Real wealth for families in Cirencester and across the Cotswolds isn’t just what you build, it’s what you pass on.
Thoughtful use of trusts and gifting can help you protect assets and pass them on with confidence and purpose. A positive, proactive way to safeguard your family’s future.
At a glance
- Main Inheritance Tax allowances £325,000 Nil Rate Band (NRB) plus £175,000 Residence NRB (RNRB) if your home passes to direct descendants. Both are fixed until 5 April 2031. GOV.UK
- If you own a farm or business: from 6 April 2026, 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) applies to the first £2.5m of qualifying assets per estate, with 50% relief above that. Unused allowance can be transferred between spouses or civil partners. GOV.UK
- Spouse or civil partner transfers are Inheritance Tax exempt, and unused allowances can be transferred to the survivor.
- Use the £3,000 annual gift allowance, small gifts (£250), wedding gifts, and regular gifts out of income (if genuinely from surplus income and documented).
- Gifts and the 7 year rule: most outright gifts are tax free if you survive seven years; taper relief can reduce tax on gifts made 3 to 7 years before death.
- Trusts offer control and can help with Inheritance Tax planning, but they come with extra rules, admin and potential charges.
Inheritance Tax basics for 2025/26
Before diving into Inheritance Tax planning strategies, it’s worth grounding ourselves in the basics for the 2025/26 tax year.
Key Inheritance Tax allowances and reliefs (2025/26)
| Allowance / Relief | 2025/26 amount | How it works |
|---|---|---|
|
Nil-Rate Band (NRB) |
£325,000 |
Every individual can leave up to £325,000 free of IHT. Above this, the standard 40% rate applies. |
|
Residence Nil Rate Band (RNRB) |
£175,000 |
An additional allowance when leaving your main home to direct descendants. Combined with NRB, this allows up to £500,000 per person (or £1m per couple) to pass IHT free. |
|
Spouse exemption |
Unlimited |
Transfers to a spouse or civil partner are exempt from IHT. Any unused allowance can be transferred to the survivor. |
|
Charity relief |
36% reduced rate |
The IHT rate falls from 40% to 36% if 10% or more of the estate is left to charity. Gifts to UK charities are fully IHT exempt. |
More families in the Cotswolds being hit with Inheritance Tax bills
With thresholds now fixed until 5 April 2031, more estates are being pulled into Inheritance Tax over time.
And it’s easy to see why locally. The ONS shows the average house price in Cotswold was £431,000 in October 2025 (provisional), and detached properties averaged £681,000.
Good financial planning helps you protect your family’s wealth under these rules, without making decisions you later regret.
If part of your estate is a family farm, trading business, or other investments that may qualify for APR or BPR, this change is worth building into your wider plan:
From 6 April 2026
- 100% relief applies to the first £2.5m of qualifying agricultural and business assets per estate
- 50% relief continues above £2.5m
- Unused allowance can be transferred to a spouse or civil partner GOV.UK
This is a specialist area. Small details (asset type, ownership, trading status, time held, and succession planning) can make a big difference.
For those who are not business owners or have a family farm to pass on, don’t worry, there are retail investments available that can qualify for Business Relief. Importantly though, these are higher risk investments and not suitable for everyone, so expert advice here is strongly advisable! We wrote an article about Business Relief investments to explain further
Gifting strategies to reduce Inheritance Tax
One straightforward way to reduce Inheritance Tax is to gift assets during your lifetime. By giving away wealth now, you shrink the value of your taxable estate.
The key is to make sure gifts are affordable, and that you follow HMRC’s rules so the exemption actually applies.
Key gifting allowances and rules for 2025/26
| Allowance / Rule | Amount | Conditions |
|---|---|---|
|
Annual gift allowance |
Up to £3,000 per tax year |
Can be given to one person or split. Unused allowance can carry forward one year only. |
|
Small gifts |
Up to £250 per recipient per tax year |
Unlimited number of recipients. Cannot be combined with the £3,000 allowance for the same person. |
|
Wedding or Civil Partnership gift |
£5,000 to a child, £2,500 to a grandchild, £1,000 to others |
Can be combined with the £3,000 allowance for the same person’s wedding gift. |
|
Regular gifts from income |
No fixed limit |
Must come from surplus after tax income, not capital. Should not reduce your normal standard of living. Good records required for executors. |
Using these exemptions can chip away at your estate value completely tax free. For larger gifts beyond these allowances, the seven year rule comes into play.
Potentially Exempt Transfers (PETs) and the 7 year rule
Most outright gifts to individuals are called Potentially Exempt Transfers (PETs). If you survive 7 years after making the gift, it becomes fully exempt from Inheritance Tax.
If you pass away within seven years, the gift may be pulled back into your estate for IHT calculations.
