Gizane Campos
Inheritance taxes can significantly reduce the wealth passed on to your family members, unless you plan ahead. Whether you’re inheriting assets or preparing your estate, understanding how to legally minimize inheritance tax is essential.
In this guide, we explore strategies including exemptions, gifting rules, trusts, and proper estate planning to help you safeguard your wealth across borders:
What is inheritance tax?
Inheritance tax is a levy on assets, property, or money received from a deceased person’s estate. It may be imposed at the national or regional level, depending on where the deceased or beneficiary resides.
Rates and exemptions vary widely across countries. While close relatives like spouses and children often receive higher tax-free allowances or full exemptions, distant relatives and non-relatives may face higher rates.
Some countries, such as Germany and France, group beneficiaries by relationship to determine rates and thresholds.
Globally, policies differ significantly. Countries like the UK, Japan, and Belgium have high inheritance taxes, while others like Portugal, Australia, and the UAE have none. In the US, there’s no federal inheritance tax, but some states do levy their own. These differences make proper estate planning across borders essential, especially for expats and those with international assets.
11 Ways to Reduce Inheritance Tax
Inheritance tax can be a significant estate tax burden and can be especially distressing in the wake of someone passing. However, there are many strategies to reduce or avoid the inheritance tax you might need to pay:
1. Gift assets
One of the best ways to avoid taxes on inheritance is by gifting inherited assets while you’re still alive. Most countries offer annual gift tax exemptions, allowing individuals to transfer a set amount of money or property to family members without triggering a tax liability.
For example, in the U.S., you can gift up to $18,000 per recipient annually (2024 limit) without affecting your lifetime exemption. In the UK, the seven-year rule means gifts are inheritance tax-free if the donor survives seven years. Strategic gifting reduces the taxable estate and ensures your loved ones benefit sooner.
2. Use trusts
Setting up a trust is a powerful estate planning tool and one of the most reliable ways to avoid inheritance tax. Trusts allow you to transfer ownership of your assets to trustees for the benefit of your heirs.
In many jurisdictions, including the US, UK, and parts of the EU, properly structured discretionary or irrevocable trusts can remove inherited assets from your taxable estate.
Trusts offer greater control, asset protection, and potential tax advantages, especially for high-value estates.
3. Leave assets to your spouse or civil partner
Most countries offer generous spousal exemptions, meaning you can leave your entire estate to a surviving spouse or civil partner without paying inheritance or estate tax.
In the US, this is called the unlimited marital deduction. In the UK and EU, similar provisions apply.
Additionally, many systems allow a surviving spouse to use any unused portion of the deceased’s tax-free allowance, doubling the threshold before tax applies.
4. Name children as beneficiaries
Beyond gifting and trusts, parents can use tools like family investment companies, designated beneficiary accounts, and tax-free savings vehicles. For example, Roth Individual Retirement Accounts in the US or ISAs in the UK.
Naming your children as direct beneficiaries on life insurance policies or retirement accounts also allows those inherited assets to bypass probate and potentially avoid tax.
5. Make charitable donations
Donating a portion of your estate to charitable organizations can reduce or eliminate inheritance tax.
For instance, in the UK, leaving 10% or more of your estate to a registered charitable organization reduces the inheritance tax rate from 40% to 36%. In the US, charitable bequests are fully deductible from your taxable estate. This approach not only benefits a good cause but also preserves more of your estate for your loved ones.
6. Structure real estate properly
The best way to avoid inheritance tax on a house is to gift real estate while still alive, subject to local rules, or to place it in an irrevocable trust.
In some countries, like Germany and France, children receive favorable tax-free allowances when inheriting a primary residence.
Alternatively, joint ownership or tenancy by the entirety can ensure the property passes directly to the surviving owner, potentially outside of probate and tax exposure.
7. Use life insurance
Taking out a life insurance policy held in trust is a smart way to ensure liquidity for your heirs without increasing your taxable estate.
