Main Rules

  • IHT is normally due at 40% on the balance of the individual’s estate, together with any gifts made in the seven previous years, that exceeds the nil‑rate band (NRB) of £325,000.
  • An additional exempt amount, the residence nil‑rate band (RNRB) of £175,000, is available if the family home (or share thereof) is left to the deceased’s direct descendants.
  • The NRB and RNRB will remain at their current levels until at least 6 April 2028.
  • The RNRB is tapered down by £1 for every £2 of value by which the estate exceeds £2,000,000 (i.e. estates worth more than £2,350,000 lose the benefit of the RNRB).
  • The percentage of the unused NRB and RNRB can be transferred from the first spouse / civil partner to die to the surviving spouse / civil partner.
  • From April 2025, who pays IHT shifted to a residency‑based system, rather than considering domicile status. Long‑term resident individuals will be subject to IHT on their worldwide assets. Non‑resident / short‑term residents will only be subject to their UK situs assets subject to a “tail” of up to 10 years if they leave the UK.
  • Transfers of assets between UK‑domiciled spouses or civil partners and from non‑UK‑domiciled individuals to a spouse or civil partner (regardless of domicile), are made free of IHT.
  • Where the donor is UK‑domiciled and the recipient spouse or civil partner is non‑UK‑domiciled, the spousal exemption is capped at the same level as the nil‑rate band (currently £325,000) and any gifts in excess of this amount may be subject to IHT.

DA Accountants planning points

  • Make sure that your Will reflects your wishes (especially if you have recently married / separated / divorced).
  • Think about making lifetime gifts. Provided that you survive seven years from the date of the gift then the value will fall out of your estate for IHT purposes. Do not overlook CGT though which may be due on the gift; the recipient should always consider insuring against this.
  • If there are strings attached to a gift (i.e. you give away your house to your children whilst continuing to live in it) then the value of the asset concerned will likely continue to be included in your estate for IHT purposes.
  • Take advantage of the annual gift exemption of £3,000 (can be carried forward one year to give £6,000), and small gifts allowance of £250 (to any number of recipients).
  • If an IHT liability is anticipated, then think about taking out a life insurance policy written under trust to cover the tax. The annual premium could be funded from income if you have surplus income to your requirements.
  • If more than 10% of your net estate is left to charity, then the IHT rate will reduce to 36%.
  • Significant changes have been announced regarding Business Property Relief (BPR) and Agricultural Property Relief (APR) from April 2026. Take advice now to see what the impact may be and to plan accordingly.

Inheritance Tax (IHT) – APR and BPR Reforms

  • Significant reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) will take effect from 6 April 2026, fundamentally reshaping inheritance tax exposure for farmers, landowners and business owners. Under the new rules, assets that currently attract 100% relief will instead benefit from 50% relief once their combined value exceeds a new £2.5 million allowance, which replaces the originally proposed £1 million cap. Any unused allowance can be transferred to a surviving spouse or civil partner, enabling couples to shelter up to £5 million of qualifying assets before the reduced rate applies.
  • These changes mean that many clients—particularly those with higher‑value farms, estates or privately‑owned businesses—may face materially higher inheritance tax liabilities for the first time. Given the wide‑ranging implications for succession plans, lifetime gifting, trust arrangements and business continuity, clients should begin reviewing their position now. However, there is much to consider before taking action, and the right approach will depend on individual circumstances, asset mix and long‑term objectives. Professional advice is essential to ensure any restructuring, gifting or estate planning is both effective and aligned with personal and commercial priorities.