The Essential Guide Series: Inheritance Tax (IHT) Planning in the UK - Key Rules, Exemptions, and Strategies in 2025

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Inheritance Tax (IHT) is a significant consideration for high-net-worth individuals (HNWIs) in the UK. With IHT thresholds frozen and property values and investments rising, more estates are being drawn into the tax net. Careful planning is essential to protect your wealth and ensure your loved ones inherit as much as possible. In this comprehensive guide, we’ll cover the current IHT rules as of March 2025, key exemptions and reliefs available, and effective strategies for minimizing IHT liabilities. We’ll also discuss the role of ISAs and Innovative Finance ISAs (IFISAs) in estate planning – including how easyMoney’s property-backed IFISA could form part of a diversified IHT planning strategy. All information is presented in a professional, informative manner suitable for sophisticated investors, and adheres to Financial Conduct Authority (FCA) guidelines (note: this article is for information only and not personal financial advice).

Current IHT Thresholds and Nil-Rate Bands

As of March 2025, the IHT nil-rate band – the amount of an estate that is tax-free – remains at £325,000 per individual. This standard nil-rate band has been frozen since 2009 and is now set to remain at £325,000 until at least April 2028 (with recent plans extending the freeze to 2030). Any portion of an estate above this threshold is typically taxed at 40%upon death.

In addition to the basic nil-rate band, there is an extra allowance called the Residence Nil-Rate Band (RNRB), currently up to £175,000. The RNRB applies if you leave a primary residence to your direct descendants (children, grandchildren, etc.). Combining the £175,000 RNRB with the £325,000 standard allowance effectively lets an individual pass on £500,000 tax-free, provided they own a qualifying home passed to heirs. Married couples and civil partners can combine their allowances. Any unused IHT allowances transfer to the surviving spouse/civil partner on death. This means a couple can potentially shelter up to £1 million of their estate from IHT (£325k + £175k each), if the second to die has both the nil-rate band and residence band available.

Important details: The RNRB gradually tapers away for very large estates – it is reduced by £1 for every £2 that the estate exceeds £2 million in value, meaning estates above £2.35 million (for an individual) lose the RNRB entirely. The standard nil-rate band (£325k) does not taper with estate size, but it remains fixed and, because it hasn’t risen with inflation or asset growth, more estates are crossing the threshold each year. (In fact, HMRC data shows IHT receipts hit a record high of £7.5 billion in the 2023/24 tax year, underlining how many families are now impacted by this tax.)

Finally, note that certain lifetime gifts can also use the nil-rate band (more on the seven-year rule later). If you make large gifts during your lifetime, they may count against your £325k allowance, so it’s crucial to understand how gifts interact with the threshold.

Key IHT Exemptions and Reliefs

The UK IHT system offers several exemptions and reliefs that can legally reduce or eliminate the tax due on your estate. High-net-worth individuals should be familiar with these key provisions:

Spouse or Civil Partner Exemption: Assets left to your UK-domiciled spouse or civil partner are completely exempt from IHT. You can transfer any amount to your spouse during your lifetime or in your will with no inheritance tax. Additionally, as mentioned, any unused allowance (nil-rate band and residence band) can transfer to the surviving spouse, allowing married couples to effectively double their IHT-free threshold. (Be aware: if your spouse is not UK-domiciled, a limited spouse exemption applies – typically a capped amount – though they can elect to be treated as UK-domiciled for estate tax purposes if appropriate.)

Charitable Gifts and Donations: Gifts to registered charities (or certain political parties and national institutions) are exempt from inheritance tax. This includes gifts made during your lifetime and bequests in your will. Moreover, if you leave 10% or more of your net estate to charity through your will, the IHT rate on the remaining taxable estate is reduced from 40% to 36%. This “charitable legacy relief” can significantly lower the tax bill and direct part of your wealth to philanthropic causes. Many HNWIs use this as a strategy to both support charities and cut the tax payable on the rest of the estate.

Annual Gift Allowance (£3,000): Each individual can give away up to £3,000 per tax year free of IHT, as an annual exemption. You can gift £3,000 to one person or split it among several recipients. If you don’t use your full £3,000 allowance in one tax year, you can carry over the unused amount to the next year (one year only), potentially allowing a £6,000 gift in that next year. These gifts are immediately outside your estate for IHT purposes – no need to survive seven years for this amount.