This strategy is widely used to cover anticipated inheritance tax bills, especially when most of the estate is tied up in illiquid assets like property or businesses.
The policy payout can be used to pay the tax, allowing the rest of the estate to pass on intact.
8. Move to low or no-inheritance-tax countries
Several countries, including Portugal, Austria, Sweden, New Zealand, and the UAE, impose no inheritance tax. Relocating to one of the countries with low taxes can eliminate future tax burdens on your estate.
However, it’s crucial to establish your legal country of tax residence and understand local succession laws to ensure your move is effective for estate planning purposes.
9. Use business and agricultural reliefs
Countries like the UK and France offer inheritance tax relief on business assets and agricultural property. In the UK, for example, Business Relief may reduce the value of relevant business assets for tax purposes by up to 100%.
These incentives are designed to help family-owned businesses and farms pass smoothly to future generations without triggering large tax liabilities.
10. Update your will and estate plan
Creating and regularly updating your will and estate plan ensures that your assets are passed on in the most tax-efficient manner. An outdated will can lead to unintended tax consequences or delays in asset distribution.
Estate plans that incorporate irrevocable trusts, gifting strategies, and clear beneficiary designations help reduce inheritance tax and protect your legacy.
11. Use offshore accounts and Citizenship by Investment
When an offshore banking account is set up legally and transparently, often in places like the Cayman Islands, Jersey, or Singapore, they can be used to keep wealth outside your taxable estate. These structures are frequently paired with trusts or foundations for long-term succession planning.
In addition, Citizenship by Investment (CBI) programs can offer an extra layer of estate planning flexibility. Countries like Antigua and Barbuda, Dominica, and St. Kitts and Nevis offer second citizenship and zero inheritance tax, allowing high-net-worth individuals to establish legal residency in so-called tax haven countries.
Many countries that offer second citizenship by investment have no inheritance tax, ideal for smart estate planning.
Types of Inheritance Tax
Inheritance Tax
This tax is levied on individual beneficiaries. In other words, the beneficiary pays based on the value of what they receive from a deceased person’s estate.
Estate Tax
Examples: United States (federal level), United Kingdom (commonly referred to as inheritance tax but is estate-based) and Ireland.
The tax rate and exemption typically depend on the beneficiary’s relationship to the deceased. Oftentimes closer relatives receive higher exemptions and therefore pay lower taxes.
The tax is imposed on the total value of the estate before it is distributed to beneficiaries. Beneficiaries receive what remains after taxes have been settled. Only the estate pays the taxes and not the heirs.
Dual-Tax Systems
Examples: Switzerland (varies by canton) and the U.S. (federal estate tax and possible state inheritance tax)
Some countries have a combination of estate and inheritance taxes, or may impose other taxes like gift tax or capital gains depending on how and when the transfer occurs.
Due to these overlapping rules, these systems can become more complicated, especially for cross-border estates.
No Inheritance or Estate Tax
Examples: Portugal, Australia, New Zealand, UAE, Sweden, Austria
Some countries have abolished both inheritance and estate taxes altogether, making them attractive for wealth preservation and succession planning.
It’s important to note that these countries may still levy other taxes such as capital gains, stamp duty, or probate fees.
Estate Tax in the United States
An estate tax is levied on a deceased person’s total estate, not on the individual heirs. The estate itself is responsible for paying the tax before assets are distributed.
Many consider estate tax fairer than inheritance tax, as it applies based on the estate’s total value, ensuring equitable treatment regardless of the heirs’ status.
In the US, the federal estate tax (also called the death tax) applies to estates exceeding $13.99 million in 2025, up from $12.92 million in 2023. Estates below this amount are exempt. Tax rates range from 18% to 40%, depending on value.
A key feature US estate tax law is “portability,” which allows a surviving spouse to use any unused exemption, effectively raising the tax-free limit for couples to $27.98 million. This provision, in place since 2011, is vital in estate planning.
Access countries with more favorable inheritance tax laws to ensure a smoother wealth transfer with multiple citizenships.
