Passing it on: Tax-efficient strategies for transferring family wealth

Inheritance Tax (IHT) is one of the few taxes in the UK that is largely optional. Not in the sense of avoidance but in the sense that families who plan early, structure properly and take deliberate action can reduce it dramatically, or even remove it altogether. Those who do nothing often hand 40% of their estate to HMRC instead of their children.

Over £5 trillion is expected to pass between generations in the coming decades. Yet much of it will never reach the people it was meant for. Not because markets fail, but because planning starts too late.

Passing on wealth to the next generation is no longer just about writing a will. It is about knowing what you can afford to give away, how to do it tax-efficiently, and how to do it without putting your own lifestyle, retirement or future care at risk.

This guide explains how to pass on generational wealth efficiently. We look at the UK IHT landscape, the most effective family wealth transfer strategies, and how to protect what you have built.

The UK IHT landscape

IHT is charged at 40% on estates above the available allowances. For married couples or civil partners, this can currently reach up to £1 million, but many families exceed this once pensions, businesses and investments are included. The problem is not just the rate, it is the scope. Almost everything you own at death is included. A lifetime of building wealth can therefore become a large tax bill for your family.

With public finances under pressure, IHT has become an increasingly important revenue source for the government. That makes tax-efficient wealth transfer a core part of responsible financial planning, not just a concern for the ultra-wealthy.

How to protect family wealth

Outright gifts

Outright gifting is one of the simplest and most effective ways of passing on wealth to the next generation. You give assets away, and if you survive seven years, they fall completely outside your estate for IHT.

This can be used to help children buy a home, fund education, or simply move surplus capital down the generations, while it can still make a real difference.

The key risk is giving away too much too soon. That is why gifting should always be guided by cash-flow planning, so you know exactly what you can afford to give without putting your own future at risk.

Gifts out of surplus income

Gifts out of surplus income are one of the most powerful and underused IHT exemptions. If you have income, you do not need to maintain your lifestyle, you can give it away and it leaves your estate immediately.

There is no seven-year waiting period, no annual cap, and no lifetime limit. With the right records in place, this can be one of the most effective ways of reducing IHT while helping family members in real time.

Trusts and family investment companies

Trusts have long been used to move assets out of an estate while controlling how and when beneficiaries benefit. They are particularly useful where children are young or where protection from divorce or creditors is important.

Many families now use Family Investment Companies (FICs) instead. A FIC allows parents to retain control through voting shares, while passing growth to children and grandchildren through other share classes.

As the company’s investments grow, that growth sits outside the parents’ estate. For many families, FICs have become a core part of modern family wealth transfer strategies.

Business Property Relief (BPR)

Business Property Relief allows qualifying business and investment assets to pass free of IHT after just two years of ownership. This includes many unquoted companies and specialist investment structures.

BPR is not risk-free and must be used carefully. However, when used appropriately, it can play a powerful role in reducing IHT while keeping assets invested.

For business owners and sophisticated investors, BPR can be an important part of a wider tax efficient wealth transfer plan.

How to begin a planning wealth transfer strategy

• Start with clarity. A full picture of your pensions, property, investments and business interests is the foundation of good planning.
• Next, use cash-flow modelling to understand what you will actually need. This shows what you can afford to give away, when, and in what form, without putting your own future at risk.
• Decide how much control you want to retain. Some families prefer outright gifts. Others use trusts or FICs.
• And review regularly. Tax rules change. Families change. So should your strategy.

How can Gerald Edelman help?

At GE, we help families, business owners and trustees build joined-up plans for passing on wealth to the next generation.

We bring together investment advice, tax planning, estate structuring and cash-flow modelling to create clear, practical strategies that reduce tax without increasing risk.

Our goal is simple: to help you protect family wealth, enjoy it during your lifetime, and pass it on in the most efficient way possible.

If you would like to explore how to pass on generational wealth with confidence, we would be delighted to help.