Sweeping Changes to UK Inheritance Tax: What Wealthy Families Need to Know

Major reforms to the UK Inheritance Tax (IHT) regime will take effect between 2025 and 2027, introducing new limits and concepts that fundamentally alter estate planning for high-net-worth individuals. Announced at the Autumn Budget 2024 and subsequent consultations, these changes affect Business Relief (BR) and Agricultural Relief (AR), the scope of IHT for UK residents, and the treatment of pension funds on death. In addition, the standard nil-rate bands remain frozen, quietly expanding the IHT net as asset values rise. This article provides a comprehensive overview of the new rules, explains their impact on family offices, landed estates, and business owners, compares the UK’s position with key European jurisdictions, and outlines strategic planning steps to consider. All information is drawn from authoritative sources including HMRC releases, Big Four accounting firms, and leading tax law experts.

Key Inheritance Tax Reforms (2025–2027)

1. £1 Million Cap on Business and Agricultural Relief (from April 2026)

One of the most significant changes is a cap on the value of business and agricultural assets that can receive full IHT relief. Business Property Relief (BPR) and Agricultural Property Relief (APR), which historically allowed 100% IHT exemption on qualifying business interests and farms of unlimited value, will be limited to a £1 million lifetime allowance per individual from 6 April 2026. In practice, this means each person can pass on up to £1 million of qualifying business or agricultural assets completely free of IHT. Any value above £1 million will only receive 50% relief, resulting in an effective 20% IHT rate on the excess (half the usual 40% rate). Notably, this £1 million cap is a combined allowance for both BPR and APR assets – it applies across all business and farm property an individual transfers, on a prorated basis if both types are present.

Several nuances accompany this reform. First, shares listed on AIM (and other junior markets that are currently treated as unquoted for BPR purposes) will no longer qualify for 100% relief; from April 2026 they will only qualify for 50% relief, effectively taxing AIM-held business assets at 20%. Second, the £1 million BPR/APR allowance is per individual and not transferable between spouses, a point of concern raised by professional bodies. This non-transferability means a surviving spouse cannot inherit any unused portion of their deceased spouse’s £1 million business/farm relief allowance – a departure from the usual practice with the nil-rate band. Third, the government has introduced anti-forestalling provisions for gifts made between 30 October 2024 and 5 April 2026 to prevent circumvention of the new cap. In essence, lifetime transfers of business or farm assets during that window are monitored under the new rules, so simply gifting a business before April 2026 will not avoid the cap if the donor dies afterwards. Finally, to ease liquidity concerns, existing provisions allowing any IHT due on business or farm assets to be paid in instalments (over 10 years, interest-free) will continue even if those assets become partially taxable under the new rules. This recognizes that large family businesses or estates may need time to pay any new 20% tax on value above £1 million without a forced sale.

This reform has attracted significant attention and debate. Farmers and rural estate owners have voiced strong opposition – the change was headline news in the agricultural community, even drawing public criticism from media personalities with farming interests. The government’s rationale is that capping relief will ensure larger businesses and estates contribute a “fairer share” while still protecting genuinely small farms and businesses. Indeed, most family farms should fall under the £1 million threshold for full relief, whereas ultra-wealthy landowners and business proprietors will finally face some IHT on their excess assets. Still, professional advisers warn that the cap introduces complexity: every transfer of business or farm assets will now require careful valuation to determine how much of the £1 million allowance remains and what portion of the transfer is only eligible for 50% relief. This adds administrative burden for families and HMRC alike. Technical consultations have been underway to clarify details, especially for assets held in trusts. (For example: if an individual has settled multiple trusts holding business property, how the £1 million “lifetime” cap is allocated or tracked across those trusts is a complex issue being addressed.) In summary, from April 2026 onward, passing on a large trading company or a valuable landed estate will no longer be entirely IHT-free – only the first £1 million of such property per person escapes tax, and the remainder will bear a 20% effective tax charge. Wealthy families must adjust their succession plans accordingly.

2. Residence-Based Scope of IHT (from April 2025)

The second major reform is a fundamental change in how the UK determines the scope of inheritance tax for individuals with international ties. From 6 April 2025, the UK will shift from a domicile-based IHT system to a residence-based system. Under current rules (through tax year 2024/25), liability for IHT on worldwide assets hinges on the concept of domicile – broadly, one’s permanent home or the jurisdiction one ultimately regards as home. Non-UK domiciliaries (non-doms) have been able to live in the UK for years yet keep their foreign assets outside the IHT net until they become “deemed domiciled” (after 15 years of residence under existing law). This is now changing. Going forward, an individual’s tax residence status – not domicile – will determine whether their non-UK assets fall within the charge to UK inheritance tax. In particular, any person who is a “long-term UK resident” (resident for at least 10 out of the previous 20 tax years) will be treated as UK-domiciled for IHT purposes. Once you meet this 10-year residence test, all worldwide assets you own become subject to UK IHT in the same way as a UK domiciled person’s assets would.

Equally important, the reform introduces an extended exit charge: individuals who cease to be UK resident after becoming long-term residents will remain within the UK IHT net for a period of 3 to 10 years after leaving. The length of this tail is expected to depend on total duration of UK residence (the government has indicated it will range between three and ten years, presumably longer residence yields a longer tail). For example, someone who lived in Britain for 30 years and moves abroad in 2026 might still be subject to UK IHT on their non-UK assets for up to a decade after departure. By contrast, a person who just met the 10-year threshold may only have a 3-year post-departure exposure. (Transitional rules offer a concession for certain non-doms who leave the UK before 6 April 2025: they can lock into the current “3-year rule” regardless of prior residency length. To qualify for this, the individual must genuinely be non-UK domiciled under general law as of 30 October 2024 and then remain non-resident from 2025/26 onwards. This was designed to prevent retroactive taxation of long-term foreign residents who promptly exit the UK when the policy was announced.)

