The 2025 Budget and Its Impact on Wealth: What High Net Worth Individuals Need to Know

The October 2024 Budget represented the most significant package of wealth taxation changes since the 2010 Spending Review. Several of the changes — most notably the inclusion of pensions in the IHT calculation from April 2027 — were previously unannounced and came as a genuine shock to advisers and clients who had structured their finances on longstanding assumptions. Equally significant is the full implementation of the non-domicile Foreign Income and Gains (FIG) regime from April 2025, replacing the old remittance basis regime.

This guide provides a concise account of each change and sets out the practical planning actions advisers are recommending as of mid-2026.

Pensions and Inheritance Tax from April 2027

The most transformative change announced in the October 2024 Budget is the decision to bring unused pension funds within the scope of IHT from 6 April 2027.

Current position (to 5 April 2027): pension pots held in defined contribution schemes (SIPPs, personal pensions, most workplace pensions) are outside the estate for IHT purposes. On death before 75, beneficiaries can receive pension funds tax-free; on death after 75, they pay income tax on withdrawals (at their marginal rate) but there is no IHT charge. Pension funds have therefore been widely used as an IHT-efficient vehicle for passing wealth to the next generation.

Position from 6 April 2027: the value of unused pension funds on death will be included within the deceased's estate for IHT purposes. The standard IHT rate of 40% will apply on the portion of the estate above the available nil-rate bands. The interaction with income tax on pension withdrawals (where death is after 75) means effective tax rates on some pension assets could approach 57% — 40% IHT followed by up to 45% income tax on the residue (assuming a higher-rate beneficiary).

Transitional provisions: the government has acknowledged complexity around existing pension arrangements and consulted on implementation. The draft legislation and final regulations should be reviewed by anyone with a pension strategy built around IHT mitigation.

Planning actions being recommended:

• Reassessing drawdown strategy: drawing down pension income and reinvesting it in ISAs or other tax-efficient vehicles outside the pension may become more attractive where the pension's IHT advantage has reduced.
• Reviewing pension nomination strategies: the optimal beneficiary may change where pension funds are now partly IHT-taxable.
• Modelling gifting from income to reduce pension-boosted estate size: normal expenditure out of income (NEOI) remains one of the most powerful tools.
• Considering whether to take larger pension income now and invest in trust or gifted assets — subject to detailed modelling.

Agricultural and Business Property Relief Caps

The Budget also announced a cap on 100% relief under Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. The cap was originally announced at £1 million in the October 2024 Budget, but the government raised it to £2.5 million in December 2025. Key change:

• The first £2.5 million of qualifying agricultural or business property will continue to receive 100% relief from IHT.
• Above £2.5 million, relief drops to 50% — meaning the effective IHT rate on the excess is 20% (50% of the standard 40% rate).
• The £2.5 million allowance is transferable between spouses and civil partners, so a couple can shelter up to approximately £5 million of qualifying assets at 100%.

Impact: The change is significant for family farms, estate owners, and business owners who had planned their succession on the assumption of full, unlimited BPR/APR. A farming estate with agricultural land and property valued at £4 million that was previously fully sheltered from IHT now has a potential IHT charge of £300,000 (20% × £1.5 million above the £2.5 million cap).

AIM shares: Business Property Relief at 100% has historically applied to shares in qualifying AIM-listed companies held for two years. However, from 6 April 2026, AIM-listed and other unlisted shares no longer attract 100% BPR at all — they are restricted to 50% relief only (regardless of value). They do not benefit from the £2.5 million 100% band available to other qualifying business and agricultural property. This is a material change for investors who have accumulated AIM portfolios specifically as IHT vehicles: only 50% of the portfolio's value is now sheltered from IHT, rather than 100%.

The FIG Regime: Non-Doms from April 2025

The non-domicile remittance basis regime was abolished from 6 April 2025. It has been replaced by the Foreign Income and Gains (FIG) regime, which is residence-based rather than domicile-based.