Small Gifts Exemption: You can give as many small gifts up to £250 per person per year as you like, completely IHT-free. This exemption applies per recipient, and you can’t combine it with other allowances for the same person. For example, if you give someone £3,000 using your annual exemption, you can’t also claim the £250 small gift exemption for additional gifts to that same person in that year. But you could give £250 each to a number of friends or relatives every year without it eating into your £3,000 annual allowance or causing an IHT concern.

Wedding or Civil Partnership Gifts: One-off gifts made on the occasion of a marriage or civil partnership enjoy their own exemption. You can give £5,000 to a child who is getting married, £2,500 to a grandchild or great-grandchild, or £1,000 to another relative or friend, and these gifts will be exempt from IHT. (These can be combined with other allowances – e.g. you could give your child £5,000 as a wedding gift and an additional £3,000 under the annual exemption in the same year.)

Normal Gifts Out of Income: There is a very useful but sometimes overlooked exemption for habitual gifts made out of your normal income. If you have surplus income, you can make regular payments or gifts to someone and have them be immediately exempt from IHT, provided that: (1) the gifts are part of your normal expenditure (for example, a standing order or a pattern of birthday gifts), (2) they come out of your after-tax income (such as salary, dividends, interest – not from selling assets), and (3) the gifts do not reduce your own standard of living. Common uses of this rule include paying grandchildren’s school fees each year or giving a child a regular sum to help with living costs, on top of using your other allowances. There’s no formal monetary cap on this exemption – it depends on your income and spending needs – but detailed record-keeping is essential to prove the gifts qualified as normal income expenditure.

Business Relief (Business Property Relief): Business Relief (often called BPR – Business Property Relief) is a powerful relief that can reduce the taxable value of certain business assets by 100% or 50% for IHT purposes. In practice, this means some business assets can be passed on free of IHT. 100% IHT relief is available on a qualifying business or interest in a business, or on unlisted shares (including shares listed on the AIM market) that have been held for at least two years. 50% IHT relief is available on assets like shares controlling 50%+ of a listed company, or certain business assets such as land, buildings, or machinery used by a business which you own or have a stake in. Business Relief is intended to allow family businesses and small enterprises to be passed down without being broken up by tax, and it’s also used via investments – for instance, some HNW investors intentionally buy shares in qualifying trading companies (or AIM stocks) and hold them for 2+ years so that those shares can be left to heirs IHT-free under BPR rules. However, not all businesses qualify – notably, businesses mainly engaged in investment, finance, or property rental (as opposed to trading) do not get this relief. Professional advice is crucial before assuming an asset will qualify. (Agricultural property has a similar relief – Agricultural Property Relief – which up to recently has given up to 100% relief on qualifying farms and farmland. Many estates with farming or estate land benefit from a combination of APR and BPR. But this is changing under the current government).

Transfers to Qualifying Trusts: While not an “exemption” per se, certain transfers of assets into trusts can be used to mitigate IHT if done correctly. For example, each individual has the ability to set up a trust and transfer assets up to the value of the £325,000 nil-rate band without an immediate IHT charge (this is called a potentially exempt transfer if it’s a bare trust or a chargeable lifetime transfer if to a discretionary trust – different rules apply). If you survive 7 years after the transfer, those assets are out of your estate completely. Trusts can thus be used to pass wealth to the next generation while still exercising some control via trustees. Some specific trust arrangements (like Interest in Possession trusts or certain disabled beneficiary trusts) have special IHT treatment. It’s a complex area, but worth noting that trusts are common in estate planning for HNWIs. Beware: transfers to most trusts above your available nil-rate band will incur an immediate 20% IHT charge, and even within the nil-rate band, discretionary trusts face potential 10-year periodic IHT charges and exit charges. The use of trusts requires careful planning and professional advice to balance control, tax, and access to assets.

In summary, by leveraging these exemptions and reliefs, it’s possible to significantly reduce the portion of an estate that is exposed to the 40% tax. For instance, a wealthy individual might each year give away £3k to children, £250 to numerous grandchildren, pay certain expenses for family out of income, and even start moving larger amounts into trusts or business assets – thereby chipping away at their taxable estate over time. The key is understanding the rules and timing of each exemption.