Crucially, the new regime abolishes the historic advantage enjoyed by resident non-domiciled individuals (“non-doms”). At present, non-doms who haven’t hit 15 years in the UK (or who are able to avoid deemed domicile status) only pay UK IHT on UK situs assets; their overseas holdings and offshore trusts are excluded. From 2025, that advantage disappears after a decade of residency. Any non-dom who has been UK-resident for 10+ years will be fully exposed to UK inheritance tax on their global estate. This includes long-term expatriates and their trust structures: offshore trusts settled by a foreign settlor will no longer escape UK IHT charges if the settlor becomes a long-term UK resident. Under the draft rules, trusts settled on or after 6 April 2025 by an individual who later satisfies the 10-year residence test will no longer qualify as “excluded property trusts.” Their non-UK assets will face IHT on the usual trigger events (10-year anniversaries, distributions, or the settlor’s death) just like UK assets. Trusts that were established before the reform are partly grandfathered: any trust holding non-UK assets that was settled by a non-dom before 6 April 2025 will continue to enjoy excluded-property status even if the settlor stays in the UK. In other words, offshore trusts created before the rule change remain outside the settlor’s estate for IHT purposes (no 40% charge on the settlor’s death), although they may still be liable to periodic and exit charges if the settlor becomes UK-resident long term. This grandfathering prompted a flurry of trust planning in late 2024 as internationally mobile families raced to establish trusts before the cutoff date.

It’s worth noting that the shift to residence-basis is part of a larger abolition of the remittance basis and non-dom tax regime from 2025. Going forward, long-term UK residents will be treated more like their counterparts in other countries, taxed on worldwide income, gains, and now inheritance regardless of their domicile. The government’s policy objective is to modernize and “address unfairness” by ensuring that everyone who makes the UK their long-term home pays tax on an equal footing. Interestingly, the official revenue forecast for this IHT scope change is modest – only about £0.2 billion per year by 2030 – suggesting it targets a relatively small population (very wealthy non-doms are few in number and may alter their plans in response). Nevertheless, the impact on certain families is profound. For example, a foreign entrepreneur who settled in London and kept $50 million of investments offshore will find that after 10 years of UK residence, those non-UK investments are no longer safe from the 40% inheritance tax at death. Such individuals may need to restructure asset ownership or reconsider their tenure in Britain. On the other hand, the reform can benefit UK-domiciled expatriates: under current law a UK-domiciled person who moves abroad remains exposed to UK IHT on worldwide assets indefinitely (until they acquire a new domicile, which is difficult). Under the new residence-based system, a UK national who leaves and becomes non-resident will see their overseas assets fall out of UK IHT scope after at most 10 years abroad. This could encourage long-term British expats to retain foreign assets abroad, knowing that a decade of non-residence might free those assets from UK death tax. In summary, the residence-based IHT regime marks a sea change for international estate planning – it closes longstanding non-dom loopholes while also simplifying the rules to a clearer time-based residence test. Global families connected to the UK will need to review how and where they hold wealth before the new rules hit in April 2025.

3. Inclusion of Pension Funds in the Taxable Estate (from April 2027)

The third major reform extends inheritance tax to a category of assets previously outside its scope: private pension funds. As of now, unused pension savings in approved schemes are generally exempt from IHT. If an individual dies with a remaining pension pot, that money can be passed to beneficiaries without inheritance tax (and depending on the age of death, potentially without income tax). This has made pensions a popular estate planning vehicle – wealthy individuals could shelter significant wealth in pensions, knowing it would transfer to heirs largely tax-free. The rules are now tightening. From 6 April 2027, most unused pension funds and lump-sum death benefits will be counted as part of the deceased’s estate for IHT purposes. In short, the value of any remaining pension pot on death (after providing for any spouse’s or dependent’s pensions) will be subject to 40% inheritance tax, just like money in a bank or investment account.

The Autumn Budget 2024 announcement makes clear that this change will apply broadly. It covers both Defined Contribution (DC) plans (where there is an individual fund value) and Defined Benefit (DB) schemes (which may pay out lump sum death benefits). It also applies equally to UK-registered pension schemes and qualifying non-UK pension schemes (QNUPS) – closing a loophole that some had used by transferring funds to offshore QNUPS to avoid IHT. The distinction between pensions with discretionary benefits (like flexi-access drawdown DC pots) and those with guaranteed benefits will be eliminated; all pension death benefits will follow the same IHT treatment. Notably, transfers to surviving spouses will still be protected by the spouse exemption. This means if your pension passes directly to a spouse or civil partner on death, it remains free of IHT (consistent with the general rule that inheritances between spouses are not taxed). However, any pension funds destined for children, grandchildren, or other beneficiaries will form part of your taxable estate from 2027 onward. The only other exceptions mentioned are certain charity lump sum death benefits and dependents’ scheme pensions (ongoing pension payments to a dependent), which will remain outside IHT. Importantly, life insurance policies (including those bought with pension funds or death-in-service employment benefits) that are written in trust are unaffected – they continue to pay out outside the estate.

To illustrate the impact, consider an individual who dies in 2027 with a £2 million SIPP remaining. Under current rules (2024), that £2 million could be left to children entirely free of IHT (and if the person died under age 75, the beneficiaries could even withdraw it with no income tax). Under the new rule, that £2 million will be included in the estate and taxed at 40%, potentially creating an £800,000 IHT liability. For those dying after age 75, the heirs currently pay income tax on withdrawals – it is not yet fully clear if that income tax will remain in addition to IHT, but many expect an overhaul of the post-75 pension tax to prevent double taxation. The government has focused its consultation on how to implement this change administratively. Pension scheme administrators will be made responsible for reporting the value of unused pension funds at death and paying the IHT directly to HMRC out of the fund. In effect, the pension provider will deduct and remit the 40% tax on the portion of the pension that is taxable, working in coordination with the deceased’s executors. This mechanism is intended to avoid situations where the deceased’s other estate assets are insufficient to pay the tax on a large pension (since drawing on the pension to pay the tax could itself trigger income tax under current rules). The consultation closed in January 2025, and draft legislation will follow, but the core policy is set: pensions will no longer serve as a tax-free inheritance silo after April 2027.

