Inheritance Tax Reforms: Act now Pay Later
- Brian Pusser
- Aug 20
- 3 min read
What’s New in UK Inheritance Tax (IHT)?
Inheritance Tax (IHT) is undergoing its most significant shake-up in decades. With reforms rolling out between April 2025 and April 2027, individuals, families, and business owners need to reassess their estate plans now.
1. Shift to a Residence-Based System (from 6 April 2025)
The old “domicile” test is being replaced by a residence-based system.
If you’ve been UK tax resident for 10 of the last 20 years, you’ll be classed as a long-term resident, making your worldwide assets subject to IHT.
Even if you leave the UK, there will be a “tail period” of 3–10 years where your estate could still be taxed.
Trusts are also affected: non-UK trust assets may become liable for IHT, and leaving the UK could trigger an exit charge.
➡️ Key takeaway: International families, trusts, and non-UK domiciled individuals need to urgently review their structures.
2. Freezing and New Inclusions of Key Assets
Thresholds frozen: The nil-rate band (£325k) and residence nil-rate band (£175k) remain unchanged, despite inflation – dragging more estates into IHT.
Pensions hit: From April 2027, unspent pension pots will be included in estates for IHT purposes.
Relief capped: From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at 100% relief on the first £1m – with 50% relief above that.
➡️ Key takeaway: Families with farms, property portfolios, or business assets face new limits on passing down wealth.
3. Government’s Motivation and Policy Momentum
IHT receipts are soaring: £2.22bn collected in April–June 2025, up 6% year-on-year.
Projected receipts: £9.1bn in 2025/26, potentially rising to £14bn by 2029/30.
The Treasury is eyeing further reforms, including:
Capping lifetime gifts
Tightening the seven-year exemption
Extending taper rates
➡️ Key takeaway: The direction of travel is clear—expect tighter rules and higher bills.
4. HMRC Enforcement Intensifies
HMRC IHT investigations jumped 41%, from 2,807 to 3,961 in 2024/25.
Executors now face stricter demands for valuations, financial records, and transparency.
➡️ Key takeaway: Compliance is under the microscope—accurate records are vital.
Summary: Key Changes at a Glance
Change | Effective From | Impact |
Residence-based system (domicile abolished) | 6 Apr 2025 | Long-term UK residents’ worldwide assets subject to IHT; exit tail applies |
Business & Agricultural Relief capped | 6 Apr 2026 | Full relief up to £1m, then 50% beyond |
Pensions included in IHT | 6 Apr 2027 | Pensions increase taxable estate |
Nil-rate thresholds frozen | Ongoing | More estates pulled into IHT (fiscal drag) |
HMRC investigations up | Ongoing | Executors face greater scrutiny |
Gift & exemption reforms | Under review | Potential tighter limits on lifetime giving |
What Should You Do?
If you’re concerned about how these changes could affect your family or business:
✅ Review residency history – understand exposure and plan any future departures carefully.
✅ Reassess trusts – check structures, settlor status, and potential exit charges.
✅ Consider lifetime gifts now – before possible new restrictions.
✅ Update wills and pension arrangements – especially with pensions entering IHT from 2027.
✅ Plan for succession in farms and businesses – reliefs are being capped.
✅ Stay compliant – accurate valuations and financial records are more important than ever.
💡 At B R Pusser & Co, we help individuals, families, and business owners navigate complex IHT changes with tailored estate planning.
📞 Contact us today to review your plans before the new rules take effect.