Strategies for Minimising IHT Liability (High-Net-Worth Focus)

Mitigating inheritance tax requires proactive planning. High-net-worth individuals often employ a combination of strategies to legitimately reduce their estate’s IHT exposure. Below are some of the most effective IHT planning strategies to consider:

Lifetime Gifting and the Seven-Year Rule: Perhaps the simplest strategy is to give away assets well before death. Gifts to individuals (like your children or others) are potentially exempt transfers (PETs) – meaning they become fully exempt from IHT if you survive 7 years after making the gift. If you die within 7 years, the gift’s value is brought back into your estate calculation, and IHT may apply (with a taper relief reducing the tax on that gift if death occurs between 3 and 7 years after the gift). Large gifts should ideally be made as early as possible – the “clock” starts from the date of the gift. This strategy works best for assets you can afford to part with and where you’re confident you won’t need them back. Utilizing the various gift allowances discussed (annual £3k, small gifts, wedding gifts, etc.) can facilitate a pattern of giving. Over many years, these gifts can accumulate to substantial transfers of wealth entirely outside the IHT net. For HNWIs with significant estates, you might start making regular gifts to children, grandchildren, or others in your 60s or earlier; by the time you reach late life, a large portion of wealth could already be in the next generation’s hands rather than swelling your taxable estate. Pro tip: Keep records of all gifts (date, amount, recipient) and which exemption they used – this will help your executors and tax advisors deal with HMRC smoothly when the time comes.

Use of Trusts and Estate Freezing: Trusts can be a powerful tool to “freeze” the growth of your estate and pass future growth to beneficiaries without further IHT. For example, you might establish a Discretionary Trust and fund it with assets up to your nil-rate band (so no immediate tax). Those assets – say £325,000 worth of investments – can then grow outside your estate. Even though the trust might pay a small tax charge periodically, it’s usually much less than 40%. Variations like a “Discounted Gift Trust” allow you to put a lump sum into an investment bond held in trust, where an actuarial “discount” is given to part of the gift because you retain rights to fixed yearly withdrawals (useful if you need income but want the capital out of your estate). Another approach is a “Loan Trust”, where you loan an amount (no IHT on a loan repayment) to a trust; any growth on that amount is outside your estate, and you can be repaid the original loan over time. For those with very large estates, Generation Skipping Trusts (skipping children to benefit grandchildren) or Family Limited Partnerships/Companies are more sophisticated tactics to consider. Always involve estate planning specialists when setting up trusts – the wrong kind of trust or poor administration can backfire (e.g., gifts with reservation of benefit rules can pull assets back into your estate if you still benefit from them).

Preserving Wealth Through Life Insurance: Taking out a life insurance policy specifically to cover the potential IHT bill is a common strategy for wealthy individuals who expect a taxable estate. Essentially, you estimate the likely IHT due and buy a life insurance policy (usually a whole-of-life assurance policy) that will pay out a lump sum on death. Crucially, you should arrange for the policy to be held in trust for your beneficiaries. By writing the life insurance in trust, the payout will not form part of your estate (so it’s not subject to IHT itself, and it can be paid directly to your chosen beneficiaries or to cover tax). When you pass away, the policy proceeds can be used by your heirs to pay the IHT bill, preventing a situation where they might have to sell assets (like a family home or business shares) to raise funds for the tax. This strategy doesn’t reduce the IHT due, but it provides liquidity to settle the tax without depleting the estate’s core assets. It can be seen as moving the cost of IHT into smaller annual insurance premiums during your life. For some HNWIs, this is an efficient trade-off – especially if they have high growth assets they want to keep in the family long-term.

Invest in IHT-Exempt or Efficient Assets: As noted under Business Relief, certain investments can be IHT-free if held for the requisite period. If you’re comfortable with the higher risk, you could allocate a portion of your portfolio to Business Relief-qualifying investments. Examples include shares in AIM-listed trading companies, or funds that specifically manage portfolios of BPR-qualifying businesses, as well as Enterprise Investment Scheme (EIS)investments (EIS shares, after 2 years, usually qualify for BPR as well, on top of providing upfront income tax relief and capital gains deferral). By shifting some investment capital into these vehicles, an investor can potentially shield that portion from IHT after two years. This is a popular route for older investors who have perhaps maximized other allowances – they invest, say, £1 million into an AIM IHT Portfolio or an EIS fund; if they survive two years, that £1 million (and any growth on it) can pass to heirs with 0% IHT. Caution: These investments are often in smaller, illiquid companies – the risk to capital is significant, so this suits those who can accept possible losses in exchange for the tax benefit. Moreover, as tax laws evolve, the generosity of these reliefs can change (indeed, reforms scheduled for April 2026 will limit the amount of BPR available on some investments – for instance, AIM shares are expected to get only 50% relief in future, so always stay updated).

