Inheritance Tax Changes: Are you prepared?

Inheritance Tax Changes over the next two years will reshape how families, business owners, and investors plan their estates. With allowances frozen and asset values rising, these Inheritance Tax Changes are drawing more estates into the IHT net.

It’s important to note that several of the measures discussed in this insight are currently proposals or draft legislation rather than settled law. While the Government intends to bring them in between 2025 and 2027, tax policy is prone to revision — particularly under the current Labour government. This means the detail, timing, or scope of these reforms could still change before they take effect.

With allowances frozen to 2029–30 and asset values rising, more estates are being drawn into the IHT net, and the Office for Budget Responsibility (OBR) now forecasts £9.1bn of IHT in 2025–26 — a record high.

Why is Inheritance Tax Changing?

Put simply: the system hasn’t kept pace with reality. Property and asset values have climbed while key allowances have been frozen for years, dragging more ordinary families into scope. That pressure, combined with political focus on “fairness”, is driving a rethink.

The Government’s aims fall into three main areas:

• Tackle fiscal drag: with thresholds fixed but wealth higher, more estates pay IHT; reform is intended to rebalance who is caught.
• Retarget reliefs: long-standing breaks for businesses, farms, and certain shares are being tightened so the most generous reliefs aren’t concentrated in the very largest estates.
• Modernise the rules: moving from domicile to a clearer residence test for internationally mobile families, and reassessing how untouched pension pots are treated at death.

What this means for you: changes arrive in phases (2025–2027). Planning early keeps options open; waiting narrows them. We’ll unpack each change next and show practical steps to protect your estate.

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April 2025 – The New 10-Year Residence Rule for Non-Doms

This rule is already in place but still worth highlighting. From 6 April 2025, the UK overhauled how inheritance tax applies to people with connections overseas. The long-standing “domicile” test was replaced with a new 10-year long-term residence rule.

Under the previous system, non-domiciled individuals (non-doms) generally only paid inheritance tax on UK-based assets, unless they became “deemed domiciled” after 15 years of UK residence. From 2025, that threshold shortened, and the rules tightened (HMRC: Inheritance Tax if you’re a long-term UK resident):

• Once you’ve been UK tax-resident for 10 out of the past 20 years, you will pay UK inheritance tax on your worldwide assets — a major shift under the upcoming Inheritance Tax Changes.
• If you leave the UK after meeting the 10-year threshold, you may remain liable for UK IHT on worldwide assets for up to 10 years after departure.

Spousal exemption rules are being updated alongside the residence reform; specific mechanics for mixed‑domicile couples are being aligned with the new long‑term residence framework. (Commons Library briefing).

Example: An overseas business owner moves to the UK in 2016. Under the previous rules, they would only be deemed domiciled in 2031. Under the 2025 rules, they become a long-term resident — and subject to UK IHT on worldwide assets — from April 2026.

Nichols & Co insight: If you or your spouse are non-domiciled and hold significant overseas assets, timing is critical. Planning before you cross the 10-year threshold could prevent millions from being unnecessarily exposed to UK IHT. Our Inheritance Tax for Non-Residents guide explains your options in detail.

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April 2026 – £1 Million Cap on Business & Agricultural Property Relief (BPR/APR)

Business Property Relief (BPR) and Agricultural Property Relief (APR) have been central to UK inheritance tax planning for decades, allowing qualifying family businesses and farms to pass down with little or no tax to pay. Under current rules, 100% relief can apply to any value of qualifying assets, provided the ownership and use tests are met as outlined in the HMRC Business Relief guidance.

From 6 April 2026, these Inheritance Tax Changes will reshape how reliefs are applied:

• Estates will receive 100% relief on the first £1 million of combined BPR/APR-qualifying assets.
• Any value above that limit will only qualify for 50% relief, leaving the other half taxable at 40%.
• Certain assets that already receive 50% relief — such as land owned personally but used by a business — will remain unaffected by the new cap.

According to the Government’s summary of the reforms, most estates claiming these reliefs are below £1 million. However, HMRC estimates that around 2,000 estates a year — typically the largest — will see higher tax bills after 2026.

Example: A family business valued at £3 million currently receives 100% relief and pays no IHT. After April 2026:

• £1 million remains exempt (100% relief)
• £2 million receives 50% relief → £1 million taxable at 40% = £400,000 tax bill

Nichols & Co insight: For married couples, the £1 million cap applies to each individual, but unused allowances cannot be transferred on death. Reviewing your wills and ownership structure now could ensure both spouses use their full allowance, potentially doubling the fully exempt amount from £1 million to £2 million.

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April 2026 – AIM & Unlisted Company Shares Relief Halved to 50%

For many investors, shares in companies listed on the Alternative Investment Market (AIM) — as well as certain unlisted trading company shares — have long been a legitimate way to reduce inheritance tax. Under current rules, these assets can qualify for 100% Business Property Relief (BPR) after just two years of ownership, provided they meet the criteria set out in the HMRC Business Relief guidance.

From 6 April 2026, this relief will be halved — a key part of the upcoming Inheritance Tax Changes:

• AIM shares and other qualifying unlisted trading company shares will only receive 50% relief.
• This means half of their value will be exposed to inheritance tax at 40%, creating an effective 20% tax rate on these holdings.

