Inheritance Tax (IHT) can cost loved ones hundreds of thousands of pounds - yet there are ways to legally reduce or negate it completely.

Inheritance tax is a tax on the 'estate' of someone who's passed away.

How much you pay depends on the value of the deceased's estate – which is worked out based on their assets (cash in the bank, investments, property or business, vehicles, payouts from life insurance policies), minus any debts.

Importantly, there is normally no tax to pay if:

• The value of your estate is below £325,000, OR
• You leave everything over £325,000 to your spouse, civil partner, a charity or a community amateur sports club

If neither of the above applies, your estate will be taxed at 40% on anything above the £325,000 threshold when you die (or 36% if you leave at least 10% of the value after any deductions to a charity in your will).

However, this £325,000 tax-free threshold might be even higher depending on your circumstances – in some cases it can be as high as £500,000, or even £1 million.