Inheritance Tax Reforms: What’s Changing and What You Need to Know in 2025

Business Property Relief

BPR remains an essential IHT planning tool, allowing certain business assets to be exempt from IHT. However, from April 2026, the Government will introduce a cap on the amount of business and agricultural assets that qualify for full relief.

• Up to £1 million in qualifying business or agricultural assets will still receive 100% relief.
• Any amount above £1 million will now only qualify for 50% relief; that is the rate will be reduced from 40% to 20%.

These measures will significantly affect those with trading companies or agricultural estates who have traditionally relied on full BPR for IHT mitigation. Let us look at an example. Jeremy Clarkson's farm - Diddly Squat, Chadlington, near Chipping Norton, Oxfordshire is currently worth about £12.5 million. Here are broad brush calculations of IHT payable on death:

Although this IHT bill can be paid over a period of 10 years, many trading enterprises - farmers in particular - simply don't have the resources to pay the level of tax (Another death knell to our precious farming community?).

Gifts on Death or in Lifetime: Pension Pots

In a previous post, I highlighted a huge blow to those with unused private pensions. From 6th April 2027, they will be fully liable to IHT (except pension pots which are bequeathed to the surviving spouse).

Lifetime Gifts

The Office of Tax Simplification (OTS) recommended reducing the seven-year IHT exemption period for lifetime gifts to five years. This change has not been adopted, and the seven-year rule remains in place (it is worth remembering that just as sales to third parties are liable to Capital Gains Tax, so are gifts).

Non-Domiciled Individuals and IHT

Although not part of the original OTS's recommendations, it’s important to mention that since April 2025, the UK has moved to a residency-based system for IHT. Individuals who have been UK residents for at least 10 of the last 20 years will now be liable for IHT on worldwide assets, regardless of domicile status. Those leaving the UK will continue to be exposed to IHT for up to 10 years after departure. This is not a problem for any of our clients, as far as I know! However, it is definitely yet another disincentive for wealthy "non-doms" to continue to live in the UK or to attract new ones. Economists are already beginning to count the cost of this attack on the wealthy. On paper it looks eminently sensible but never forget that 30% of the UK's income tax take is provided by 1% of the population - this measure could easily backfire!

Conclusion

These new IHT measures are likely to negatively impact taxpayers deemed to be wealthy, especially family-owned businesses and farmers. Here is the view of Matthew Mills, an entrepreneur who could speak for any one of the thousands at the helm of a mid to large sized family firm, worrying about their future. In short, he says: 'we are the cornerstone of the British economy. To attack the bedrock of the UK is mind-blowingly stupid.'

Postscript: Office of Tax Simplification

I hadn't realised up until now that there is a branch of the civil service called the Office of Tax Simplification (OTS). I mention this because, (a) you could have fooled me - we have an absurdly over complicated tax regime and (b) because one of their recommendations for increasing tax was to remove the CGT-free uplift currently applicable on death to assets that had already qualified for BPR or Agricultural Property Relief (APR). It is worth mentioning this because whilst HM Government has so far not implemented this proposal, there is nothing to suggest that this desperately cash poor government won't implement this measure in the future. This would be another seriously painful tax increase for entrepreneurs and families to swallow.

Andrew Hamilton

25/06/2025