Frequently Asked Questions about Inheritance Tax
How much can you inherit in the US without have to pay taxes to the federal government?
As of 2025, you can inherit up to $13.99 million in the U.S. without paying federal estate tax. For married couples, the combined exemption is $27.98 million.
How can offshore accounts and investments help in inheritance tax avoidance?
Offshore accounts and investments can help reduce or avoid inheritance tax by placing assets in jurisdictions with no or low inheritance tax laws.
How does gifting assets help avoid inheritance tax?
Gifting assets before death is a common way to reduce taxable estates. Many countries allow tax-free gifting up to a threshold, especially to close relatives.
In Germany and France, gifts can be made every 10 to 15 years within limits. In the US, the annual gift exclusion is $18,000 per recipient (in 2024), and lifetime gifts count against your estate exemption.
Do beneficiaries get taxed on inheritance?
In most countries, the estate pays estate or inheritance tax, not the beneficiaries directly.
However, in countries like the US, some states impose inheritance tax that beneficiaries may be responsible for. Inheritance may also trigger income tax in certain jurisdictions if assets generate income post-transfer.
What is the seven-year rule for inheritance tax?
The seven-year rule is specific to the UK, where gifts made more than seven years before death are usually tax-free.
Other countries have their own timeframes. For example, Germany uses a 10-year reset period, and France also has timelines depending on the relationship and amount gifted.
Can life insurance cover inheritance tax liabilities?
Yes, life insurance is widely used globally to cover expected inheritance tax. When held in trust, the payout may bypass the estate and go directly to beneficiaries, helping them cover any taxes owed without liquidating other assets.
How does moving to another country affect inheritance tax?
Changing your country of residence or tax domicile can significantly impact your inheritance tax liability. Countries like Portugal, UAE, and Monaco don’t levy inheritance tax, while others, like Japan and France, tax worldwide assets. Some nations also apply inheritance tax based on citizenship, not residency, such as the US.
What is the impact of charitable donations on inheritance tax?
Many countries reduce or eliminate inheritance tax on assets left to non-profit or charitable organizations.
How do joint ownerships affect inheritance tax liability
Jointly owned property often passes directly to the surviving owner in many jurisdictions. In Europe, joint assets may still be taxed, depending on each country’s laws and the relationship of the joint owners.
Does transferring wealth to children early reduce inheritance tax?
Yes, early transfers through gifts, trusts, or family companies can significantly reduce the taxable value of your estate. Different countries offer exemptions or reduced tax rates for early inheritance, but time limits and reporting rules apply.
Can a will help reduce inheritance tax obligations?
A properly structured will can minimize tax by allocating assets strategically, taking advantage of exemptions, and setting up trusts or charitable bequests.
Which European countries have no inheritance tax?
European countries with no inheritance tax, include:
- Austria: Abolished inheritance tax in 2008.
- Cyprus: No inheritance tax since 2000.
- Estonia: No inheritance or estate tax. Only income tax may apply on gains.
- Latvia: No inheritance tax for close relatives.
- Malta: No inheritance tax but transfer fees may apply on immovable property.
- Portugal: No inheritance tax for spouses, children, or parents; stamp duty of 10% may apply to others family members or recipients.
- Slovakia: No inheritance or gift tax.
- Sweden: Abolished inheritance tax in 2005.
- Czech Republic: No inheritance tax but some income tax may apply for distant heirs.
- Norway: Abolished inheritance tax in 2014.
How does France circumvent inheritance tax?
A few ways French citizens and tax residents can reduce or avoid estate taxes are:
- Opening a life insurance policy.
- Transferring property before death.
- Paying the gift tax before death.
- Investing in real estate through an SCI (société civile immobilière) property holding company.
Which US states have the lowest estate or inheritance taxes?
Of the US states, Iowa, Kentucky Maryland, Nebraska and Pennsylvania have some of the lowest estate or inheritance taxes.
