UK Spring Statement 2025 introduced significant changes affecting inheritance tax (IHT) planning. Key developments include:
- Determination of IHT Liability Based on Residency: Effective from 6 April 2025, an individual’s IHT status will be determined by their residency rather than domicile. Those who have been UK residents for at least 10 of the past 20 years will have their worldwide assets subject to IHT. This change aims to align tax obligations with residency, impacting the estates of long-term residents.
- Changes to Agricultural Property Relief (APR): Starting 6 April 2026, only the first £1 million of qualifying agricultural and business property will qualify for 100% APR. Assets exceeding this threshold will receive only 50% relief, resulting in an effective tax rate of 20% on surplus assets. This adjustment may affect farmers’ ability to pass on family farms without incurring significant tax liabilities.
- Termination of Pension IHT Exemption: The IHT exemption on pensions will end in April 2027, meaning beneficiaries could face income tax on inherited pensions, with overall effective taxes potentially as high as 67%. This change necessitates careful retirement and estate planning to mitigate tax burdens on heirs.