What are the upcoming changes to Inheritance Tax?
This article provides an overview of the upcoming changes to Inheritance Tax (IHT) rules in England and Wales. We outline what is expected to change in the coming years and how our specialist solicitors can help with your tax planning.
The Labour government announced multiple changes to Inheritance Tax in the Autumn Budget 2024. Several of these changes are significant and aimed at increasing tax revenue and to address perceived inequities. For official details, visit the UK Government website.
“New research reveals that more families are worried about the impact of IHT on their loved ones, but many don’t know where to start.” - Lifetime Lawyers
Research from The Association of Lifetime Lawyers has found that 80% of lawyers have reported a surge in IHT enquiries. They also found that 66% of lawyers believe many people are unaware of their options for IHT planning.
IHT planning can be complex. Our expert solicitors can help you navigate the upcoming changes to Inheritance Tax, ensuring you and your loved ones are protected in the future.
Please call us on 01707 329333 or email law@crane-staples.co.uk to book an appointment with a solicitor. Appointments can be held at our office, via Microsoft Teams, or through a local home visit where appropriate. Please note that we can only provide tailored legal advice once you have formally instructed us and arranged an appointment to discuss your individual circumstances. We are unable to answer general questions or provide guidance outside of a formal consultation. Our support team cannot offer legal advice via phone, email, or online chat. Thank you for your understanding.
What is Inheritance Tax (IHT) and how does it work?
Inheritance Tax is a tax payable on the value of a deceased person’s estate. It is currently charged at 40% on the value of an estate above their tax-free allowance, the Nil Rate Band of £325,000. There is also a Residential Nil Rate Band of £175,000 if you leave your home to direct descendants, bringing the total tax-free allowance to £500,000 per person – or potentially £1 million for couples in certain circumstances. However, there are changes imminent which will affect how this tax is applied.
Is the law changing on Inheritance Tax?
Yes, the government has announced several changes to IHT, to be phased in over the coming years. These changes aim to modernise the system, address fiscal challenges, and adapt to evolving economic conditions. Alongside legislative updates, there’s a push towards digitalisation, with significant implications for how IHT is managed and paid.
Planned Digitalisation of IHT Services
Starting from the upcoming tax year (6 April 2025), tax advisers filing will need to adopt advanced electronic signature technology. This shift is part of a broader effort to streamline IHT processes, reduce errors, and improve efficiency for HM Revenue & Customs (HMRC). Individuals and professionals should prepare for this transition to ensure compliance.
What are the changes to Inheritance Tax in April 2025?
In April 2025, changes primarily focus on the rules for non-UK domiciled individuals and the continued freeze on IHT thresholds. These changes are imminent and therefore you should consider if and how they will affect you, as a matter of urgency.
Non-UK Domiciled Individuals
Currently, IHT liability for non-UK domiciled individuals is based on their domicile status under common law. Non-doms are only liable for IHT on UK-situated assets, while foreign assets are generally exempt unless they’ve been UK resident for 15 out of the past 20 years (introduced in 2017).
The new rule, effective from the 6 April 2025, will mean that IHT will apply to an individual’s worldwide assets if they have been resident in the UK for 10 out of the last 20 tax years immediately preceding the tax year of death or the transfer of assets. This replaces the previous 15-year rule for long-term residents.
After leaving the UK, individuals will remain liable for IHT on their worldwide assets for 10 years following their departure, provided they met the 10-year residency condition while in the UK. This is a “tail provision” to prevent tax avoidance by relocating shortly before death.
The Labour government estimates that these changes will raise an additional £150 million annually by 2030 for these non-doms IHT receipts.
Freezing of IHT Thresholds Until 2030
The government has confirmed that the nil-rate band (£325,000) and residence nil-rate band (£175,000) will remain frozen until at least 2030. With inflation and rising property values, this freeze means more estates will fall into the IHT net over time. Effectively, this change increases the tax burden without raising rates.
What are the changes to Inheritance Tax in April 2026?
April 2026 sees significant changes to Agricultural Property Relief and Business Property Relief, introducing caps on the amount of relief available.
Agricultural Property Relief (APR)
From 6 April 2026, Agricultural Property Relief will face dramatic restrictions. Currently, farmland and related buildings can qualify for 100% relief from IHT. The new rules will cap this relief at £1 million per estate. Any excess will be taxed at 20% (half the standard IHT rate). This change targets larger estates and could impact farming families significantly.