For high-net-worth individuals, this change closes a major avenue of IHT mitigation. It will prompt many to revisit the role of pensions in their wealth transfer plans. Some may choose to draw down more from their pension during lifetime (despite income tax) and instead pass on assets that still enjoy reliefs or capital gains step-up. Others might purchase life insurance to cover the new tax on their pension for their heirs. Family offices will also need to assess any use of QNUPS or overseas pension schemes that were previously assumed to be IHT-free – those too will be within scope unless falling under narrow exemptions. The extension of IHT to pension wealth is projected to be a big revenue-raiser; combined with the BR/APR cap, it contributes to the Office of Budget Responsibility’s estimate that IHT reforms will raise about £2.3 billion extra per year by 2029. Clearly, the landscape of what is includable in a UK estate is expanding, and advisers must account for pension wealth in the overall estate tax exposure of their clients going forward.

4. Extended Freeze of IHT Allowances

While not a structural reform, it is noteworthy that the IHT nil-rate band (£325,000) and the residence nil-rate band (£175,000) will remain frozen at their current levels up to April 2030 (tax year 2029/30). These thresholds have been static since 2009 and 2017, respectively, and the additional two-year freeze beyond 2027 signals that no inflation adjustment is forthcoming in the near term. The freeze is effectively a quiet tax increase: as property values and investments grow, more estates will exceed the unchanged tax-free limits, and a greater portion of each estate will be taxed at 40%. The number of estates liable to IHT has been rising each year due to this fiscal drag – one analysis predicts UK IHT receipts will reach £9 billion by 2027, up from just over £5 billion in 2020. High-net-worth families should be aware that the real value of their allowances is eroding, and strategies like the residence nil-rate band (which has many conditions) should be reviewed to ensure they are fully utilized where available. Given these freezes, the newly introduced relief cap and pension inclusion truly bite on top of an already broadening base of taxable estates.

Implications for Family Offices, Landed Estates, and Business Owners

The reforms above carry significant consequences for wealthy families. Below we explore the impacts and planning considerations for three groups in particular: (1) internationally mobile families and family offices, (2) traditional landed estates and agricultural landowners, and (3) business owners and entrepreneurs.

Family Offices and International Families

Family offices managing wealth for international clients will need to navigate the residence-based IHT rules with care. Many ultra-wealthy families have members or assets spanning multiple jurisdictions, and the UK’s new approach means that long-term residence alone can trigger worldwide IHT exposure. For example, consider a non-UK family that sent the second generation to London for education and business opportunities. Previously, that person might have lived in the UK for 14 years without ever becoming deemed domiciled, thereby only exposing their UK real estate to IHT. Now, once they hit 10 years of UK residence, their offshore investment portfolio, non-UK real estate, foreign art collection, etc., all come into scope for 40% IHT on death. Family offices should monitor the U.K. residence duration of family members and potentially advise limiting residency to under 10 years if preserving foreign wealth from UK tax is a priority. Some internationally mobile individuals may opt for stints in the UK shorter than a decade, or plan periodic breaks in UK residency, to avoid crossing the “long-term resident” threshold.

For those who do plan to make the UK their long-term base, trust and asset-holding structures must be reviewed. Many non-dom families historically used excluded property trusts – settling non-UK assets into trust before becoming UK domiciled, so that even if they stayed in Britain, those assets bypassed IHT. Under the new rules, trusts settled after April 2025 will not protect assets once the settlor is UK-resident 10+ years. This makes new trust planning for non-doms far less effective as an IHT shield. Trusts settled before the cutoff retain some benefits, but even those could face ongoing periodic charges if the settlor is UK-resident (the trust assets are no longer “excluded” for the purposes of the 10-year anniversary tax, per draft proposals). Family offices should identify any trusts that were created by non-doms in anticipation of these changes and ensure compliance with transitional rules. If key principals did not establish trusts before the deadline, alternative strategies might include holding non-UK assets through non-UK companies or partnerships (not as effective, since shares in those companies would still be in the estate of a UK resident) or life insurance (proceeds on death can be kept outside the estate if policies are written in trust). In some cases, the only viable mitigation is relocation: families might plan for the principal to leave the UK before the 10-year mark. If they time their departure to fall in 2024/25 and remain non-resident thereafter, they benefit from the transitional rule capping their IHT exposure to a 3-year tail under the old regime. Even if they leave later, departing before becoming long-term resident (e.g. in year 9 of UK residence) would avoid ever bringing foreign assets into scope.

Another consideration is the impact on cross-border estates. Many wealthy UK residents have foreign properties (villas, overseas bank accounts, etc.) and previously relied on domicile status or excluded property trusts to keep those assets outside IHT. With domicile becoming irrelevant, such individuals might explore becoming non-UK resident for a period before death. However, the new rules impose up to a 10-year post-residence exposure, so simply moving to, say, Monaco for one year near the end of life won’t suffice – one would need to live abroad potentially for over a decade before those foreign assets fully escape UK IHT. Moreover, one must consider other countries’ tax regimes: if a UK resident individual plans to retire in, for example, France or Spain, they may now prefer that the UK taxes their worldwide estate for only (at most) 10 years after leaving, after which only the foreign country’s inheritance tax would apply (France and Spain tax their residents’ worldwide estates, but have their own rules and double-tax treaties to navigate). Family offices will need to coordinate multi-jurisdictional estate plans, balancing the UK’s new reach with the tax laws of other home countries of family members.