The Government’s reform summary states this change is intended to prevent relief being used as an “investment shelter” by the wealthiest estates. However, it will also impact many long-term investors who hold AIM shares as part of a succession planning strategy.

Example: An AIM portfolio worth £500,000 currently passes on with no inheritance tax. After April 2026, £250,000 would be taxable at 40%, resulting in a £100,000 tax bill.

Nichols & Co insight: The two-year qualifying period for BPR still applies, but the value of relief is halved. We recommend a full portfolio review well before 2026 to identify assets most affected and explore alternative structures that could preserve a higher level of relief.

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April 2027 – Pensions Brought into the Inheritance Tax Net

For years, pensions have been one of the most effective ways to pass on wealth tax-efficiently. Under current rules, most unused pension funds can be left to beneficiaries free of inheritance tax — making them a cornerstone of estate planning.

From 6 April 2027, that advantage will be significantly reduced — another major shift in the Inheritance Tax Changes timetable:

• Unused defined contribution pension pots and certain death benefits will be counted as part of the deceased’s estate for inheritance tax purposes.
• This rule will apply regardless of whether the pension is crystallised or uncrystallised at death.

The details remain subject to final legislation, but the policy direction is clear — pensions will no longer sit outside the IHT net by default. The Treasury has said the change is designed to close what it calls an “unintended tax shelter” and bring pensions into line with other wealth transfers. While it may affect only the largest pension pots, the sums involved can be substantial — especially for those who have drawn down other assets first to preserve pension value.

Example: A £900,000 pension pot left untouched passes IHT-free under current rules. From April 2027, the full amount could be taxable at 40%, creating a potential £360,000 tax bill unless proactive planning is done.

Nichols & Co insight: With two years until these Inheritance Tax Changes take effect, there’s still time to adapt your retirement and gifting strategy. Drawing from pensions earlier, blending withdrawals with lifetime gifting, or reviewing beneficiary nominations could all help reduce future exposure.

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How to Reduce Inheritance Tax

The upcoming Inheritance Tax Changes make proactive planning more important than ever. Timing is key — and with reforms rolling out between 2025 and 2027, the window to act is shrinking fast. The good news? Each change creates opportunities to restructure your estate before the rules fully take effect.

Here are the key steps to consider:

1. Review Your Asset Mix

The £1 million cap on Agricultural and Business Property Relief, the halving of AIM share relief, and the inclusion of pensions in the IHT net mean certain assets will no longer be as tax-efficient. A professional review now can identify where restructuring could minimise future liability.

See our Inheritance Tax & Estate Planning services for tailored strategies designed to navigate the Inheritance Tax Changes.

2. Accelerate Gifting

With reliefs tightening, the seven-year rule for tax-free lifetime gifts is becoming an even more valuable tool. If you’re considering passing on assets, acting before April 2026 could lock in the current reliefs.

Our guide to the seven-year rule explains how to make the most of this before the Inheritance Tax Changes reduce your options.

3. Consider International Positioning

For non-doms and expats, the move to the 10-year residence rule in April 2025 is a game changer. Planning your residence status, asset location, and potential trust structures before you meet the threshold could save millions.

Read our IHT for non-residents insights for detailed planning tips ahead of the Inheritance Tax Changes.

4. Rethink Pension Strategy

From April 2027, leaving large pension pots untouched could lead to a significant IHT bill. Combining pension withdrawals with lifetime gifting — or restructuring beneficiary nominations — can help preserve more wealth for your beneficiaries.

5. Keep Wills & Trusts Up to Date

Major tax reforms often expose outdated wills and trust deeds. A review now ensures your estate planning still achieves your objectives under the coming Inheritance Tax Changes.

Nichols & Co insight: Acting now allows you to implement multi-year strategies that take advantage of both the old and new rules. Waiting until after April 2026 will leave fewer tools available to mitigate the impact.

Final Thoughts – Act Now Before the Inheritance Tax Changes Take Effect

The UK’s inheritance tax landscape will change more in the next two years than it has in the last two decades. Between April 2025 and April 2027, rules on Business Property Relief, AIM shares, non-dom residency, and pensions will all shift — and for many families, that means a higher inheritance tax bill unless they act early.

These Inheritance Tax Changes aren’t necessarily punitive; they are designed to close perceived loopholes and bring the system in line with modern asset ownership. But without a clear plan, the consequences can be severe. The difference between preparing now and leaving it too late could mean hundreds of thousands of pounds going to HMRC instead of your family.

The key takeaway is simple: the sooner you start planning, the more options you have. Acting before April 2026 gives you the chance to maximise existing reliefs, structure your estate tax-efficiently, and protect more of your wealth for future generations.

At Nichols & Co, we specialise in helping clients navigate complex and changing tax rules with clarity, precision, and a focus on results. Whether you’re a business owner, an investor, a non-resident, or simply someone who wants to pass on wealth efficiently, we can create a personalised strategy that works under both the current rules and the upcoming Inheritance Tax Changes.

Arrange your confidential inheritance tax consultation today — Call us on or send us a message to start protecting your estate for the next generation.