IHT Will Planning: How to Draft a Will That Minimises Inheritance Tax

NRB Discretionary Trust (nil-rate band trust)

How it works: On first death, the will directs an amount equal to the nil-rate band (£325,000) into a discretionary trust rather than passing everything to the surviving spouse. The trust is outside the survivor's estate — so on second death, only the survivor's own assets are subject to IHT, not the trust fund.

Important caveat: Reduced relevance since transferable NRB was introduced (2008). The transferred NRB means the survivor's estate already benefits from both NRBs on second death without a trust — unless the first spouse's NRB has been used by lifetime gifts or the survivor's estate exceeds £650,000.

Best for: Couples where one spouse may remarry, or where the survivor's estate may grow significantly; or where the couple wants to protect the trust assets from care home means-testing.

Maximise RNRB — leave the family home to direct descendants

How it works: The Residence Nil-Rate Band (£175,000 in 2026/27) applies when a qualifying residential property is left to direct descendants (children, grandchildren, stepchildren). If the will leaves the home to a discretionary trust (rather than directly to a child), the RNRB may be lost — the trust beneficiaries do not automatically qualify as 'closely inheriting'.

Important caveat: RNRB disappears entirely where the estate exceeds £2.35m (individual) or £2.7m (couple using transferred RNRB). The RNRB taper takes £1 of RNRB for every £2 of estate above £2m.

Best for: Estates where the family home is the main asset and children are the intended beneficiaries. Review existing discretionary will trusts to check they qualify for RNRB — some older trusts inadvertently block the relief.

Charitable legacy (10% rule — 36% IHT rate)

How it works: If a will leaves at least 10% of the 'baseline amount' (broadly, the estate above the nil-rate band threshold) to charity, the IHT rate on the remaining non-exempt estate reduces from 40% to 36%. The effective saving is 4 pence in every pound above the NRB — typically £4,000 of IHT saved for every £100,000 of chargeable estate, after the charitable gift.

Important caveat: The charity itself receives the legacy IHT-free. The IHT saving to the estate depends on the size of the chargeable estate above the NRB. For large estates, the 36% rate can produce significant savings. Charitable gifts of any size are fully exempt from IHT — the 10% rule is only needed to trigger the reduced rate on the remainder.

Best for: Anyone with charitable intent who wants to reduce the IHT rate on their estate. The 10% calculation can be complex — professional advice and will drafting is recommended to ensure the legacy is correctly structured.

Life Interest (IPDI) trust for blended families

How it works: A life interest trust (Immediate Post-Death Interest — IPDI) grants the surviving spouse a right to occupy the property and/or receive income for life, with the capital passing to the testator's children on the survivor's death. The trust qualifies for the spousal exemption on first death (because the survivor has an IPDI). On the survivor's death, the trust fund is treated as part of the survivor's estate for IHT — but the children receive it directly.

Important caveat: Protects children of the first marriage from being disinherited by the surviving spouse's remarriage or later will changes. Also protects against the care home means-test eating the property during the survivor's lifetime — though the law on this is complex.

Best for: Second marriages or blended families where the testator has children from a previous relationship and wants to provide for the current spouse while protecting the children's inheritance.

Estate equalisation between spouses

How it works: Each spouse has their own NRB (£325,000) and potentially RNRB (£175,000). Where one spouse has a much larger estate than the other, lifetime transfers to equalise the two estates ensure that both NRBs and RNRBs are fully utilised on each death rather than one estate paying 40% IHT on the excess while the other's NRB is wasted.

Important caveat: The transferable NRB and RNRB reduce (but do not eliminate) the need for lifetime equalisation — the surviving spouse can use the first spouse's unused NRB and RNRB on second death regardless of lifetime transfers. But lifetime equalisation also reduces the surviving spouse's estate, meaning less IHT on second death overall.

Best for: Couples with significantly unequal estates — particularly where one spouse owns business assets (BPR) that will reduce on second death, or where the RNRB taper (above £2m) is a concern.

Specific legacies to lower-rate taxpayers (income tax)

How it works: This is not directly an IHT strategy but reduces the overall tax cost of the estate. Leaving income-producing assets (rental properties, savings) to lower-rate taxpayer beneficiaries reduces the income tax cost during the administration period and after distribution — even though IHT is unaffected.