In summary, globally wealthy families must adapt to a UK IHT system that no longer grants perpetual immunity to foreigners. Every internationally mobile client should be counseled on the 10-year clock that starts ticking upon UK arrival. Wills, asset titling, and trust structures involving UK-resident family members should be revisited. The message to non-doms is clear: the UK will tax your worldwide legacy if you settle here long enough. Some may decide the UK remains attractive enough to stay put – but they will want to consider lifetime giving or other mitigations (discussed further below) to reduce the eventual 40% charge on overseas wealth. Others may limit their time in Britain or pursue residence in jurisdictions with lower estate taxes. Family offices will play a critical role in residence planning and ensuring that the transition to the new regime (in April 2025) does not catch clients off guard.

Landed Estates and Agricultural Families

For traditional landed estates, rural landowners, and agricultural families, the reform of Agricultural Property Relief is nothing short of seismic. Many great estates in the UK – including country houses, farms, and thousands of acres of land – have passed through generations virtually tax-free thanks to APR and the unlimited 100% relief it provided. From April 2026, that paradigm shifts: only £1 million of agricultural property per person will qualify for full 100% relief, and any value above that will be taxed at 20% (after the 50% relief). This means that large estates, which often run into tens of millions of pounds in land value, could face multi-million pound IHT bills for the first time. For example, suppose a gentry family owns £10 million of qualifying agricultural land and farming business assets. Prior to the reform, the entirety of that £10 million could pass to the heirs with zero IHT. Under the new rules, the estate would get 100% relief on the first £1 million, but the remaining £9 million would be only 50% relieved. £4.5 million of value would thus be taxable at 40%, leading to an IHT bill of £1.8 million. This is a dramatic change in outcome, requiring liquidity planning for estates that have rarely had to worry about inheritance tax before.

Valuation and apportionment will become key issues. Agricultural families will need professional valuations of their qualifying assets to determine how the £1 million cap is allocated. If an estate includes both farming business assets and agricultural land, the £1 million allowance covers them in aggregate. Executors will also have to apportion the 50% relief proportionately across assets if the estate exceeds the cap. This adds complexity in estate administration and could result in some assets being partly chargeable and partly exempt. Advisors should ensure that landowners keep updated valuations of their properties and perhaps consider restructuring holdings so that value is spread (for instance, between husband and wife) to utilize two £1 million allowances where possible. Unlike the nil-rate band, the £1 million BR/APR allowance is not transferable on death of a spouse, so in many cases each spouse will want to hold some agricultural assets in their name to maximize the total family relief (especially if one spouse has significantly more than £1 million of the farm in their estate, while the other has unused capacity).

Another major consideration is timing of transfers. Families may want to take action before the rules change on 6 April 2026 to lock in full relief. Options include making lifetime gifts of agricultural property now. A lifetime transfer of APR-qualifying assets could potentially still enjoy 100% relief (either immediately, if put into trust before the change, or as a potentially exempt transfer if the donor survives seven years). However, the government’s anti-forestalling measures mean care is needed – for instance, gifts into trust made after 30 Oct 2024 that exceed the future allowance might not escape IHT if the donor dies post-2026. Nonetheless, transferring farms to the next generation sooner rather than later might be advisable. Some landowners are exploring partitioning estates among children now, so that each child’s share might separately qualify for relief under their own £1 million limit when the parents pass away. If executed via lifetime gifts that are survived by 7 years, this could effectively multiply the relief across heirs. Use of trusts is also being revisited: while trusts won’t avoid the cap (trusts also get a £1 million cap for settlors, and usage must be tracked, per consultation proposals), there may still be benefits to settling land into trust before 2026 to use the full relief at that point in time. For example, settling a £5 million farm into trust in early 2026 could theoretically utilize 100% APR on the gift (no immediate IHT charge) and then only the trust’s future charges would apply, whereas if the land were held until death after 2026, the 20% tax on the excess would be incurred. Such strategies are complex and require professional advice to navigate the anti-forestalling rules and gifts with reservation pitfalls.

Landed estates often include historic homes, which do not qualify for APR, and diversified enterprises (e.g. estates with tourism or renewable energy businesses). The reform of Business Relief will impact those non-farming businesses on estates in the same capped manner. Many estates are held in complex structures (companies or settled trusts) – these will all need review. Furthermore, with large tax bills looming, estate owners should consider liquidity solutions: for instance, obtaining life insurance policies to cover the expected IHT (the policy can be written in trust so that proceeds are outside the estate and available to pay tax). Otherwise, heirs may be forced to sell off portions of estates (land parcels, art, etc.) to meet the tax. This is exactly what APR was designed to prevent – the break-up of estates to pay tax – so it is a poignant concern. However, the government’s argument is that only estates above £1 million (far larger than the average family farm) will pay tax, and then at only 20% on the excess, which is still much lower than standard IHT or than many EU countries’ inheritance taxes on land. By comparison, France provides only a 75% reduction on agricultural land value in certain cases, and charges up to 45% tax on the remainder for direct heirs. The UK’s new 20% effective rate on the largest farms could be seen as relatively moderate. Nonetheless, for gentry families accustomed to a 0% rate, this is a cultural shift. We can expect increased interest in succession planning tools like agricultural tenancies or conservation easements that might reduce land value for tax purposes, and a push to maximize any remaining reliefs (for example, making sure to claim APR not just on land but also on farmhouses and buildings that qualify). In summary, landed estates face a new era where IHT is a real cost of succession, requiring proactive planning to manage that cost and ensure the continuity of the estate.

