UK Inheritance Tax Changes 2025–2027

From 2025 to 2027, major UK inheritance tax changes will reshape the way estates are taxed. The shift to a residence-based system, new limits on agricultural and business property relief, and the inclusion of unused pension funds in estates mean more families could face unexpected tax bills. If you have a will, a trust, property, a business, or significant pensions, now is the time to review your plans to protect your assets and your family’s future.

*A Glossary of IHT terminology is provided at the end of this article to assist in clarification.

Why the Rules Are Changing

Inheritance Tax (IHT) in the UK is undergoing its most sweeping transformation in decades. From April 2025, the government is replacing the long-established domicile test with a much broader residence-based system. Changes to agricultural and business property relief, alongside the inclusion of unused pensions in taxable estates, will reshape the estate planning landscape.

With further reforms under review, inheritance tax is becoming relevant to more families across Wiltshire, Gloucestershire, and beyond. Wills, trusts, and estate planning will require closer attention than ever.

From 2025, inheritance tax will no longer be based on domicile but on residence. Families with property, farms, or pensions must review their planning.

The Key Changes in Detail

From Domicile to Residence (from April 2025)

From 6 April 2025, IHT will pivot from domicile status to residency. Anyone resident in the UK for at least 10 out of the last 20 years will be treated as a long-term resident, making worldwide assets subject to UK inheritance tax.

Even after leaving the UK, long-term residents may remain liable for IHT for 3–10 years depending on their prior residence. For example, 10–13 years’ residence gives a three-year liability tail, while 20 years may result in a ten-year tail.

Trusts will also be caught. Trusts holding non-UK assets may fall into IHT scope if the settlor is a long-term resident at the time of a chargeable event.

• Track UK residence years carefully.

• Review trusts with overseas assets.

• Reassess exposure for international families

Agricultural and Business Property Relief (from April 2026)

From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1 million combined. Relief above that level will be reduced to 50%.

The change is not transferable between spouses. Even married couples will only have one combined £1 million cap.

This is expected to place strain on family farms and rural businesses, with some estimates suggesting over 200,000 jobs could be at risk.

Pension Funds Included in Estates (from April 2027)

From 6 April 2027, most unused pension funds and death benefits will be included in estates for IHT purposes.

Personal representatives will be responsible for reporting and paying IHT on pensions, with beneficiaries jointly liable.

The Treasury expects around 10,500 more estates to pay IHT, and 38,500 estates to pay an average of £34,000 more. By 2029–30 this measure could raise £1.46bn.

Possible Reform of Lifetime Gifting

As of late 2025, the Treasury is reviewing possible caps on tax-free gifts and changes to the seven-year exemption and taper relief. Although no changes are enacted yet, many families are accelerating gifting plans in anticipation.

HMRC Enforcement and Threshold Freeze

HMRC investigations into IHT rose by 41% in 2024/25, with overdue IHT charged at 8.25% interest.

The nil-rate band (£325,000, or £500,000 including residence allowance) remains frozen until 2030. As property and asset values rise, more estates will be caught.

What This Means for Your Will and Estate

Existing wills, trusts, and estate structures should be revisited.

• Wills must be updated to reflect new pension and APR/BPR treatment.

• Trusts with overseas, business, or agricultural assets should be reviewed.

• Ex-domiciled individuals may be caught by residence-based IHT.

Succession planning may require tools such as discretionary trusts, family investment companies, lifetime gifts, or whole-of-life insurance.

Personal representatives (executors or administrators) will have new responsibilities. From July 2025, they will need to handle pension-related IHT reporting and may be jointly liable with beneficiaries.

Steps to Take Now

• Conduct a residency audit.

• Review all trust structures.

• Update wills and estate documents.

• Engage in lifetime tax planning.

• Brief executors in advance.

• Monitor policy updates through 2027.

Protecting Your Legacy

UK inheritance tax is entering a period of major reform. For families in Wiltshire, and across the country, now is the time to act. Proactive planning can protect your legacy, preserve family businesses, and avoid unintended tax burdens.

At Eddison Cogan Lawyers, we combine city-level expertise with local understanding. Contact us today to review your will, trust, or estate plan and ensure you are prepared for the inheritance tax changes ahead.

Glossary of Key Terms

• Agricultural Property Relief (APR) – Reduces the value of farmland and related property for IHT. From April 2026, capped at £1m (shared with BPR), with 50% relief above that.

• Assets – Everything a person owns that has value: property, investments, savings, businesses, pensions.

• Beneficiaries – People or organisations who inherit under a will, trust, or estate.

• Business Property Relief (BPR) – Reduces the taxable value of certain business assets. From April 2026, capped at £1m (with APR), with 50% relief above that.

• Chargeable Event – A moment when IHT may apply, such as death, a gift, or moving assets into or out of a trust.

• Discretionary Trust – A trust where trustees decide how and when beneficiaries receive assets.

• Domicile – A person’s permanent home, used to determine tax liability. From April 2025, replaced by residence as the key IHT test.

• Estate – The total value of assets owned at death, after debts are deducted.

• Ex-Domiciled Individual – Someone once UK-domiciled but now domiciled elsewhere, who may still be caught by UK IHT rules.

• Family Investment Company (FIC) – A company structure used to pass wealth to future generations while retaining family control.

• Gift Exemptions / Taper Relief – Allow gifts to escape IHT if the giver survives 7 years. Taper relief reduces tax if death occurs between 3–7 years.

• HMRC – His Majesty’s Revenue & Customs, the UK’s tax authority.

• Inheritance Tax (IHT) – Tax on estates above the nil-rate band. Usually 40%.

• IHT Tail – Period (3–10 years) after leaving the UK when former long-term residents may still pay IHT on worldwide assets.

• Lifetime Gifting – Passing on assets during life to reduce IHT.

• Main Residence Allowance (Residence Nil-Rate Band) – An additional allowance (currently £175,000) when passing the family home to direct descendants.

• Nil-Rate Band (NRB) – The standard tax-free allowance (£325,000, frozen until 2030).

• Personal Representatives (PRs) – Executors (named in a will) or administrators (if no will) responsible for managing an estate and paying IHT.

• Pension Death Benefits – Pension funds left on death. From April 2027, most will count as part of the taxable estate.

• Residence (Statutory Residence Test) – Rules used to determine UK tax residence. From April 2025, the key test for IHT.

• Settlors – Individuals who create trusts by placing assets into them.

• Trusts – Legal arrangements where trustees hold and manage assets for beneficiaries.