First change - frozen thresholds

The first whiff of the bad news to come was the Chancellor’s announcement regarding the nil rate and residential nil rate bands. These are frozen at their current levels until at least April 2030. With inflation and rising house prices, these zero tax bands, totalling £500,000 for an individual and £1 million for a surviving spouse or civil partner, become worth less in real terms every year.

Second change - business relief

Assets relating to a business or farming often qualify for either business property relief (BPR) or agricultural property relief (APR). From 6 April 2026, there will be a £1m cap on the combined claim for 100% APR and BPR relief, with any excess value only qualifying for 50% relief. This will often have the effect of creating a 20% IHT liability with no liquid assets to fund it. This cash-flow problem is slightly mitigated as IHT on assets qualifying for BPR/APR can be paid in instalments.

Gifts during a donor’s life will become more attractive as these escape IHT if the donor survives for seven years. However, the new rules will apply on lifetime transfers from 30 October 2024 where death occurs after 6 April 2026 but within seven years.

Example. Bill gifted his farm, worth £2m, to his sons on 1 December 2024 but dies in 2027. Assuming the family still owns the farm, 100% relief will apply to the first £1m and 50% to the next £1m, resulting in an amount of £500,000 potentially exposed to IHT at 40%.

Third change - pensions

From April 2027, inherited pension savings will be within the scope of IHT. 

Fourth change - overseas assets

From 6 April 2025, long-term residents will be liable to IHT on their worldwide assets irrespective of their country of domicile. A long-term resident means someone resident in the UK for at least ten out of the 20 tax years prior to the tax year of death, as determined by the statutory residence test. An individual who leaves the UK remains in the IHT net for between three and ten tax years depending on how long they were a UK resident. If a non-UK domiciled person gifts overseas assets before becoming a UK resident and dies within the next seven years, no IHT will apply to the gifts.

For offshore trusts, the exposure to IHT from 6 April 2025 will depend on whether the settlor is long-term resident at the time of a chargeable event, e.g. when they gifted assets into the trust.