Beyond BPR assets, another angle is to emphasize pension planning. Pensions are normally outside the estate for IHT. For HNWIs, it can be smart to use up other assets for living expenses or gifts and try to preserve pension funds, since leftover pension funds can pass to beneficiaries IHT-free (though they may face income tax in the beneficiary’s hands, depending on age of death). With recent and upcoming changes in pension rules, you should review this with an advisor, but as of 2025, pension wealth can be a valuable IHT shelter. In essence: spend your taxable money first, and leave the tax-sheltered pension invested as long as possible.

Charitable Giving and Legacy Planning: Philanthropy can be win-win: by leaving a portion of your estate to charity, you not only support causes you care about, but also reduce your estate’s tax. We mentioned the reduced 36% rate if you donate 10% of the estate. Some HNW families set up charitable trusts or foundations either during life or in their will, which can create a lasting legacy and also cut down the IHT bill. Gifts to charity during your lifetime not only feel good but shrink your estate (and any gift to a UK charity is immediately IHT-free, no seven-year rule needed). If you’re passionate about philanthropy, incorporating giving into your estate plan is highly effective for tax and altruistic reasons.

Optimise Asset Titling and Ownership: Ensure you and your spouse make the most of both of your allowances. For example, if you’re married, it may be wise for each of you to individually own assets up to at least £325k (plus a residence each, or joint, for RNRB) so that both of your nil-rate bands and residence bands can be fully used over two deaths. Sometimes, simple steps like putting a house into joint names (so that each can pass their share to kids using RNRB in each estate) or having separate investment accounts can maximize reliefs. Additionally, if you have assets abroad or complicated domicile status, consider how those assets are positioned relative to UK IHT (UK-domiciled individuals pay IHT on worldwide assets; non-doms only on UK assets – there may be scope for excluding some assets by using offshore entities or trusts if you have international ties, but specialist advice is a must).

Regular Review and Early Action: Perhaps the most overarching “strategy” is to start planning early and review regularly. IHT rules can and do change with new budgets and governments. For instance, current policy freezes or upcoming adjustments (like the potential partial loss of business relief from 2026) can alter the effectiveness of a plan. High-net-worth estates are dynamic – asset values fluctuate, new family members (or changing family circumstances) might require updates to your will and plan. It’s wise to review your estate plan annually or whenever a major life event occurs, and adjust gifting, insurance, or investment strategies accordingly. Early planning also helps avoid rash moves later – for example, if someone is very ill and tries to gift at the last minute, they may not survive 7 years; better to have done it years prior when in good health.

By combining these strategies in a tailored way, HNW individuals can drastically reduce their estate’s IHT burden. For example, a holistic plan might involve: gifting certain assets to children now, settling other assets into a trust that benefits grandchildren, holding some growth investments in BPR-qualifying companies, maintaining a life insurance trust equal to the projected tax on remaining assets, and leaving 10% to a family foundation or charity. The result could be that only a small fraction of the estate ends up taxed at 40%, protecting the family wealth. Always consult with qualified estate planners or tax advisers to implement these strategies in line with current laws and your personal situation.

(Note: The above strategies are meant as general ideas. Individual advice from a regulated financial planner or tax adviser is essential, as these tactics must be executed correctly to be effective and compliant.)

The Role of ISAs and IFISAs in Estate Planning

Individual Savings Accounts (ISAs), including InnovativeFinance ISAs (IFISAs), are well-known for their tax-free income and growth benefits during your lifetime. Any UK resident adult can contribute up to £20,000 per year (current ISA allowance) into ISAs, and all interest, dividends, and capital gains on investments inside an ISA are free from income tax and capital gains tax. This makes ISAs an excellent tool for accumulating wealth efficiently. However, a common question is: what happens to ISAs on death, and can they help with inheritance tax planning?