Inheritance Tax taper relief (if you die within 7 years of a gift)
| Years between gift and death | Effective IHT rate on the gift (above NRB) |
|---|---|
|
0-3 years |
40% |
|
3-4 years |
32% |
|
4-5 years |
24% |
|
5-6 years |
16% |
|
6-7 years |
8% |
|
7+ years |
0% (gift fully exempt) |
Note: Taper relief only applies if total gifts exceed the NRB. Below that, no tax is due.
Important trap –“Gifts with reservation” – If you “give away” an asset but keep the benefit (for example, gifting your home but continuing to live there rent free), HMRC may still treat it as part of your estate. Paying market rent can help in some cases, but advice is essential.
How can trusts help manage Inheritance Tax?
A trust is a legal arrangement where you (the settlor) transfer assets to trustees to hold for chosen beneficiaries.
Trusts let you control how and when your beneficiaries receive assets, which can be invaluable for protecting family wealth.
Tax treatment depends on the type of trust.
Comparison of trust types for Inheritance Tax planning
| Trust type | What it is | Inhertiance Tax treatment (incl. RNRB) | When to use it |
|---|---|---|---|
|
Bare (Absolute) Trust |
Assets held for a named beneficiary who has an absolute right (control at 18 in England and Wales). |
Transfer is treated like an outright gift to that person, usually a PET (seven year rule). No ongoing IHT charges. |
You want a simple gift for a specific person (often children), and you’re comfortable they’ll own it outright at adulthood. |
|
Discretionary Trust |
Trustees decide who benefits, when, and how much from a class of beneficiaries. |
Gifts into trust are generally chargeable lifetime transfers (CLTs). 20% lifetime charge on amounts above available NRB. Ongoing ten year (periodic) charges and exit charges can apply (periodic charges capped at about 6% of value above the NRB). |
You want maximum control and flexibility (for example, protecting assets from divorce or spending risks) and you’re comfortable with admin and charges. |
|
Interest in possession (IIP) / IPDI |
A named life tenant has a right to income (or use, such as living in a house). Capital passes later. |
New lifetime IIPs usually fall into the relevant property regime. An IPDI created by a will is treated as owned by the life tenant for IHT. A spouse IPDI usually qualifies for spouse exemption on first death, then is tested on the life tenant’s death. RNRB can still apply in the right circumstances. |
Useful when you want to provide income or housing for one person (often a spouse) but preserve capital for others (often children). Common in wills for second marriages. |
|
Loan Trust |
You lend money to trustees. You can call back the loan. Investment growth sits outside your estate. |
Setting up is not a transfer of value. The outstanding loan remains in your estate. If you later waive the loan, that waiver is a gift and starts the seven year clock. |
You want to “freeze” your estate value and pass growth to family, while keeping access to capital. |
Gifting vs trusts: which suits what you want?
Both gifting and trusts can be powerful. The right approach depends on your financial situation, your beneficiaries’ needs, and how comfortable you are giving up control.
Often, a combination works best.
| Your aim | Type of trust | Why it can fit |
|---|---|---|
|
Give specific amounts to named people now |
Bare trust or outright PETs |
Simple, IHT efficient after 7 years, minimal admin. |
|
Keep control and protect from risks |
Discretionary trust |
Flexible control via trustees, but accept entry and ongoing charges and admin. |
|
Provide income or housing for a spouse, preserve capital for children |
IIP or IPDI in your will |
Can support spouse, preserve legacy for children, plan RNRB carefully. |
|
Reduce growth in your estate but keep access to capital |
Loan trust |
Growth outside the estate, loan stays accessible. |
Practical steps that make a big difference
- Document everything. Keep a simple gifting log, plus evidence for gifts out of income (bank statements and a basic income and spending summary). Your executors rely on it.
- Check RNRB conditions. Estates over £2m see the RNRB taper by £1 for every £2 over £2 million GOV.UK
- Avoid gifts with reservation pitfalls. If you gift a home and keep living there, you may still be treated as owning it for IHT.
- If APR or BPR might apply, plan early. The 6 April 2026 changes add new thresholds and new planning points for farms and business owners.
- Coordinate with your wider plan. Life goals first, tax second.
Frequently asked questions
NRB £325,000. RNRB £175,000 if the home is left to direct descendants (with taper starting at £2m). These nil rate bands are fixed until 5 April 2031.
Yes, if it’s regular, genuinely from surplus income, and does not reduce your normal standard of living. Keep evidence so your executors can claim the exemption.
Potentially, but structure matters. Discretionary trusts don’t automatically qualify. Specialist drafting for IIP or IPDI trusts can help, and there are time limits and conditions.
That’s a cap. Relevant property trusts (including many discretionary trusts) can face periodic charges up to 6% on value above the NRB at each ten year anniversary, plus smaller exit charges when capital leaves.
Often. Leaving 10% or more of your net estate to charity can cut the IHT rate on the rest to 36%.
Ready to talk about your family Inheritance Tax plan?
We’re an independent, Chartered financial planning firm in Cirencester. We’ll build a clear, practical estate plan that blends gifting, trusts, and your pensions/ISAs — modelled around your real-world spending, risks and wishes.
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