To effectively manage your wealth, it’s important to stay informed about changes and reforms to financial legislation.
In the run-up to the 2024 Autumn Budget, the Guardian reported that the new chancellor, Rachel Reeves, claimed there was a “black hole” in public finances, and that she would have to take measures to address this deficit.
Then, when the Budget was eventually delivered on 30 October 2024, it introduced several substantial changes to Inheritance Tax (IHT) to increase government revenue.
The BBC reports that around 4% of estates – roughly 27,800 – pay IHT each year. However, even before the Budget reforms were announced, economists at the Institute for Fiscal Studies (IFS) predicted that around 7% of estates could be liable for the levy by 2032.
As such, it’s vital to understand whether your wealth will be affected by the upcoming changes. Read on to learn about four of the reforms to IHT, and to explore some strategies that can help keep your estate as tax-efficient as possible.
1. The nil-rate band freeze has been extended
The “nil-rate band” allows you to pass on up to £325,000 of your estate after you pass away, without incurring IHT.
Additionally, if you leave your main property to a direct lineal descendant – such as a child, stepchild, or grandchild – you may benefit from the “residence nil-rate band”, which provides an extra £175,000 tax-free allowance. If your net estate is worth over £2 million, your residence nil-rate band will taper by £1 for every £2 over this threshold, meaning that it’s tapered off entirely if your estate exceeds £2.35 million – or £2.7 million for couples.
In the recent Budget, the government extended the freeze of these thresholds for an additional two years, which will now last until 5 April 2030.
This could mean that, as your assets continue to appreciate over time, your estate may be more likely to exceed these thresholds, increasing your exposure to IHT.
2. Pensions are set to be brought into the scope of IHT
Perhaps one of the most significant changes announced in the Budget was that, from 6 April 2027, unused pension funds and death benefits payable from a pension could form part of your estate for IHT purposes.
Historically, pensions have been excluded from IHT, which can help you pass on more of your wealth without incurring a tax bill. However, the new rules will subject your unused retirement funds to IHT.
This change – which the government says is a move to close the “loophole” that allowed pensions to receive favourable IHT treatment – could significantly affect your estate planning efforts. Sky News estimates that it could result in almost 153,000 additional estates becoming subject to the tax.
3. Agricultural and Business Property Reliefs were revised
Currently, Agricultural Property Relief (APR) and Business Property Relief (BPR) offer up to 100% exemption from IHT on qualifying assets, such as farmland and certain business assets.
Starting from 6 April 2026, the first £1 million of most combined business and agricultural assets will continue to attract no IHT. Any assets above this threshold will be liable for IHT but with a 50% relief, meaning you will be charged an effective rate of 20%.
Moreover, the government is also reducing the rate of BPR from 100% to 50% in all circumstances for shares designated as “not listed” on markets of a recognised exchange, such as the alternative investment market (AIM).
This will likely increase the IHT burden on agricultural and business holdings, with the Independent revealing that the new rules have resulted in farmers across the country protesting.
4. The non-dom regime is being reformed
Non-domicile, or “non-dom”, is a term used to describe someone whose permanent home is outside the UK for tax purposes.
From April 2025, Reeves claimed that the tax regime for non-dom individuals would be abolished and replaced with a residence-based scheme for those who come to the UK on a temporary basis.
Though, she changed her stance somewhat in January 2025 at the World Economic Forum in Davos, allowing longer transition periods and reducing tax on overseas income for the next three years.
If you’re currently considered a non-dom resident, you might have to reassess your estate planning strategies to account for this inclusion of global assets.
Several strategies can help you keep your estate as IHT-efficient as possible
Due to these considerable changes, you may want to rethink your estate planning efforts to mitigate your IHT liability.
One of the ways to do so is by making use of the aforementioned nil-rate bands.
While they have been frozen until 2028, it’s worth noting that if you are married or in a civil partnership, any unused allowance can be passed on to your surviving spouse, effectively doubling your tax-free threshold to up to £1 million.
Additionally, as of 2024/25, you can give away £3,000 worth of assets (cash, belongings, property, or investments) each year without them being counted as part of your estate, known as the “annual exemption”.
Better yet, you can carry unused exemptions to the next tax year, effectively raising your yearly limit to £6,000.
There are several other gifts you can make that are also exempt from IHT, such as:
- Wedding gifts of £5,000 to children and stepchildren, £2,500 to grandchildren, or £1,000 to anyone else
- Gifts to charities, potentially reducing the rate of IHT you pay to 36%, provided you leave 10% of your net estate to charity
- Gifts from income that are regular and don’t affect your standard of living
- As many £250 gifts as you like, provided they don’t form part of a larger gift.
If you find that you use up these allowances each year, trusts could be your next port of call. These legal arrangements allow you to appoint trustees to look after the wealth you place in trust on behalf of your beneficiaries.
Since assets in a trust no longer belong to you, they’re typically not included in your estate for IHT purposes.
You might even want to write whole-of-life cover into your trusts so that, after you’re gone, your beneficiaries could use the payout to deal with an IHT bill.
Get in touch
With so many different estate planning strategies, you might not be able to determine which would best suit your unique situation, which is where we could help.
Email admin@stonegatewealth.co.uk or call us on 01785 876222 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.
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