Tax Treatment of ISAs on Death: It’s important to clarify that ISAs (and IFISAs) themselves are not sheltered from inheritance tax. When you die, the funds in your ISA are considered part of your estate value. The tax protections of an ISA (the income/capital gains tax shelter) essentially end on death – the ISA can be closed or transferred out to beneficiaries. So, if you have, say, £500,000 across ISA accounts and you are single, that £500k is fully counted in your estate for IHT purposes. There is no general IHT exemption just because it’s an ISA. Many people are surprised by this, thinking ISAs are “tax-free” in all respects – but unfortunately, not when it comes to IHT.

Spousal Transfer Benefit (Additional Permitted Subscription): The good news for married ISA investors is a rule called the Additional Permitted Subscription (APS). This allows a surviving spouse or civil partner to effectively inherit the ISA tax wrapper value of their deceased spouse. In practice, the surviving spouse gets an extra ISA allowance equal to however much the spouse had in ISAs. This is separate from the normal £20k annual limit. For example, if a wife dies leaving £200,000 in ISAs, the husband (as her spouse) is entitled to an additional one-time ISA contribution allowance of £200,000 (on top of his own £20k allowance). He can use that to shelter either the inherited ISA assets or his own funds (up to that amount) into an ISA. This APS must be used within a time limit (usually within 3 years of death, or 180 days after estate administration completes, whichever is later). The result is that a spouse can maintain the deceased’s ISA savings in an ISA account and continue to enjoy tax-free income/growth on those assets going forward. The transfer of the ISA value to spouse is also free of IHT due to the spouse exemption. Essentially, ISAs can be passed between spouses without losing their tax benefits nor incurring IHT, which is very useful in estate planning for couples.

Do note: the APS mechanism requires coordination with ISA providers – not all providers automatically accept APS subscriptions, so the surviving spouse may need to work with the provider or transfer to a provider who will accept the inherited ISA allowance. The inherited allowance is often called a “Deceased ISA Allowance” and can be used with the same provider or a new one.

For other heirs (non-spouse), there is no ability to inherit the ISA’s tax-free status – they can inherit the assets (cash or investments) but those will lose the ISA wrapper. Those assets could then be invested in the beneficiary’s own ISAs going forward (subject to the normal £20k/year limit), but typically a large ISA balance can’t be sheltered all at once by a non-spouse heir.

Using ISAs for IHT Planning: Even though ISAs themselves don’t avoid IHT for non-spouse inheritors, they still play a role in estate planning for a few reasons:

Efficient Growth: By holding investments in an ISA/IFISA, you maximize net growth because no taxes drag down the returns each year. Over decades, an ISA can grow significantly larger than an equivalent taxable account (since dividends, interest, and gains aren’t being taxed or leaked). This means you may accumulate a larger estate – which sounds counterintuitive for IHT mitigation – but it gives you more assets to potentially give away or spendin planning. Essentially, ISAs help you grow your wealth faster, and you can then decide how to deploy that wealth in your estate plan (through gifts, trusts, etc.) In other words, if you’re going to have wealth that might be subject to IHT eventually, better to have it in an ISA growing tax-free rather than outside growing slower due to taxes. The additional growth can be passed to heirs or used to offset IHT costs.

Asset Carve-Out for Spouse: As noted, for couples, ensuring you both utilize ISAs means that on the first death, the survivor can inherit potentially a very large ISA allowance. This can simplify the survivor’s finances (keeping investments in the tax-free wrapper) and continue the tax-efficient growth until the second death. While this doesn’t cut IHT on the final estate (beyond using both spouses’ nil-rate bands etc.), it ensures that during the survivor’s remaining lifetime, the family wealth is compounding free of income/capital gains taxes, which is beneficial.

Potential for IHT-Free Investments in ISAs: There are specialized AIM IHT ISAs offered by some investment providers. These involve investing your ISA funds in AIM-listed shares that qualify for Business Relief. If done correctly, after two years, those investments would not attract IHT, and they remain inside your ISA (so no income or CGT on them either). This is a niche strategy that effectively combines two tax advantages: the ISA’s ongoing income/CGT shelter and Business Relief’s IHT shelter. This strategy is particularly attractive to older investors who won’t use their ISA money for living expenses and are comfortable with the volatility of AIM stocks. That said, it comes with high investment risk, and – as noted earlier – government policy is changing: from April 2026, AIM shares are expected to only get 50% IHT relief rather than 100%, which reduces (but doesn’t eliminate) the benefit. Still, until rules change, an AIM-heavy ISA can be a way to potentially shield that ISA from IHT. If you are interested in this approach, seek advice from a specialist in AIM IHT portfolios.