Important caveat: Consider alongside IHT planning — a will that minimises IHT but creates a large income tax liability in the administration period may not achieve the intended saving.

Best for: Estates with significant income-producing assets where beneficiaries have different marginal income tax rates.

Can a will reduce the Inheritance Tax on your estate?

Yes — a carefully drafted will is one of the most powerful IHT planning tools available. Key strategies include: (1) leaving the family home directly to children or grandchildren to qualify for the Residence Nil-Rate Band (£175,000 per person in 2026/27); (2) including a charitable legacy of at least 10% of the estate above the nil-rate band to reduce the IHT rate from 40% to 36%; (3) using a life interest trust (IPDI) to give the surviving spouse an interest in assets while passing the underlying capital to children — qualifying for the spousal exemption on first death; (4) in some cases, including a nil-rate band discretionary trust to keep assets out of the surviving spouse's estate. A will that simply leaves everything to the surviving spouse and then to children is the simplest approach, but it may not make full use of all available allowances and reliefs.

Does leaving everything to your spouse avoid Inheritance Tax?

Yes — on the first death, leaving everything to a UK-domiciled spouse or civil partner is completely exempt from IHT under the unlimited spousal exemption (s18 IHTA 1984). No IHT is paid, and the first spouse's unused nil-rate band (NRB) and Residence Nil-Rate Band (RNRB) transfer to the survivor and are available on the second death. However, on the second death, the full combined estate (both spouses' assets) is subject to IHT above the combined nil-rate band of up to £650,000 (or £1m with two RNRBs for a qualifying property). Leaving everything to the spouse postpones IHT to the second death but does not eliminate it — unless the combined estate is within the combined thresholds.

What is a nil-rate band discretionary trust in a will?

A nil-rate band discretionary trust (NRB trust) is a provision in a will that directs assets up to the nil-rate band value (£325,000 in 2026/27) into a discretionary trust on the first death, rather than passing them to the surviving spouse outright. The trust is outside the survivor's estate — so the trust fund does not form part of the surviving spouse's taxable estate on the second death. The trustees (often including the surviving spouse) can distribute income and capital to the survivor and to children at their discretion. Since 2008 and the introduction of the transferable NRB, the main IHT benefit of NRB trusts has reduced — the survivor can claim both NRBs on second death regardless. However, NRB trusts still have other advantages: protecting assets from remarriage, care home fees, and later will changes; and managing assets for a vulnerable surviving spouse.

How does the 10% charitable legacy work to reduce IHT?

Under s24 FA 2012 (inserting Schedule 1A IHTA 1984), if at least 10% of the 'baseline amount' (the chargeable estate above the applicable nil-rate band) is left to charity, the IHT rate on the non-charitable remainder reduces from 40% to 36%. For example, if the chargeable estate above the NRB is £200,000, the baseline amount is £200,000. A charitable legacy of at least £20,000 (10%) qualifies the remaining £180,000 for the 36% rate. Without the charitable legacy: IHT = £200,000 × 40% = £80,000. With the legacy: IHT = £180,000 × 36% + £20,000 to charity (exempt) = £64,800 + £20,000 = £84,800 out of the estate. The estate receives £200,000 worth of chargeable assets but pays out £84,800 (vs £80,000) — on the surface, the estate is slightly worse off, but the family also loses the £20,000 charitable gift. For larger estates, the maths can favour the reduced rate. The calculation is complex and the will should be precisely drafted to ensure the 10% condition is met.

Should I review my existing will after the April 2026 BPR/APR cap changes?

Yes — the April 2026 changes to Business Property Relief and Agricultural Property Relief (capping combined 100% relief at £2.5m) significantly affect any will that relied on BPR or APR to pass business or farm assets free of IHT. Existing wills with NRB discretionary trust clauses may also need reviewing: if business assets (which previously had 100% BPR and no IHT) now carry an IHT liability above £2.5m, the quantum of the NRB trust and the residuary estate calculations will need to be recalculated. Wills with specific gift clauses referring to 'business property' or 'agricultural property' may also need updating to reflect the new cap. A will review with a solicitor experienced in IHT is recommended for anyone with BPR or APR assets.