New UK IHT Rules: What You Need to Know About the 2025 and 2027 Changes

Significant changes to the UK's inheritance tax (IHT) framework are officially in motion, with key reforms beginning from 6 April 2025 and further expansions in April 2027. These adjustments mark one of the most substantial overhauls in the UK’s tax structure in decades.

Whether you're a high-net-worth individual, an expatriate, or someone with international estate considerations, these new UK IHT rules will likely impact your financial future.

With the right strategies in place, you can adapt confidently to the new rules and protect what matters most. Speak with a Global Investments advisor to explore your personalised options.

The Core Change: Residency-Based Taxation from April 2025

Previously, the UK's IHT regime hinged on an individual's domicile status. From April 2025, however, the focus shifts dramatically toward residency-based taxation.

What’s Changing?

• Goodbye Remittance Basis: The existing system, which allowed non-doms to only pay UK tax on income/remittances brought into the UK, will be replaced.

• New Residency Test: Anyone who has been a UK tax resident for 10 of the past 20 tax years will now be considered a Long-Term Resident (LTR).

• Global Reach: Once you’re classified as an LTR, your entire global estate becomes subject to IHT—even if you relocate abroad.

  
  

Tail Provisions: You're Still Taxed Even After You Leave

Exiting the UK doesn’t mean escaping IHT. The new legislation introduces a tail provision where individuals may continue to be taxed for up to 10 years post-departure.

Offshore Trusts: No Longer Shielded

Trusts have historically been a cornerstone for non-doms looking to mitigate IHT exposure, particularly those using excluded property trusts.

Under the new UK IHT rules:

• Offshore trusts will no longer be exempt if created by LTRs.

• If the settlor qualifies as an LTR and sets up an offshore trust, it remains within IHT scope for up to 10 years after leaving the UK.

• Exit charges and 10-year charges (up to 6%) may apply on trust assets.

  
  

Around 9,300 individuals are expected to be impacted by these trust reforms each year. A careful review today could make all the difference.

Connect with a Global Investments specialist to ensure your planning remains secure and fully aligned with the new rules.

Pensions to Be Taxed from April 2027

One of the most unexpected and impactful changes is the inclusion of pensions in IHT—a dramatic policy reversal.

Key Points:

• Starting April 2027, defined contribution pensions will no longer be IHT-exempt.

• If your pension passes to anyone other than a spouse, it may face a 40% IHT charge.

• This change can double or even triple the effective tax rate due to layering with income tax.

With pensions soon falling within the IHT net, early action could save your beneficiaries a significant tax burden.

Explore smarter pension strategies with a Global Investments advisor before the new rules take effect.

The ‘Frozen Threshold’ Problem: Hidden Inflation of Your IHT Bill

The IHT nil-rate band (NRB) remains stuck at £325,000 per individual or £650,000 for couples, unchanged since 2009.

With real estate and investment portfolios skyrocketing, many families now face an IHT bill they never expected.

Real-World Impact:

Year	Property Value	Threshold	Taxable Amount
2009	£300,000	£325,000	£0
2025	£650,000	£325,000	£325,000

A once tax-free estate now faces £130,000 in IHT (40% of £325,000).

Business and Agricultural Relief Changes (April 2026)

Aimed at closing loopholes, the government is capping reliefs for Business Property Relief (BPR) and Agricultural Property Relief (APR).

• 100% relief will only apply to the first £1 million of qualifying assets.

• Assets over this cap receive just 50% relief.

• This could significantly impact family-owned farms, small businesses, and rural estates.

  
  

What Are Your Options? Strategies to Navigate the New UK IHT Rules

Now is the time for tailored estate planning. Here's how you can stay compliant—and preserve your wealth.

1. Gifting Early

Taking advantage of the seven-year rule allows you to gift assets during your lifetime without them being included in your estate for IHT purposes — provided you survive for seven years after the gift.

The earlier you act, the more flexibility you have to transfer wealth efficiently and significantly reduce your future IHT exposure.

2. Life Insurance Policies

Life insurance can be a highly effective tool to cover potential IHT liabilities.

By setting up a whole-of-life policy held in trust, the payout can be made directly to your beneficiaries, ensuring that the IHT bill is paid without forcing the sale of family assets or properties.

This approach provides liquidity exactly when it’s needed most.

3. Trust Restructuring

If you already have offshore or domestic trust arrangements, it's essential to re-evaluate them under the incoming residency-based rules.

Some structures that previously offered strong IHT protection may now fall within HMRC’s scope.

Expert advice is critical to ensuring your trusts are still fit for purpose and fully compliant with the evolving tax landscape. Speak with a Global Investments advisor to ensure your trusts stay secure and compliant.

4. Asset Reallocation

Strategically diversifying your investment portfolio can mitigate IHT exposure.

