The Labour government has unveiled a series of major Inheritance Tax (IHT) reforms set to roll out between April 2025 and April 2027. These changes aim to close loopholes, increase fairness, and boost government revenue, particularly from large estates, businesses, and agricultural holdings.

If you own significant assets in the UK or have ties to the country, here’s what you need to know.

UK Inheritance Tax
 UK Inheritance Tax 


1. IHT Thresholds Frozen Until 2030

Nil-Rate Band: £325,000

Residence Nil-Rate Band: £175,000


Both thresholds will remain unchanged until at least 2030, meaning more estates will be pulled into the IHT net as property and asset values grow due to inflation.

Impact: Even middle-income families could face IHT liabilities in the coming years.


2. Caps on Agricultural & Business Property Relief (From 6 April 2026)

Currently, these reliefs can exempt up to 100% of qualifying agricultural or business assets from IHT. Under the new rules:

First £1 million of qualifying assets → 100% relief (no IHT)

Above £1 million → 50% relief (effectively 20% IHT on the excess)

Impact: Large farms, estates, and family businesses will face higher IHT bills. Estate restructuring and early planning will be crucial.


3. Worldwide Asset Tax for Long-Term Residents (From 6 April 2025)

Non-UK domiciled individuals who have lived in the UK for 10 of the last 20 years will now be taxed on worldwide assets, not just UK-based ones.

Impact: Wealthy individuals can no longer easily avoid UK IHT by relocating before death.


4. Inclusion of Private Pensions in IHT (From 6 April 2027)

Private pension pots, which are currently exempt from IHT, will be included in estate valuations. This could push estates above the IHT threshold.

Impact: Many high-value pension holders may face unexpected tax bills; pension strategies may need review.


5. Additional Tightening Measures

Stricter rules on gifts within 7 years before death.

Possible reductions to other reliefs and exemptions.

No change to the headline IHT rate (40%), but effective taxation will rise.


Why These Changes Matter

The UK’s IHT system has long been criticised for allowing large estates to pass wealth with minimal taxation through reliefs and exemptions. Labour’s reforms aim to increase fairness while still protecting smaller estates.

However, wealth preservation strategies will now require much more careful planning.


Key Actions to Consider

Review your estate plan before April 2025.

Consider gifting strategies earlier than 7 years before potential liability.

Reassess how business and agricultural assets are held.

Seek professional advice on pensions and cross-border assets.


FAQ's

Q1: Will the IHT tax rate change under Labour’s reforms?
No. The standard IHT rate will remain 40%, but more estates will fall into the taxable category due to frozen thresholds and reduced reliefs.

Q2: How will the pension change affect me?
From April 6, 2027, your private pension will be counted as part of your estate value. This could increase IHT liability, especially if your pension is large.

Q3: I’m a UK resident but not a UK citizen. Will I be affected?
If you’ve been resident in the UK for 10 out of the last 20 years, IHT will apply to your worldwide assets starting April 2025.

Q4: Will small family farms be hit hard?
Farms worth less than £1 million in qualifying assets won’t see much change, but larger operations could face higher IHT bills.

Q5: What should I do now?
Consult a tax and estate planning expert immediately to prepare before the staged reforms take effect.