According to figures, the amount of inheritance tax (IHT) paid to the exchequer last year rose by 8 percent – a rise which is directly related to rising property prices.

If you’re worried that your loved ones will be hit hard by IHT when you pass on your assets, some careful inheritance tax planning will help you to shelter at least some of your estate from the clutches of the tax man.

1. Transfer Your Assets into Trusts

You can gift assets up to the tax-free threshold of £325,000 into a discretionary trust, and this can be doubled if you have a spouse. It is possible to gift more than your tax-free allowance, but anything over the liability threshold will attract a lifetime tax of 20 percent. This course of action will allow you to remain in control of your assets, and it will also protect them from creditors, former spouses or anyone who believes they have a rightful claim to your estate after your passing.

2. Give Away Certain Assets

If you own assets that have fallen in value since you purchased or acquired them, it may be possible to gift them to a loved one without liability for capital gains tax.

In the event that the assets subsequently regain their value, the tax liabilities would lie with the recipient, and the gifted assets would formally be regarded as outside your estate after the statutory period of seven years.

You won’t usually be allowed to gift an asset that you still receive benefit from without remaining liable for IHT. However, transferring assets into a discounted gift trust delivers immediate relief from IHT while allowing you to retain the benefits those assets deliver. The exact amount of relief will be determined on a case-by-case basis by HMRC.

3. Use Your Tax-Free Allowances

HMRC rules permit you to give away up to £3,000 every year without being liable for inheritance tax. Moreover, you are also allowed to give away cash gifts of up to £250 to an unlimited number of individuals. If you’re a parent, you can give away up to £5,000 as a wedding present without incurring IHT. You can also give each of your grandchildren up to £2,500 as a wedding gift, and £1,000 to anyone else. Of course, you can give away as much money as you wish, but anything over the tax-free thresholds will be liable to IHT unless you live for seven years after making the gift.

4. Give to Charity

There is no IHT liability on gifts to charity, but there is another clear benefit involved. If you give at least 10 percent of your net estate to a registered UK charity, the rate of IHT applied to the remaining 90 percent of your assets will be reduced from 40 percent to 36 percent.

5. Give Away Excess Income as a Gift

It is possible to gift ‘excess’ income and avoid IHT on the amount given away. In order to be eligible for IHT exemption, however, the gift must be made from income, it must constitute normal expenditure and it can’t reduce your standard of living. It is vital that you keep accurate records of your living expenses and any assets you’ve gifted, as the application for exemption will be made by the executor of your estate after your passing.

Your estate includes all the financial assets you’ve worked a lifetime to accumulate, and the desire to leave as much of it as possible to your loved ones is only natural. Avoiding inheritance tax requires expert advice and careful planning, but leaving more to your family and friends makes it a worthwhile endeavour.