Options include reallocating funds into AIM-listed shares (which may qualify for Business Property Relief after two years) or life assurance investment bonds, which offer tax-efficient growth and succession planning opportunities.

The right mix can protect your capital while ensuring a smoother transfer to the next generation.

Detailed FAQs About the New UK IHT Rules

1. When do the new IHT rules begin?

The primary residency-based changes to UK Inheritance Tax (IHT) take effect on 6 April 2025, impacting both individuals and trusts connected to the UK. From this date, worldwide assets of certain residents and former residents will be subject to IHT, irrespective of domicile.

Pension reforms, including the inclusion of death benefits and unused funds into the IHT net, are separately timed to commence on 6 April 2027.

Strategic restructuring should ideally be completed before March 2025 to maximise the use of current rules.

2. What qualifies me as a UK Long-Term Resident (LTR)?

An individual will qualify as a Long-Term Resident (LTR) if they have been UK tax resident for at least 10 of the previous 20 tax years.The UK’s Statutory Residence Test (SRT) will determine residency status using precise day-counting rules.

Crucially, this removes subjective domicile arguments previously used by globally mobile HNW individuals to shield non-UK assets.

LTR Consequences:

• Worldwide estate immediately enters the IHT regime.

• Trusts established pre-residency could still be caught.

• Exiting the UK later doesn’t immediately eliminate exposure (see tail provisions).

  
  

3. Will these changes apply to existing trusts?

Yes—existing offshore trusts are no longer automatically protected.If the settlor is an LTR at the time of settlement or becomes an LTR post-settlement, the trust will become subject to IHT on its assets, even if those assets are entirely situated offshore.

Key Trust Implications:

• Relevant property charges will apply, including 10-year and exit charges.

• Excluded property trusts will lose their status if linked to an LTR.

• Rebalancing or splitting trusts into qualifying and non-qualifying entities may be necessary.

Trustees must conduct immediate audits of settlor history and residency exposure.

4. Can I still avoid IHT by moving abroad?

Emigration alone will not provide immediate shelter from UK IHT.The introduction of a tail provision means individuals leaving the UK remain within the IHT net for up to 10 years.The tail duration depends on the individual's prior residency intensity:

• 10 years for LTRs (10/20-year rule)

• Shorter periods may apply if residency was less extensive.

  
  

Planning Complexity: Double tax treaties must be carefully reviewed (e.g., UK-Switzerland, UK-Italy treaties) to avoid unexpected overlaps.

Formal tax domicile severance strategies, combined with careful treaty planning, are essential for effective tax mitigation.

5. Are pensions safe from IHT?

No—from April 2027, pensions lose their IHT-exempt status.Affected Assets Include:

• Uncrystallised pension pots (e.g., SIPP balances).

• Crystallised funds not yet drawn down.

• Lump-sum death benefits.

  
  

Tax Impact:

• Non-spouse beneficiaries could face a 40% IHT charge.

• Subsequent income from pension drawdowns could also attract income tax, leading to a combined effective tax rate exceeding 67%.

  
  

Strategic Options:

• Accelerated drawdown plans.

• Moving pension assets into alternative vehicles (e.g., family investment companies).

• Careful succession nomination structuring to preserve reliefs.

  
  

6. Can frozen thresholds change in the future?

At present, the nil-rate band (£325,000) and the residence nil-rate band (£175,000) are legislatively frozen until at least 5 April 2030.

Given inflationary pressures and rising property prices, this will effectively drag more estates—particularly in London and the South East—into the IHT net without any parliamentary adjustment.

Political Outlook:

• Radical reform (e.g., abolition of IHT) is highly unlikely given fiscal deficits.

• Minor policy tweaks (e.g., increasing reliefs or exemptions for business assets) are more plausible but would require new parliamentary majorities.

  
  

Assume thresholds remain static and plan accordingly; hedge against potential future increases only after legislative announcements..

Final Thoughts: Why Acting Early on the New UK IHT Rules Matters

The new UK IHT rules represent a fundamental shift in how estates, trusts, and pensions will be taxed. Their complexity—and reach—means that waiting until they are fully enforced could cost your family hundreds of thousands of pounds in avoidable taxes and lost opportunities.

But by taking strategic action today, you can take control by restructuring your estate to align with the new regulations, future-proofing your trusts against unexpected liabilities, and reassessing your pension strategies to protect long-term wealth

Take the Next Step: Build a Future-Proof Plan

Don’t leave your financial future to chance. Speak with a Global Investments advisor and gain expert guidance tailored to your unique circumstances.

Together, we’ll help you navigate the upcoming changes with clarity, confidence, and peace of mind.

BOOK A CONSULTATION Secure your legacy. Protect your family’s future. Plan with confidence.