FIG regime: core features:

• Individuals who become UK tax resident after a period of non-UK residence qualify for a 4-year FIG exemption period: foreign income and gains arising in the first four years of UK residence are exempt from UK income tax and CGT.
• There is no charge for using the FIG exemption (unlike the previous remittance basis charge of £30,000–£60,000 per annum for long-term residents).
• After four years, the individual is taxed on worldwide income and gains in the standard way.
• There is no "tainting" — FIG-exempt income and gains can be remitted to the UK freely without triggering tax.

Impact on existing non-doms: individuals who were previously using the remittance basis and have been UK resident for more than four years are the most significantly affected. They have moved from paying the remittance basis charge and having access to offshore income and gains free of UK tax (while unremitted) to being taxed on all worldwide income and gains on an arising basis.

Temporary Repatriation Facility (TRF): a three-year window (2025/26 to 2027/28) allows former remittance basis users to remit previously accrued foreign income and gains at a flat rate of 12% — substantially below the rates that would otherwise apply. This is a significant one-off opportunity that advisers have been recommending clients assess carefully.

IHT for former non-doms: the IHT position for non-doms has also been reformed — IHT exposure is now based on years of UK residence, not domicile. Long-term UK residents (10+ years of the last 20 years) are exposed to UK IHT on worldwide assets. Those who have been resident for fewer years retain some protection on non-UK assets.

CGT on Residential Property

The October 2024 Budget reduced the higher rate of CGT on residential property disposals from 28% to 24%, effective from 30 October 2024. The basic rate remained at 18%.

This is a modest reduction (from 28% to 24%) that reduces the net tax cost of selling a second home, buy-to-let property, or investment property for higher-rate taxpayers. For a landlord selling a property with a £200,000 gain in the 2024/25 year:

• Tax at old 28% rate: £56,000;
• Tax at new 24% rate: £48,000;
• Saving: £8,000.

The 60-day reporting and payment window for residential property gains remains unchanged.

Income Tax Threshold Freeze: The Ongoing Drag

The freeze on income tax thresholds — holding the personal allowance at £12,570 and the basic-rate limit at £50,270 until at least 2027/28 — continues to represent a real-terms tax increase as wages and investment income rise. This is "fiscal drag" by stealth.

For high earners, the personal allowance tapers to zero for income above £100,000, creating an effective marginal rate of 60% on income between £100,000 and £125,140. Planning to keep income below £100,000 remains a significant priority — most commonly through pension contributions, which reduce adjusted net income.

What Wealth Managers Are Recommending

The most widely recommended near-term actions across the wealth management community in response to the 2024/2025 Budget changes:

1. Review pension succession planning: reassess the role of the pension in the estate plan in light of the April 2027 IHT change; model drawdown versus retention scenarios.
2. Use the TRF window (if applicable): the Temporary Repatriation Facility closes after 2027/28; any former remittance basis user with offshore income and gains should model the 12% flat rate against alternative options.
3. Review AIM portfolios: the BPR cap affects AIM-focused IHT portfolios; assess whether retaining or restructuring is appropriate.
4. Review BPR/APR structures now that the cap is live: the £2.5 million combined cap on 100% relief (raised from the £1 million originally announced) has applied since April 2026. For estates where the cap bites, lifetime gifting of qualifying assets (respecting PET rules and the seven-year clock) remains a planning option to reduce the exposed estate over time.
5. Model income tax at £100,000: the threshold freeze continues; pension contributions reducing adjusted net income remain highly valuable.

How Global Investments Can Help

The Budget changes represent a significant shift in the landscape for high net worth individuals with estates above £2 million, pension assets, agricultural or business property, or offshore income and gains. We are working with clients to review the impact of each change specific to their circumstances and to identify the most practical planning actions within the time windows available. Rules are complex and evolving — always seek advice from a qualified tax professional before acting. Contact us for an urgent review if you are in any of the affected categories.