Business Owners and Entrepreneurs

Business owners have long benefited from BPR, which (much like APR) allowed many trading businesses to be passed down without IHT. The upcoming £1 million cap on 100% Business Relief means that owners of valuable businesses will likely face an inheritance tax bill for the first time on part of their company’s value. Entrepreneurs and family business dynasties should revisit their succession and estate plans in light of this change. If a founder’s shares in a company are worth, say, £20 million, under current rules that entire value could be bequeathed to children IHT-free (provided the company qualifies as trading and the shares were held >2 years). After 2026, only the first £1 million of value would be fully exempt; the remaining £19 million would get 50% relief, leaving £9.5 million taxable at 40%. That’s a £3.8 million tax hit that the next generation would have to fund. Family businesses are often illiquid, so this raises the specter of heirs having to sell shares or extract dividends to pay HMRC. Business owners should consider insurance or sinking funds to cover this eventual tax, or alternative structures such as family investment companies or trusts that might spread ownership.

Just as with farms, accelerating transfers is a key consideration. Owners in their later years might choose to gift shares before April 2026 to utilize the current unlimited BPR. A gift of a qualifying business interest to an heir or a trust can potentially be covered by BPR at 100% (so no lifetime IHT) and if the donor survives seven years, it falls completely outside the estate. Even if the donor does not survive seven years, BPR can still apply at death (since the assets were still qualifying at transfer) – but careful, the rules for BPR on failed PETs are complex and the relief may not apply if the business has since been sold or ceased to qualify. Nonetheless, transferring part of the business early could lock in full relief on that portion. Some advisors recommend freezing the value of a business in the founder’s estate by using estate planning techniques. For instance, an owner could recapitalize a company into voting preferred shares (to retain control) and growth shares that are gifted to children now. The current value transferred could be covered by the £1 million relief (or the existing nil-rate band, etc.), and future growth would accrue outside the founder’s estate. Such “estate freeze” strategies can mitigate the exposure to the cap by ensuring the founder’s taxable estate at death is as low as possible.

Another tactic to maximize relief is ownership fragmentation. Since each person has a £1 million allowance, involving multiple family members in ownership can multiply the relief. For example, if parents and two children together own a business, each of their portions can qualify for a separate £1 million full relief upon their respective deaths. This suggests that bringing adult children into the shareholder base sooner (through gifts of shares) could be beneficial. Family partnerships or split share classes might be used so that assets are not all concentrated in one person’s estate. However, one must be cautious of anti-avoidance rules: the government will likely watch for schemes that artificially segregate one business into parts simply to claim multiple allowances (the consultation hinted at an “anti-fragmentation rule”).

It’s also important for business owners to understand exactly which assets qualify for relief and which do not, especially as the stakes of partial taxation rise. For example, cash or investment portfolios on a company’s balance sheet can jeopardize BPR if they are deemed excepted assets. Likewise, from 2026, AIM investments – a popular IHT mitigation investment for many wealthy individuals – will only get 50% relief. Many investors hold Alternative Investment Market shares in ISA portfolios specifically to shelter wealth from IHT. Those investors need to know that half the value of such portfolios will effectively become taxable, raising their exposure. Some may shift strategies (perhaps towards AIM companies that might qualify for other reliefs or simply accept the 20% tax trade-off given AIM’s higher risk/return profile). Business owners nearing an exit or sale should also time things carefully: selling a business for cash just before death could be disastrous from an IHT perspective (cash is fully taxable). Where possible, if a sale is contemplated, it might be wise to sell and gift the proceeds (or put them into trust) at least seven years before death – or to die owning the business (to utilize BPR) and let the heirs sell afterward with a step-up in capital gains basis. The new rules add a wrinkle: dying while owning the business yields only partial relief beyond £1 million, so heirs may still face tax, albeit lower than if it were sold for cash with no relief. Some families may consider multiple businesses or splitting divisions into separate entities per family member, though again, anti-avoidance rules will look for common control or re-unification post-death.

Finally, business owners should integrate the pension changes into their planning. A common strategy for owner-managers was to build up a large Directors Pension (SSAS or SIPP) funded by company contributions, which could then pass outside the estate. With pensions coming into the estate from 2027, a business owner may want to re-evaluate how much to contribute to pensions versus other vehicles. It could be advantageous to redirect what would have been excess pension contributions into other forms of long-term savings or trusts that might still avoid IHT or be taxed at lower rates. Alternatively, if the pension remains a good vehicle for income tax and growth, owners might plan to use the pension fund during retirement (draw it down or buy assets personally) rather than leaving it untouched as an inheritance. In any case, entrepreneurs should have their advisers run projections on the tax outcome under the new rules, as the optimal strategy for extracting and transferring business wealth may change.

Illustration: A family business owner, age 60, has a £5 million trading company and a £2 million pension. Under old rules, if he died, his shares (100% BPR) and pension (outside estate) could go entirely to his children tax-free. Under the new rules post-2027, the shares would be taxed on £4 million of value (after £1 m relief), incurring £1.6 m tax, and the £2 m pension would incur up to £800k tax – a total of £2.4 m to HMRC. With planning, he could mitigate this: he might gift £1 m of shares to a trust in 2024 (using full BPR now), bring his child in as a co-owner for another portion, and start drawing his pension to invest in assets that could qualify for other reliefs or be given to heirs. This could potentially cut the eventual taxable estate significantly. The bottom line is that business succession planning is now more critical than ever – owners must treat the £1 million relief like a scarce resource and strategize how to use it most effectively.

How the UK’s Changes Compare to Europe

These UK IHT reforms also change the country’s position relative to estate and inheritance taxes in other major jurisdictions. Historically, the UK’s regime was a mix of high rates (40% flat tax) but generous reliefs (unlimited business/farm exemption and full pension exclusion), which often meant ultra-wealthy UK residents paid far less estate tax relative to counterparts in countries like France or Germany. With the new limitations, the UK is moving closer to international norms in some respects, though important differences remain.

