What are the new UK inheritance tax rules affecting estate planning?
With big changes coming into effect around UK inheritance tax, now is the perfect time to reassess your estate planning
2025 is bringing some noticeable changes to UK inheritance tax rules, marking the most important shift in wealth taxation seen in recent decades. A key date of transition was 6 April 2025, when UK inheritance tax moved from a system based on domicile to one based on residence. Here’s everything you need to know to effectively manage your estate planning.
How is UK Inheritance Tax changing?
From 6 April 2025 onwards, an individual’s liability to UK inheritance tax (IHT) will be determined by their residency status as well as the location of their assets. UK assets will always be within the scope of UK inheritance tax, but the status of non-UK assets will depend on whether or not an individual is a long-term UK resident.
Jo Bateson, a partner at Mercer & Hole, a UK-based independent chartered accountancy firm, explains, “If an individual is a long-term resident, their worldwide assets are within the scope of UK IHT. If an individual is not a long-term resident, only their UK assets, including any interests in UK residential property, are within the scope of UK IHT.”
Individuals who have been resident in the UK for more than 10 years but less than 15 years and have relied on the non-domiciled individuals (non-doms) regime will notice the change. They will now be subject to UK IHT on their worldwide estate earlier than under previous rules.
Bateson clarifies, “Those who have been out of the UK for at least 10 years will have some planning opportunities, especially British people abroad, who are the winners with this new regime.”
Bateson is referring to UK domiciled individuals who have not been resident in the UK for a minimum of a decade. Under the new rules, people in this situation may be entitled to substantive tax relief options that relate to their non-UK income and assets.
In addition, the proposal also brings pensions in scope from April 2027. “These will be added to other assets and, if when combined they are over the current nil rate band, then these assets could be subject to 40% tax,” explains Paul Fielding, investment director at Canaccord Wealth. “In all cases, this is a big departure from the previous set of rules.”
The potential for new benefits
In comparison to the previous regime, British citizens who have lived or are currently living abroad, for a minimum of ten continuous years, could discover some advantages moving forward. However, the window for benefitting is only open for a limited time should they decide to return to the UK.
Alice Pearson, partner at Mercer & Hole, explains, “With the new system, there is the freedom to bring foreign income and gains into the UK without having to pay tax on it. So, in some ways, it is more generous than the old system, but only available for a very short period of four years.”
One of the interesting aspects to this new system is its broad scope: any UK citizen can decide to move abroad and live in another country. After ten continuous years living out of the UK, they can access these new benefits.
“Any of us could decide to go to Spain, Portugal or Italy, stay out for 10 years, come back in and access the new regime,” explains Pearson. “Previously, it was only available to non-doms, but this is open to anyone who has been out of the UK for 10 consecutive years. And they will be eligible for the first four years post-return.”
Who qualifies as a UK long-term resident under the new rules?
An individual is a long-term UK resident if they meet one of the following conditions:
- If an individual has been UK resident for at least ten out the last 20 tax years.
- If an individual is under 20 years old and they have been a UK resident for at least 50% of tax years in their lifetime.
An individual will stay within the scope of UK IHT for up to 10 years after leaving the UK, depending on how long they had been in the UK prior to departure, and where they take up residence.
“The UK does have capital tax treaties with a handful of other countries which may provide tax relief,” says Bateson. “Individuals with assets in multiple jurisdictions should seek advice as this can be a complex area.”
How will the IHT changes affect estate planning in the UK?
Experts advise that estate planning strategies should be carefully revisited. David Horowitz, wealth management partner at Gerald Edelman, a UK-based chartered accountant and business advisory firm, explains, “Traditional approaches that depended on domicile-based exemptions or offshore structures may no longer be effective.”
It’s felt that greater emphasis will need to be placed on proactive planning including careful management of UK residency, maximising available reliefs, and exploring alternative wealth transfer methods. Horowitz adds, “Families with international links, in particular, will need to reassess their plans in light of the broader IHT exposure.”
There’s no doubt that IHT planning is a hot topic in the UK at the moment and seeking advice to establish your position and future action plan makes good sense. Industry insiders say that trusts are still popular and useful for estate planning, as well as asset protection.
“The UK continues to only tax gifts if an individual does not survive the gift by seven years, so gift planning remains popular,” clarifies Bateson. “You do need to weigh this up with the capital gains tax-free uplift on death, so it is not always the answer for everyone.”
Taking advice is advised
With proposed changes in the next couple of years to Business Property Relief (BPR), affecting the shareholders of businesses, and Agricultural Property Relief (APR), affecting farmers and landowners, individuals are encouraged to take advice to see how they might be impacted and review their estate planning.
From April 2026, the first £1 million of combined agricultural and business property will continue to receive 100% relief, with 50% relief on amounts over £1 million.
“Business relief for shares designated as unquoted – those that are not listed on a recognised stock exchange – will reduce to 50%,” explains Amal Shah, partner at Gerald Edelman. “The £1m allowance does not apply to these shares. Assets that receive 50% relief are subject to an effective IHT rate of 20%, as opposed to the main rate of 40%.”
For now, however, the finer details have not yet been published. In time, there will be more information available but for now it is worth seeking expert advice to keep on top of the evolving landscape. “It is worth noting that the government has just finished a consultation on the proposed changes to BPR and APR and further context is expected,” adds Bateson.
How can you best prepare for the new IHT rule changes?
A sensible first step is to undertake a full review of your personal circumstances and current estate planning arrangements. “Understanding your residency status, the structure of your assets, and any potential exposure is key,” says Horowitz. “Early engagement with professional advisors can help identify opportunities to restructure ownership, plan for lifetime gifting, and ensure that succession plans remain robust and tax-efficient.”
Understanding your current liability to UK IHT and exploring the allowances you rely on will help make your IHT liability clearer. “If an individual has not yet been UK resident for 10 years, they should seek advice on what options are available,” says Bateson.
Future-proofing your options with a clear pathway is also a sensible route to take. “More individuals will see their estates subject to significant taxation on their passing unless they take preventative measures,” comments Fielding. Taking specialist advice is the easiest option for fully exploring your circumstances as well as helping you define your overall objectives for passing on wealth to the next generation.
