Five ways to make the most of your UK legacy

When planning for retirement and thinking about your legacy, many families focus on growing their wealth. But protecting it is just as important. Without a clear plan in place, your loved ones could face unexpected tax bills and receive less than you intended. That’s why it’s important to plan ahead.

In the UK, Inheritance Tax (IHT) applies to estates valued over £325,000 and is charged at 40%. This includes your home, savings and personal belongings. Yet despite this, only around one in five people currently give away money during their lifetime to reduce their IHT liability. That means many families are missing out on passing down more tax-exempt wealth.

Here are five practical ways to help protect your inheritance:

1. Make the most of the Annual Gift Allowance

Each tax year, you can give away up to £3,000 without it being added to your estate for IHT purposes. You can split this amount between recipients or give it all to one person. If you don’t use the full allowance one year, you can carry it forward to the next, allowing up to £6,000 in gifts.

It’s a simple and effective way to gradually reduce your estate over time.

2. Give while you’re living using the Seven-Year Rule

Gifting assets during your lifetime can be a powerful way to reduce your taxable estate. If you live for seven years after making a gift, it’s usually exempt from IHT. If you pass away within that period, the tax owed may be reduced depending on the size of the gift and how much time has passed – this is known as taper relief.

This rule is especially useful for larger gifts, such as property or significant financial transfers.

3. Consider the Small Gift Exemption

You can also give up to £250 to as many individuals as you like each tax year. These gifts are immediately exempt from IHT, provided the recipient hasn’t already received part of your £3,000 annual allowance.

This exemption is ideal for birthday presents, festive gifts or small tokens of appreciation.

4. Use surplus income for regular gifts

If your income regularly exceeds your everyday living costs, you can use the extra to make gifts. As long as these gifts follow a consistent pattern and don’t affect your standard of living, they’re exempt from Inheritance Tax.

It’s important to keep records showing that these gifts are part of your usual spending. Examples include helping with school fees, contributing to a savings account or supporting family holidays.

5. Wedding and civil partnership gifts

Special occasions like weddings offer another opportunity to pass on wealth tax-free. You can gift £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else in connection with their marriage or civil partnership. These gifts must be made around the time of the ceremony to qualify.

Why planning early matters

Inheritance planning isn’t just about tax. It’s also about making sure your wealth supports the people and causes you care about. And with only a small number of people currently using lifetime gifting to reduce IHT, there’s a real opportunity to make the most.

The earlier you start thinking about inheritance, the more options you’ll have. Planning ahead helps ensure your money goes where it matters most.

Our wealth planners can help you create a strategy that works for your goals and your family. For more information, please get in touch.

My Life File

Talking about life after you pass isn’t always easy. But being prepared makes a big difference. Important documents and digital records are often stored in different places, which can make things harder for loved ones to find later on.

That’s why we’ve created a document called My Life File – a simple tool to help you organise and store your key information securely.

My Life File guides you through the process of recording your affairs, from financial details to personal wishes. Once completed, keep it in a safe place and update it as things change over time.

Nothing in this article constitutes legal or tax advice. Legislation and taxation often change and may not apply to your individual circumstances. Nedbank Private Wealth does not give tax or legal advice, and clients should consult their independent advisers for specific advice, before making any investment or financial decision.