The 2024 Autumn Budget unveiled major changes to Inheritance Tax (IHT), with a phased rollout of new reforms starting in the 2025/2026 tax year and more significant shifts expected in the years ahead.
If you are thinking about how to pass on more of your wealth to future generations, now is the time to act. Below, we break down the key changes and the steps you can take to reduce your future tax liability.
End of non-domicile status exemptions
If you currently benefit from non-domicile status, it may no longer shield your estate from IHT.
The use of offshore trusts to shelter assets is being phased out as the Government aims to reduce incentives for offshore investments and increase UK tax revenue.
From April 2025, individuals who have been UK residents for at least ten of the last twenty tax years will be classed as long-term residents and taxed accordingly.
At the same time, relief from Income Tax on overseas earnings will no longer apply to income earned on or after 6 April 2025.
Changes to Agricultural Property Relief and Business Relief
From April 2026, Agricultural Property Relief and Business Relief will be capped. The current 100 per cent relief will only apply to the first £1 million per individual, with anything above that attracting just 50 per cent relief.
Now is the time to review the value of any property or business assets that currently benefit from these reliefs.
While much of the debate has centred around the farming sector, these reforms will affect a broad range of family-run businesses.
Unspent pensions and IHT
From April 2027, unspent pension pots will no longer be exempt from IHT. Any death benefits paid from pensions will be considered part of the deceased’s estate and taxed accordingly.
Although this change is still a couple of years away, it could have significant implications for many families, particularly as pensions are often among the most valuable assets in an estate.
Nil-rate band freeze extended
The freeze on the £325,000 nil-rate band, initially due to end in 2028, has now been extended to 2030. The residence nil-rate band also remains unchanged.
Given rising inflation and the general increase in asset values, many individuals may find themselves exceeding the threshold sooner than expected. Regularly reviewing the value of your estate can help avoid unwelcome surprises.
What can you do now?
While some changes are already in motion, there is still time to prepare for the bigger reforms coming in 2026 and beyond.
- You can gift up to £3,000 each year without triggering IHT.
- Gifts made more than seven years before death are usually outside the scope of IHT, so early planning can make a significant difference.
These are just two examples of how you can begin to pass on wealth more efficiently. There are many other options available, and the right approach depends on your personal and financial circumstances.
With careful planning and a structured approach to redistributing your assets, you can retain control and reduce the tax burden on your estate.
Concerned about how these upcoming changes could affect your Inheritance Tax bill?
Get in touch with our team for personalised advice and support.