Inheritance Tax is usually paid on an estate (all assets, less any liabilities) when somebody dies. It's sometimes payable on trusts or gifts made during someone's lifetime (but only to companies, not individuals).
Former Chancellor of the Exchequer, Roy Jenkins, once said, “Inheritance Tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”! Whilst the rules have been tightened-up somewhat since he said this, there are certainly many things that can legitimately be done to reduce the burden of Inheritance Tax.
How inheritance tax is calculated including an example. Other than in some Trust situations, which I won’t go into here, Inheritance Tax is payable on the net value of your estate after you die.
Are inheritance gifts a good way to avoid Inheritance Tax?
In a word, yes! However, are you absolutely certain you can afford to make the gift in the first place? Have you enough income and other financial resources to maintain your standard of living throughout your retirement, come what may, even for future long-term care, for example? If so, gifts are a great way to reduce a future Inheritance Tax liability.