Major changes to Inheritance Tax (IHT) were announced in the 2024 Autumn Budget with a staggered implementation of a variety of tax reforms.
The new 2025/2026 tax year brings with it another change to the tax rules ahead of even greater changes in the years to come.
You may find yourself wondering if there is anything you can do to mitigate these changes and pass on more wealth to future generations.
Let’s explore the changes in more detail and the steps that can be taken to minimise tax bills for future generations.
Removal of non-domicile status
For anyone relying on a non-domicile tax status, this may no longer provide exemptions from IHT.
This is because offshore trusts will no longer provide shelter for assets as the Government works to disincentivise overseas investments and instead increase revenue for the UK.
If you have been a resident of the UK for ten of the last twenty tax years, then you will now be regarded as a long-term resident and will have to pay tax accordingly.
Additionally, the ability to claim Income Tax relief on chargeable overseas earnings will no longer be available for income earned on or after 6 April 2025.
Agricultural Property Relief and Business Relief
With only a year left to go until the changes set in, it is time to plan for the capping of Agricultural Property Relief and Business Relief in April 2026.
From this date onwards, the full 100 per cent relief will only apply to the first £1 million per individual and will drop to a 50 per cent relief on anything above that value.
It is worth assessing the value of any property or assets that would have benefited from this important relief before the 2026/2027 tax year begins, as long term planning is essential.
Whilst much of the furore around this rule changes has focused on farming communities, there are many other family businesses that may be affected.
Unspent pensions
You may recall from the Autumn Budget that unspent pension pots will also no longer be exempt from IHT in 2027.
This includes any death benefits payable from a pension, which will be considered part of your estate for IHT purposes from April 2027 onwards.
While that may seem like a while away, it is important to keep the date in mind and start making provisions accordingly.
Pensions often represent one of the largest assets within many individuals’ estates, which is why this change could draw a lot of individuals within the scope of IHT for the first time.
Nil-rate band freeze
The number of people likely to be eligible to pay IHT is set to increase over the next few years because of the freeze to the nil-rate band.
The nil-rate band of £325,000 was set to be frozen until 2028, but his freeze has been extended to 2030. Similarly, the residence nil-rate band will remain frozen as well.
Due to rising inflation and the general appreciation of the value of your assets, you may find that you cross this threshold before 2030.
Being aware of the value of your assets will ensure that you and your loved ones are not unpleasantly surprised with an increased IHT bill.
What should I do?
Although it is too late to avoid the first wave of restrictions, it is good to be prepared for the more significant increases that await you in 2026 and beyond.
Keep in mind that there is an annual exemption of £3,000 that permits you to gift some of your assets to people without incurring IHT.
Similarly, only gifts given within seven years before a person’s death are considered for IHT, so prioritising the gifting of more valuable assets may prevent them from incurring any IHT.
These are just two common methods of passing on wealth early, but there are a variety of other options available to you to manage your IHT bill, which require careful consideration and planning.
Ultimately, careful planning and a steady redistribution of assets may prove to be the most effective way of ensuring that you retain control over your finances.
Worried about how these upcoming changes are going to impact your IHT bill?
Get in touch with our team today for tailored support and guidance.