Using IFISA Income for Gifting: Innovative Finance ISAs typically invest in interest-bearing instruments (like loans or bonds). They can generate regular interest income that is tax-free within the ISA. If you, as an investor, withdraw that interest (rather than reinvesting it), it comes out as cash to your bank account but without any tax liability (since it was earned tax-free). That withdrawn cash could then be used in your estate planning – for example, you might set up a standing order to gift that amount to a child or grandchild each year. If you can demonstrate that this forms part of your normal expenditure out of income (and it doesn’t affect your lifestyle because it’s surplus income), those gifts would fall under the normal expenditure exemption mentioned earlier. Essentially, an IFISA could serve as a source of income that you pass directly to heirs in real-time, bypassing your estate entirely. Over several years, you could siphon off a tidy sum from your estate in this manner. It’s like reaping returns from your investments and immediately giving them away, never letting them accumulate and become taxable in your estate. This approach requires discipline and good documentation, but it’s a savvy way to use investment income for estate reduction.

Holding Safe Assets for Late-Life Needs: One aspect of estate planning is ensuring you have sufficient funds for retirement and late-life (including care costs if they arise). ISAs are a flexible, accessible pot of money since you can withdraw any time without penalty. Many HNWIs will keep a portion of their portfolio in ISAs as a “rainy day” or to fund any big expenses (so they don’t need to draw on trust assets or bother heirs). If, fortunately, you don’t end up needing all those ISA funds, they simply remain part of your estate and will go to your heirs (taxable, unless to spouse). But if you do need them (for an expensive medical treatment or helping a family member in need while you’re alive), you can use them freely. In short, ISAs offer flexibility, which indirectly helps estate planning because you won’t feel reluctant to spend money that’s designated in a trust or harder-to-access vehicle. Having accessible ISAs can prevent you from touching other assets that are better left for IHT purposes.

In summary, ISAs and IFISAs should be viewed as complementary tools in estate planning. They won’t on their own solve any inheritance tax problems (except in the special case of investing in IHT-exempt assets within them), but they enhance your overall financial plan by boosting tax-efficient growth and providing flexibility and potential income for gifting. Always remember to coordinate ISA strategies with your estate plan – for instance, it might be sensible to name your spouse as the inheritor of your ISA funds in your will (so they can use the APS), or if you’re unmarried, perhaps plan to gradually draw down ISA funds for gifting since your heirs won’t benefit from an APS.

easyMoney’s Property-Backed IFISA as Part of a Diversified IHT Plan

When considering the investment side of estate planning, diversification and tax efficiency are key principles. easyMoney’s property-backed IFISA is one example of an investment product that can fit into a high-net-worth investor’s overall strategy – providing an attractive balance of risk and return and tax-free interest through the IFISA wrapper. While a property-backed IFISA does not in itself provide any direct exemption from inheritance tax, it offers several features that can support an effective IHT planning approach:

Competitive, Steady Returns (Tax-Free): easyMoney’s IFISA invests in a portfolio of property-backed loans(typically bridging loans or similar real estate lending). It offers investors an opportunity to earn higher interest rates than traditional cash accounts – often targeting returns in the mid to high single digits annually (for example, easyMoney has advertised tiered target returns ranging roughly from 5% up to around 7%+ depending on the product – as at March 2025). These returns are earned as interest within the ISA and thus completely tax-free. For an investor, that means faster growth of the invested capital compared to a taxable investment yielding the same rate. Over time, the compounded growth can be significant. From an estate planning perspective, this higher growth can either (a) augment the wealth that could later be transferred to heirs, or (b) provide a larger stream of income that the investor could withdraw and gift regularly (as discussed in the previous section). Either way, the ISA’s tax freedom maximizes what’s ultimately available for your family or causes.