• France: France imposes inheritance tax at graduated rates up to 45% for transfers to children (and 60% for unrelated beneficiaries). However, France’s tax is per inheritor – each child gets a tax-free allowance (approximately €100,000) and then pays on their share. Spouses are fully exempt. France also offers a form of business relief known as the Dutreil pact, which can reduce the taxable value of a family business by 75% if certain conditions (like continued family ownership for at least 4 years) are met. Even with that, large business inheritances in France still face some tax (effective rates in the teens). Agricultural land in France may get reduced valuation for tax if it’s leased long-term or if the heir continues farming, but there isn’t an unlimited exemption as the UK had. With the UK’s reform, the playing field is more level – a large estate might now be taxed ~20% in the UK (above the £1m relief) versus perhaps 30–40% in France (after allowances) for a similarly situated family. The UK still differs by using a flat estate tax with a single nil-rate band for the estate, whereas France’s per-heir system can be more favorable in multi-child families (each child in France can inherit ~€100k tax-free, whereas in the UK the entire estate only gets £325k + residence band if applicable). The UK also still lacks a wealth tax, whereas France has (in the past) had an annual wealth tax and continues to tax real estate wealth annually.
• Germany: Germany’s inheritance tax ranges from 7% up to 30% for close relatives (spouses, children) depending on the amount inherited, and offers sizable personal allowances (€500k for a spouse, €400k per child, etc.). Germany, like the UK, taxes worldwide assets of residents (and even has a 5-year tail for German citizens who leave, somewhat analogous to the UK’s new tail). Crucially, Germany has very generous business and farm inheritance tax relief – often cited as up to 85% exemption, or even 100% exemption for qualifying family businesses under certain conditions. In simplified terms, German law allows heirs of businesses to exempt 85% of the business value if they continue the business for at least 5 years and maintain payroll levels; for smaller businesses or those willing to continue for 7 years with strict conditions, a 100% exemption can apply. There are limits for extremely large enterprises (the relief phases out for businesses over €26 million, and heirs may need to pass a “needs test” or pay some tax). Agricultural and forestry property in Germany likewise can receive high exemptions. Thus, Germany’s system, much like the UK’s old system, aims to shield operating businesses from inheritance tax to avoid jeopardizing their continuity. Even after the UK’s reform, Germany’s relief for businesses may remain more generous in practice: a German family business worth €50 million could potentially pay no inheritance tax if conditions are met, whereas a UK business of that size would now incur tax on £49 million (roughly £19.6 m tax due after the £1 m allowance and 20% effective rate on the rest). On the other hand, Germany’s progressive rates on non-exempt assets are lower than 40% (max 30%), and the availability of per heir allowances means family wealth spread among heirs can be more lightly taxed compared to the UK’s one-size-fits-all 40%. The UK’s move to cap reliefs narrows the gap, but for ultra-large family businesses, Germany might still be a more favorable jurisdiction from an estate tax perspective. We may see UK business families consider partial relocations or structures in jurisdictions like Germany or the Netherlands to exploit those more generous regimes – although anti-avoidance rules and genuine residency requirements make that non-trivial.
• Spain: Spain’s inheritance tax is notably varied by region – each Autonomous Community sets its own rates and reductions. In some regions (like Madrid), inheritance tax for close relatives has been virtually eliminated through near-100% allowances or rebates. In others, the national framework applies, which is progressive up to about 34% for children and spouses (and much higher effective rates – even up to ~80% – for very distant relatives in certain cases). Spain does offer relief for family businesses similar to a participation exemption: generally 95% of the value of a qualifying family business can be excluded from the taxable estate, provided the heirs keep the business for 10 years and the deceased or their family were actively involved in management. There are also reductions for farms in some cases, but again around 95% exemption if conditions are met. So, Spain (depending on region) can be more punitive or more lenient than the UK. A high-net-worth individual in, say, Catalonia would face steep inheritance taxes without planning (and no spouse exemption, as Spain doesn’t automatically exempt spouses nationally), whereas one in Madrid might pay almost nothing thanks to local rules. Compared to the UK: with these reforms, the UK’s effective tax rate on a large estate (40% on amounts above ~£500k of allowances, or 20% for business assets beyond £1m) could actually exceed what a well-planned Spanish estate might pay (e.g. if the Madrid-regime heir pays near 0%, or if the family business qualifies for 95% reduction and then the remainder is taxed at moderate rates). However, Spain’s system is less predictable due to regional politics – the UK at least has a consistent nationwide approach. One clear difference: lifetime gifts in Spain generally incur gift tax (with similar rates to inheritance tax), whereas the UK still allows tax-free gifts if you survive 7 years. This means UK wealthier individuals have more flexibility to give assets to the next generation without immediate tax, a planning advantage not always available in continental systems that tax gifts.
• Netherlands: The Netherlands charges inheritance tax at 10% to 20% for assets passing to close relatives (children, spouses) after a relatively large allowance (the spousal exemption is around €700k, and children have a smaller fixed exemption) – much lower rates than the UK’s 40%. What stands out is the Dutch business succession regime (Bedrijfsopvolgingsregeling or BOR), which closely parallels what the UK is now introducing, but remains even more favorable. As of 2025, in the Netherlands an heir can inherit a family business worth up to €1.5 million completely tax-free, and for any value above €1.5 million, 75% of that excess is exempt. (It was 83% exempt before 2025, and a recent reform trimmed it to 75% beyond a slightly higher threshold.) To illustrate, for a €10 million business, the first €1.5m is 100% exempt, and of the remaining €8.5m, 75% is exempt and 25% taxed at the inheritance tax rate (typically 20%). The effective tax on the entire €10m might be on roughly €2.125m (25% of €8.5m), at 20%, which is ~€425k – an effective rate of about 4.25%. In the UK, a £10m business would incur about £1.8m tax (18%) as shown earlier. Thus, even post-reform, the UK is taxing large business transfers more heavily than the Netherlands. Dutch law does impose conditions (the heir must continue the business for 5 years, etc.), similar to the UK’s requirement that the business be trading and held for 2 years, but generally the Dutch relief is very attractive. The UK’s new £1m cap is conceptually similar to the Dutch threshold (roughly €1.16m in GBP terms), but the UK only relieves 50% above the threshold, whereas the Netherlands relieves 75%. One could say the UK has partially emulated the Dutch approach but with a tighter limit. For wealthy business families, the Netherlands remains a comparatively friendly jurisdiction – moderate flat tax rates and generous business relief. We might see more UK families with European ties consider Dutch residency or holding structures, though exit taxes and complexity of changing tax domicile can be barriers.