Farmers' strong concerns about the upcoming APR changes, named the "Farm Tax", have been well-documented in recent news coverage.
Business Property Relief (BPR)
Similarly, Business Property Relief, which offers up to 100% relief on qualifying business assets, will be limited. From April 2026, the first £1 million of business assets will remain fully exempt, with any excess taxed at 20% (half the standard IHT rate). Historically, this has provided substantial relief for business owners passing on their enterprises in the interest of continuity and minimising trade disruptions.
What are the changes to Inheritance Tax in April 2027?
In 2027, the planned IHT changes include bringing previously exempt assets, such as inherited pensions and death benefits, into the scope of IHT.
Inherited Pensions/Unused Pension Pots
From 6 April 2027, unused pension pots and death benefits payable from pensions will be included in a deceased person’s estate for IHT purposes. Previously, pensions were exempt. This often made pensions a tax-efficient way to pass wealth, especially if the individual died before age 75.
Pension scheme administrators will be responsible for reporting and paying any IHT due on these funds.
Death Benefits in Estates
Death benefits from life insurance policies or similar schemes, often paid directly to beneficiaries, will also be drawn into the IHT net from 6 April 2027. This shift reverses previous exemptions and could catch many families off guard.
Why are these changes happening?
These reforms reflect the government’s desire to boost tax revenue while addressing perceived inequities in the tax system. The freezes and relief caps target wealthier estates, while digitalisation aims to modernise administration. However, critics argue that these changes disproportionately burden families as inflation pushes more estates above the thresholds.
How will these changes affect individuals?
For many people, the frozen thresholds and pension changes mean an increasing number of estates will face IHT charges. This is especially because property and asset values rise over time. Non-domiciled individuals and business or farm owners will need to reassess their succession planning. The average taxpayer might see their liability grow, prompting earlier action to mitigate the impact.
What can I do to prepare for the changes to Inheritance Tax?
Preparation is key. Firstly, start by assessing your estate’s value and potential IHT exposure. The Tax rules can be complicated, and it is important to understand what allowances apply to your own estate. Consider seeking advice from a solicitor or financial planner familiar with the upcoming reforms. Early planning can help you take advantage of current rules before they tighten.
What can I do to mitigate Inheritance Tax liability?
Gifting assets from an estate in lifetime will reduce the value of the estate. Of course, this is subject to surviving the gift by 7 years.
Additionally, you can give away £3,000 annually tax-free, plus additional amounts for special occasions (Birthdays and Weddings). These are called Lifetime Gifts. You can find out more about Lifetime Gifts here.
Recently, 77% of lawyers observed a growing trend of clients gifting assets during their lifetime to reduce tax (Lifetime Lawyers).
Additionally, the research highlighted a significant increase in enquiries about property gifting. You can find out more about the complexities of property gifting here.
Professional legal and financial advice is highly recommended for anyone wishing to mitigate IHT liability. Please contact us to arrange an appointment with one of our specialist IHT solicitors.
How can a Solicitor help me plan for the upcoming Inheritance Tax changes?
A solicitor can assess your estate and explain the new rules to you clearly. According, they can then craft a tailored plan for your estate. Whether its gifting, trusts, or wills, we will ensure that your wishes are met and your family is protected.
The latest research reveals that more families are worried about the impact of IHT on their loved ones. However, they don’t know where to start. 80% of lawyers have seen a rise in IHT enquiries. Notably, 28% of lawyers have also seen an increase in under-40s seeking advice.
Clearly, this shows that expert legal advice is in high demand. Furthermore, IHT considerations affect individuals and families across the generations. As a result, adults of all ages should seek clarity on the impact of IHT.
Don’t leave your future to chance. The Lifetime Lawyers at Crane & Staples can help you plan ahead, protect your family, and ensure your wishes are carried out.
Conclusion & Get in Touch
The upcoming IHT changes will reshape how estates are taxed in the UK, affecting everyone from farmers to pension holders. Now is the time to act. For detailed legislation, check the UK Government website. To safeguard your family’s future, contact us and schedule a consultation with our Wills, Trusts and Probate solicitors. Plan ahead—your loved ones deserve it.