Capital Preservation via Asset-Backing: The loans in easyMoney’s IFISA are secured against property assets. This security can provide an extra layer of risk mitigation – if a borrower defaults, there is underlying property collateral that can be sold to recover funds. While no investment is risk-free (and peer-to-peer loans do carry risk of loss), the property backing typically means lower chance of a total loss compared to unsecured loans or equities in a market crash. For estate planning, this can be attractive: HNWIs often aim not just for growth, but for preservation of capital, so that the wealth is intact to pass on. A property-backed IFISA can serve as a relatively stable component in a broader portfolio, potentially with less volatility than stocks. It’s a way to diversify away from equities and hedge against stock market swings, while still earning more than, say, cash or government bonds. By allocating a portion of assets to such an IFISA, you reduce overall portfolio risk, which helps ensure there will be assets to inherit in the first place.

Diversification and Uncorrelated Returns: One principle of high-net-worth investing is diversification across asset classes – stocks, bonds, property, alternative investments, etc. The easyMoney IFISA gives exposure to the property debt market, which has a different risk-return profile and can be relatively uncorrelated with traditional markets. For example, the interest you earn on loans is agreed and not directly affected by daily stock price moves or by whether the FTSE index is up or down. While macroeconomic conditions (like property values and interest rates) do influence it, it’s not as tied to investor sentiment swings. Including such an investment in your estate’s holdings means your wealth isn’t relying on one type of asset performance. This can be especially useful when planning over the long term – if equities were to suffer a downturn in the years before your death, other assets like the property loans might hold value better, thereby not shrinking your estate at an inopportune time. A well-diversified portfolio is likely to be more resilient, which indirectly supports better estate outcomes. easyMoney’s IFISA can be one part of that diversified portfolio, complementing equity growth investments and safer cash or bond holdings.

Income for Retirement or Gifting: The easyMoney IFISA pays interest (which can often be taken monthly or quarterly). An HNWI in retirement could use that interest as part of their income drawdown strategy – effectively living off the interest (tax-free) from the IFISA while leaving other assets intact. If that interest is not needed for living expenses, as mentioned earlier, one could systematically withdraw and gift it. For example, suppose your easyMoney IFISA generates £10,000 of interest in a year. You might withdraw that and contribute it into a trust for your grandchildren each year, or simply make direct gifts to family. Since the interest was never taxed, you’re passing on the full amount. Over a decade, that could transfer £100k+ out of your estate without touching the principal. In essence, easyMoney’s IFISA could serve as an “IHT funding vehicle” – using its returns either to fund life insurance premiums (for an insurance trust), or to fund gifts that reduce the estate. All the while, the principal in the IFISA continues to earn interest and is available for your needs.

ISA Wrapper and Spouse Continuation: easyMoney’s IFISA is an ISA account, meaning it benefits from the same rules discussed: a spouse can inherit the account value into their own ISA via the APS allowance. So if you and your spouse both hold easyMoney IFISAs and one of you passes, the survivor can absorb the other’s account value into their ISA. This ensures the tax-free interest advantage carries on for the survivor, which might help the survivor continue any estate planning or gifting strategy without disruption. Additionally, by being an ISA, the easyMoney IFISA allows flexible contributions (up to the annual limit) and withdrawals, giving you adaptability in managing your finances in later life.

Transparency and Control: With easyMoney, investors can often see the portfolio of loans their money is invested in, and there’s a defined approach to underwriting and risk management. As part of the “easy” family of brands (backed by the same founder as easyJet), easyMoney positions itself as a straightforward, accessible platform. For HNW investors who like to understand where their money is going, this can be appealing. It’s not a blind pool – you get a sense of the property projects or borrower profiles involved. This transparency can provide peace of mind, making it easier to stick with the strategy as part of your estate plan. You also have a degree of liquidity – while not guaranteed instant access, easyMoney does allow withdrawals by selling loans to other investors, subject to demand, which is useful if your circumstances change. Many traditional estate planning investments (like certain trusts or insurance plans) can be rigid, but an IFISA investment you can monitor and access if needed strikes a nice balance.

That said, it’s important to acknowledge the risks and limitations of a property-backed IFISA in the context of IHT planning:

Risk Consideration: This is an investment product – capital is at risk. Loans can default, property values can fall, and in severe scenarios investors could lose money. It is not protected by the Financial Services Compensation Scheme (FSCS) because it’s not a bank account; it’s an investment in peer-to-peer loans. As an FCA-regulated firm, easyMoney has to adhere to certain standards and disclosures, but that doesn’t eliminate investment risk. Therefore, one should only allocate a portion of their overall wealth to this type of asset, in line with their risk tolerance. In the worst case, if a chunk of your estate’s value is in an IFISA and significant losses occur, that could reduce the amount going to heirs (although conversely, a smaller estate could owe less IHT – but no one wants to lose money just to save tax!). Diversification, as always, is key: balance the IFISA with other assets.