In conclusion, the UK’s upcoming IHT regime moves it somewhat closer to the mainstream of European practice by eliminating perpetual non-dom exclusions and by scaling back over-generous reliefs. Countries like France and Germany have long taxed worldwide assets of long-term residents (France uses a 6-year residency test for foreigners in some cases, Germany immediate for residents), so the UK’s residence-based scope is no surprise internationally. And many European countries provide some relief for family businesses and farms, but not complete immunity – the UK will now fall in line with that principle. However, in terms of competitiveness for attracting the wealthy, these changes may make the UK less attractive relative to certain low-tax jurisdictions or countries with no estate tax (e.g. Italy effectively has no inheritance tax on transfers to close family above certain large thresholds, Portugal and Austria have no inheritance tax at all). The UK still has a high headline rate and a complex system of bands and reliefs. If anything, these reforms could prompt high-net-worth individuals to compare jurisdictions more closely. For instance, someone with a large estate might weigh the UK’s 40% tax (with new limits) versus relocating to Switzerland or Monaco (no inheritance tax on many transfers), or taking up residence in a parts of Belgium or Austria (which have abolished inheritance tax for immediate family). While such moves are drastic and come with lifestyle and business considerations, the relative tax burden is undoubtedly a factor for globally mobile millionaires. Ultimately, the UK is choosing to prioritize tax fairness and revenue over maintaining a peculiar appeal to non-doms. Time will tell if this significantly impacts the UK’s ability to attract and retain wealthy investors, but as things stand, the UK will remain among the higher-tax environments for large inheritances – though still with planning opportunities and reliefs that can soften the blow compared to the maximum rates elsewhere.

Strategic Planning Recommendations (2024–2027)

Given the scope of these changes, high-net-worth individuals and their advisers should take action well before the rules fully bite. Below are key planning steps and recommendations to consider:

• Utilize the Remainder of 2024–25 for Gifting and Restructuring: The window before April 2025/April 2026 is critical. Families with significant business or farm assets should evaluate gifting strategies now. Where appropriate, make use of the current unlimited BPR/APR by transferring assets to the next generation or to trusts before the new cap takes effect. Ensure any such transfers are done in line with anti-forestalling rules – for instance, a gift to an individual that is a Potentially Exempt Transfer (PET) is generally safer than a complex trust transfer that could be unwound. Also consider settling any intended excluded property trusts by 5 April 2025. After that date, new trusts won’t protect non-UK assets from IHT if the settlor becomes UK-resident long-term. For those who already have trusts, avoid adding new funds to them post-April 2025 without advice, as such additions could taint the trust’s excluded status. In short, use the old rules while you still can: accelerate succession plans that were going to happen in the next few years anyway so that they occur under the more favorable existing regime.
• Review Wills, Succession Plans, and Business Agreements: Any existing estate plan needs updating to reflect these reforms. Wills for domiciled individuals should still effectively use both spouses’ nil-rate bands and consider the frozen threshold. But now wills might also incorporate flexible provisions to handle IHT on assets that were previously expected to be tax-free (like business interests or pensions). For example, a will might stipulate that if business assets would cause an IHT charge, those assets could instead pass to a spouse (utilizing spouse exemption) and be dealt with through a post-death arrangement or insured against, rather than going directly to children with a tax bill. Business owners should revisit any shareholders’ agreements or buy-sell agreements – these often fund buyouts via life insurance on death. Such insurance coverage might need to be increased to account for the fact that 20% of share value will be lost to tax above the £1m relief. Likewise, farming families may consider conditional gifting (passing land now but retaining certain rights for the older generation) to secure relief while they can. Ensure these techniques don’t fall foul of gifts with reservation of benefit rules (e.g., an elderly farmer can’t give the farm to children but continue to live on it rent-free without jeopardizing the tax outcome). Professional legal advice is essential to thread that needle.
• Obtain Professional Valuations and Perform Scenario Modeling: With the introduction of caps and partial relief, exact valuations of assets become vital. Landowners and business owners should get up-to-date professional valuations of their key assets (business equity, land, properties, etc.). This not only helps in planning (e.g., knowing if you are likely to exceed the £1m relief and by how much) but also establishes a baseline in case of future disputes with HMRC. Using these valuations, advisers can do “what-if” modeling: calculate the IHT liability if death occurs after the new rules, and then explore ways to reduce it. Modeling might reveal, for instance, that without action a family would face a £5m IHT bill, but by using life insurance and gifts the bill could be cut to £1m. These projections help inform decisions like how much insurance to buy, whether the patriarch can afford to give away assets now, or whether the family business should be restructured. Don’t forget to include pension wealth in these models – many clients haven’t traditionally counted their pension as part of their estate for IHT, but now it must be tallied. A thorough projection will include the effect of pension inclusion from 2027, possibly prompting earlier retirement withdrawals or conversions of pensions to other vehicles.
• Consider Life Insurance and Financing Strategies: As mentioned, life insurance is becoming a more prominent tool to manage inheritance tax, especially for otherwise illiquid estates (farmers, business owners). A whole-of-life insurance policy held in trust can provide a lump sum on death to pay the IHT bill, ensuring the business or estate itself need not be sold. The cost of such insurance should be weighed against the expected tax – given the new 20% charges on previously exempt assets, some families will find the premiums a worthwhile trade-off to guarantee business continuity. Additionally, wealthy individuals might explore debt strategies: interest rates are higher now, but using borrowing can sometimes reduce an estate (debt on an estate is deductible for IHT if used for certain purposes). For example, one might raise a mortgage on a property and gift the loan proceeds away (the debt reduces the estate and the gift, if survived 7 years, leaves the estate). This must be done carefully under the financing and gift-of-money rules to ensure the debt is deductible. However, given the complexity, this is a niche strategy.
• Plan for Cross-Border Residence and Domicile Changes: For internationally mobile clients, a key recommendation is to carefully plan residency status in the years around these reforms. If a non-dom client intends to leave the UK to avoid the new regime, they should do so before 6 April 2025 and remain non-resident thereafter to take advantage of transitional relief (only a 3-year exposure after leaving). If they leave later, be aware they could be within scope for up to 10 years. Ensure such clients also document their domicile status as of October 2024 if they plan to rely on being non-UK domiciled for transitional provisions. For British clients moving abroad, the new rules ironically make it easier to escape UK IHT after a decade – but they should obtain advice on acquiring a new domicile of choice and potentially use any tax treaties. The UK has estate tax treaties (to prevent double-tax) with only a few countries (e.g. USA, France, Ireland, the Netherlands, Italy, India, Sweden). If moving to one of these, coordinate planning so that you are not taxed twice on worldwide assets. If moving to a country without a treaty, you may end up subject to both UK tail-end IHT and the new country’s inheritance tax. In such cases, plan which assets to keep in which jurisdiction (perhaps keep UK-situs assets during the tail period since you’ll pay UK tax on them anyway, and hold non-UK assets in a way that mitigates the foreign country’s tax). Wealthy families with members in multiple countries might use holding companies or trusts in neutral jurisdictions to centralize assets and then deal with tax in one primary jurisdiction rather than multiple.
• Maximize Remaining Reliefs and Exemptions: With some avenues closing, it’s important not to overlook reliefs that remain available. The standard annual gift allowances (£3,000 per donor per year, small gift allowances, etc.) and wedding gift exemptions are still useful to chip away at IHT over time – encourage clients to use them consistently. The seven-year rule for PETs is, at least for now, unchanged (despite speculation about extending it to 10 years, the government has stated no immediate plans to alter it). This means large outright gifts are still viable if one has reasonable longevity prospects. Trusts like Discounted Gift Trusts or Loan Trusts, often used in conjunction with investment bonds, can still be effective for reducing IHT while retaining some access to assets – they should be revisited given the client’s new asset mix (e.g., one might shelter investment portfolio growth in such trusts now that the pension won’t be IHT-free). Also, charitable giving becomes an even more attractive strategy: leaving at least 10% of your net estate to charity still reduces the IHT rate on the remainder to 36%. Some families might increase charitable bequests as part of their legacy planning to both support causes and slightly reduce the tax rate for heirs.
• Engage Professional Advice Early: Last but not least, wealthy individuals should engage their tax advisers, private client lawyers, and accountants well ahead of these dates. The changes are complex and interlocking. Professionals can help navigate HMRC consultations (for example, if you wish to respond or need clarity on unsettled points like how partial relief interacts with instalment payments, or how exactly trustees will calculate their £1m allowances). They can also ensure compliance – missteps like failing to account for the new rules in an estate could lead to costly surprises or even penalties if reporting is done incorrectly. Given the government’s focus on raising revenue from these reforms, one can expect HMRC to scrutinize large estates and any aggressive planning quite closely in the coming years. Good advice will help strike a balance between tax-efficiency and compliance/risk management.

Conclusion

The 2025–2027 period heralds the most significant overhaul of UK inheritance tax in decades. The introduction of a £1 million cap on business and farm relief, the broadening of IHT to long-term residents’ worldwide assets, and the taxation of pension funds at death collectively reshape the landscape in which high-net-worth families plan for the future. The UK is moving away from its historically permissive stance for the ultra-wealthy (particularly non-domiciled residents and business owners) toward a framework that, while still containing reliefs, will tax more wealth transfers than before. Family offices, landed gentry, and entrepreneurs must all reckon with new liabilities and rethink strategies that were taken for granted (such as relying on unlimited reliefs or pensions as shelters).

Yet, with proactive planning, families can mitigate the impact. By acting before the rules take effect – through timely gifting, trust restructuring, and availing of remaining allowances – it’s possible to preserve much of the intended legacy. Cross-border comparisons show that while the UK’s reforms reduce some advantages, the UK is not wildly out of step with other major economies’ estate taxes; indeed, it remains more favorable than some in certain areas (e.g. still no wealth tax, and gifts can escape tax if planned properly). The key for advisers is to integrate these changes into holistic estate plans that consider the family’s assets, business succession, and global footprint. Wealth preservation in this new era will require careful attention to detail and perhaps a greater willingness to adapt (whether that means restructuring ownership, buying insurance, or even relocating).

High-net-worth individuals and their advisers should treat the period before April 2025–2027 as a critical planning window. The measures have staggered start dates, but they are all on the horizon and demand action now. By staying informed – for example, following HMRC guidance and expert commentary from leading tax law firms and accounting firms – and by taking decisive planning steps, families can continue to pass wealth efficiently even as the goalposts shift. Inheritance Tax may be changing substantially, but with astute planning, the values and enterprises built over a lifetime can still be safeguarded for future generations in line with the family’s wishes, albeit perhaps with a somewhat larger slice going to the Exchequer than in years past. As always, personalized professional advice is indispensable in navigating these changes. The sooner such advice is sought, the better positioned families will be to weather the coming IHT reform storm and seize any opportunities hidden within it.