets can be given to your spouse or civil partner without being taxed at all. UK inheritance tax laws state that if you leave anything over £325,000 to others, any money over this amount will be taxed at 40%. This is known as the ‘nil-rate band’. 

However, there are other inheritance tax allowances to be aware of. For example, the ‘residence nil-rate band’ is an additional allowance of £175,000, which can be applied to the main family home. 

These rules tend to be applicable even for Brits who are living abroad, but it’s worth speaking to a financial adviser to find out which country’s inheritance tax rules your estate will be assessed by.

Inheritance tax law varies from one nation to the next, and some are more generous than others. 


If you’re concerned about inheritance tax, one option is to give generously to those you care about while you’re alive.

Whether you pay for a loved one’s holiday, offer to overpay their mortgage or hire a decorator to transform their living room, there are lots of meaningful ways you can give money without having to pay tax on it. 

Not only can this be beneficial in a financial and practical sense, it’s a good way to live! Rather than waiting until you die to help loved ones, it can be really rewarding to watch them enjoy your money.

Unfortunately, there are some inheritance tax rules that apply to gifts in the UK.

For example, you can give away up to £3,000 a year tax-free, but larger gifts may be eligible for tax if they’re given less than seven years before your death. So, if you gifted someone £10,000 for a deposit and passed away three years later, this money may need to be taxed.

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Trusts can be another option for those looking to pass money down to others without incurring large amounts of tax. When you put money or property in a trust, the wealth is no longer in your name, and you don’t own the assets anymore.

In the same way that gifts can be taxed if you pass away within seven years of giving them, a trust also takes seven years for assets to become completely free from inheritance tax.

There are a number of different types of trust to choose from. Even though you’ll no longer own the assets, each option gives you a different level of control over what happens to your wealth.

For example, you may decide to leave assets to loved ones, but you don’t want them to have access to them until they reach a certain age. You can also use trusts to protect wealth and prevent it from leaving the family through divorce.

Trust fund rules can of course vary from country to country, so if you live abroad, speak to your financial adviser to find out which rules apply to you.

Life insurance

While life insurance doesn’t reduce the amount of inheritance tax your loved ones will have to pay when they inherit your estate, it could potentially pay the inheritance tax bill for them.

There are insurance policies that can pay out a lump sum when you pass away. The exact rules vary depending on where you live in the world, but in the UK there are two key options that can help with inheritance tax. They include whole-of-life assurance and term insurance.

Life insurance is not something to take out on the spur of the moment. It’s extremely important that you compare a few different options and speak to a financial adviser to work out which policy is most suitable for you.

Inheritance tax for expats 

No matter where you’re living in the world, you’ll usually still be subject to UK inheritance tax laws if you’re deemed to be of a UK domicile status.

Your domicile is the country you either have a substantial connection with or the location of your permanent home.

When you’re born, you’re automatically given the same domicile as your parents.

It is possible to change your domicile of origin, but it’s unlikely this will change if you move abroad unless you take specific actions to change it.

These actions might include closing all UK bank accounts, selling all UK property and buying property abroad, and relinquishing your UK passport.

You have more control than you think

Inheritance tax might feel like something you’re powerless over, but with the help of careful financial planning, you can pass money down to your loved ones without incurring a huge bill.

Perhaps one of the most rewarding rules to live by is to make the most of your money while you’re alive.

We all need to build wealth so that we can afford to retire at a reasonable age and live a comfortable life, but there comes a time when building large sums of wealth isn’t conducive to avoiding a big tax bill.

Instead of building a huge estate to pass down to others, it may be worth looking for ways to enjoy it yourself and share with others. 

This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.