The smart way to avoid inheritance tax… In this example, when Sarah receives the money, it’s a gift, not income, so she doesn’t pay any tax on receiving it. She then invests it into a Stocks & Shares ISA, which means: -No tax on growth -No tax on dividends -No tax when she withdraws it in the future Because the money is gifted from Tom’s surplus income (income he doesn’t need to maintain his standard of living), it is immediately exempt from inheritance tax. That’s why the seven-year rule doesn’