No Direct IHT Relief: Unlike some AIM shares or EIS, the underlying assets in easyMoney’s IFISA (property loans) do not qualify for Business Relief. The IFISA helps you with income and growth taxes, but when it comes to IHT, the value of the account will count in your estate (unless passed to a spouse). This means that while it’s great for growing wealth efficiently, you still need complementary strategies (like those discussed earlier) to actually mitigate IHT on these funds. For example, you might plan that the IFISA will eventually be left to your children and accept the 40% tax on it – but you’ve used other reliefs elsewhere to reduce the overall tax. Or you ensure the IFISA money goes to your spouse and is then gradually spent or gifted by them.

Interest Rate and Economic Factors: The performance of property-backed lending can be influenced by interest rate environments and real estate markets. As of March 2025, interest rates in the broader economy are higher than they were a few years ago, which means even risk-free assets (like government bonds or savings accounts) yield more, and competition in the lending market is different. While easyMoney’s loans yield attractive rates now, if interest rates fall significantly, returns might decrease; if the property market faces challenges, default rates could rise. So one should keep an eye on economic conditions and be ready to adjust their investment choices over time.

In conclusion, easyMoney’s property-backed IFISA can be a valuable component of a high-net-worth individual’s estate planning arsenal, when used alongside other strategies. It provides tax-free returns and a measure of security through property collateral, helping to grow or preserve part of your estate efficiently. A potential scenario could be: an HNWI puts a portion of their surplus cash (say £100k each year) into the easyMoney IFISA instead of a low-yield savings account, aiming for ~6% returns. They let it grow, but each year withdraw the interest to fund gifts to children. Over a decade, they’ve moved a substantial sum to their children (gifted out of the interest) while the principal £100k contributions each year remain within the IFISA. By the time of passing, perhaps the IFISA principal is eventually inherited by the spouse (using APS) or by the kids (subject to IHT, but those kids have already received a lot of value via the earlier gifts). This illustrates how the IFISA is part of the process of reducing tax and not just static money to be taxed at 40%.

As always, any investment should be considered in light of one’s overall financial plan. easyMoney is regulated (FCA-authorised) and intended to deliver better returns for investors willing to accept some risk by investing in their IFISA; its role in IHT planning is mainly to boost your wealth and provide income flexibility in a tax-efficient way. It should be used in concert with the tax exemptions, reliefs, and estate planning techniques discussed above to craft a well-rounded strategy.

Final Thoughts

Inheritance Tax planning for high-net-worth individuals is a complex but crucial aspect of wealth management. By understanding the current rules – from the nil-rate bands to the various exemptions – you can identify opportunities to minimize the 40% tax hit on your estate. Key takeaways include leveraging spousal exemptions, making strategic lifetime gifts, using trusts judiciously, and considering life insurance to cover any remaining tax. On the investment side, ensure your portfolio is tax-efficient and diversified: use ISAs/IFISAs to shelter income and growth, and consider allocating some funds to IHT-exempt asset classes if appropriate for your risk profile. Products like easyMoney’s property-backed IFISA demonstrate how modern fintech solutions can offer attractive, tax-free returns that support your broader estate planning goals (when combined with disciplined gifting or reinvestment strategies).

Lastly, always remain compliant and informed: tax laws can change (indeed, we face a prolonged freeze of IHT thresholds and upcoming adjustments to reliefs in coming years), so what works today might need tweaking tomorrow. Work with qualified financial advisers, tax specialists, and legal professionals to review your estate plan regularly. With careful planning started early, you can protect your legacy – providing for your family and causes you care about, rather than needlessly filling government coffers. Reducing your IHT liability is entirely legal and sensible, as long as you use the reliefs and strategies as intended. By combining these tools and strategies, high-net-worth investors can face the future with confidence that their wealth will pass on efficiently and in accordance with their wishes.

Capital is at risk. Past performance is no guarantee for future results.

Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.