Does Making a Will Reduce Inheritance Tax?

A will decides who receives your assets after debts, funeral costs and any tax have been accounted for. It does not change how much your estate is worth, and it cannot artificially reduce it. What it can do is take advantage of exemptions built into the tax rules, most importantly the exemption for gifts to a spouse or civil partner and the exemption for gifts to charity.

Because these exemptions apply to the recipient of the gift, not to the estate as a whole, the way a will is worded, who receives which assets, can move the overall tax bill up or down considerably, even where the total value of the estate stays the same.

Assets left to a spouse or civil partner are exempt from inheritance tax regardless of value, so a will that leaves everything to a surviving spouse typically produces no inheritance tax bill on the first death. Any part of the nil rate band and residence nil rate band left unused because of this exemption can usually be transferred for use on the survivor's death later.

Gifts to registered charities are also exempt, and if 10% or more of the net estate (broadly, the estate after debts, exemptions and the nil rate band) is left to charity, the rate of inheritance tax on the rest of the taxable estate is reduced from 40% to 36%. This reduced rate calculation can be complex, and it is often worth getting advice to check whether a gift is structured in a way that actually qualifies.

A will only takes effect on death, so it cannot make use of lifetime planning opportunities such as gifts made more than seven years before death, which fall outside the estate for inheritance tax purposes under the seven-year rule. It also cannot retrospectively apply reliefs for business or agricultural property if those reliefs are not properly available on the assets concerned.

For estates where inheritance tax is a real concern, a will is usually just one part of a wider plan that might include lifetime gifts, trusts, or specific reliefs, and this wider planning needs input from a solicitor or tax adviser rather than being addressed by the will's wording alone.

Consider two people with estates of the same value. One leaves everything to their children outright; the other leaves everything to their spouse first, with the spouse's own will later leaving a portion to charity that meets the 10% threshold. The first estate is taxed at 40% above the available thresholds. The second may pay no tax on the first death at all, due to the spouse exemption, and a reduced 36% rate on the survivor's death because of the charitable gift.

The value of the underlying assets has not changed in this example, but the total tax paid across both deaths could be very different. This illustrates why the wording of a will matters even though it cannot change what an estate is worth.

For many people, a will that makes sensible use of the spouse exemption and correctly records nil rate band transfers is enough. Where an estate is larger, includes a business, agricultural land, or overseas assets, or where lifetime gifting is being considered, a solicitor or tax adviser should be involved before decisions are made.

My Posh Will lets you build a clear, legally valid will for England and Wales, with straightforward options for gifts to a spouse, family or charity. A single will costs £69 and mirror wills cost £89, both one-off payments with lifetime access. Use our suitability check to see whether your circumstances mean you should also speak to a solicitor or tax adviser.