What Inheritance Tax Changes Are Happening? The 2025 Outlook for UK Families and Estates

Belgravia Capital
May 31
4 min read

Inheritance tax (IHT) has long been a contentious topic in British politics, but for families trying to preserve wealth across generations, it’s become more than just a debate. It’s a moving target.

With reforms already announced and more likely on the way, people across the UK are asking:

“What inheritance tax changes are happening?”

At Belgravia Capital Wealth Management, we help individuals and families prepare for the tax system as it is and as it’s about to become.

In this article, we’ll break down the changes that have already been confirmed, those being considered, and how they’re likely to impact your estate planning over the next five years.

Confirmed Inheritance Tax Changes (2024–2027)

The Labour government introduced a series of IHT reforms in its first Autumn Budget in October 2024.

These will be phased in between now and April 2027, with the aim of raising revenue and making the tax system more progressive.

Here’s what’s already been confirmed:

Cap on Business and Agricultural Relief - Effective April 2026

A £1 million lifetime cap per individual on the combined use of Business Property Relief (BPR) and Agricultural Property Relief (APR)
Relief above this cap will be reduced to 50%
This affects business owners, landowners, and farmers with high-value estates

Reduction of Relief on AIM Shares – April 2026

AIM-listed shares will no longer qualify for 100% BPR
From 2026, they will receive only 50% relief
This results in a 20% IHT bill on AIM investments passed through the estate

Inheritance Tax on Pension Death Benefits - April 2027

Currently, unused pension funds are often passed IHT-free
From 2027, unused pensions and lump sum death benefits will be included in the estate for IHT purposes
This could affect retirement strategies and succession planning

Freeze on IHT Thresholds Extended to 2030

The £325,000 nil-rate band and £175,000 residence nil-rate band are now frozen until April 2030
As asset values rise, more estates will be dragged into the IHT net by default

These changes alone will increase the number of estates paying IHT, and the average tax bill for families affected.

Potential Inheritance Tax Changes Being Considered

Beyond the confirmed reforms, several additional changes are under discussion within policy circles. While not yet law, they are worth preparing for, especially if your estate is already near the IHT threshold.

Reform or Abolition of the Residence Nil-Rate Band

The RNRB allows £175,000 extra tax-free when the home is left to children or grandchildren
Critics argue it unfairly benefits property owners and complicates the system
Labour may consider merging or removing this allowance in future Budgets

Changes to Trust Taxation

The government may introduce new reporting requirements or tax charges for discretionary trusts
Lifetime trusts could lose some IHT protection or face higher periodic and exit charges

Tighter Rules on Gifting

The current 7-year rule and taper relief could be shortened or removed
Lifetime gifts may be taxed more heavily or be required to be reported, even when made well in advance of death

Lifetime Receipts Tax Model

A radical idea being floated: replacing estate-based IHT with a lifetime receipts tax
Individuals would be taxed based on what they receive over their lifetime, not what the deceased owned
This would shift the tax burden from the estate to the beneficiary

While these ideas are not yet law, they signal a clear direction: greater scrutiny, reduced relief, and a broader IHT base.

What Do These Changes Mean for You and Your Estate?

If you’re:

A business owner
A farmer or landowner
An investor holding AIM shares
Someone with a sizable pension pot
Part of a property-owning family
Managing or benefiting from a trust

Then you are more exposed to IHT now than ever before - and the impact will grow as new rules come into force.

Many families who were previously safe from inheritance tax (due to reliefs or thresholds) will now be pulled into the taxable zone unless proactive planning is done.

Key Planning Actions to Take Now

To stay ahead of these changes, we strongly recommend:

Use Reliefs While They Still Apply

Consider transferring qualifying business or agricultural assets before April 2026 to lock in full relief
Review whether AIM portfolios still align with your IHT strategy

Review Trust Structures

Ensure trusts are properly documented and compliant with the latest regulations
Consider alternatives if your current structure could soon face new charges

Evaluate Gifting Plans

Make larger lifetime gifts sooner to start the 7-year clock before any rule changes
Use annual gift allowances and gifts from surplus income

Equalise Spousal Estates

Ensure both partners make full use of their nil-rate and residence nil-rate bands

Consider Life Insurance in Trust

A whole-of-life policy can be used to fund the tax bill, avoiding asset sales
Must be structured correctly to fall outside your taxable estate

Review Pensions Ahead of 2027

With pension death benefits soon to be taxed, work with your adviser to revisit your retirement and succession plans

Case Study: The Cost of Waiting When it Comes to IHT

Mr. and Mrs. Kaur own a farming business and a portfolio of AIM shares worth £3 million. They assumed their estate would pass IHT-free using full APR and BPR.

By 2026:

Their reliefs are capped at £1 million each
AIM shares receive only 50% relief
The rest of the estate is now taxable

Total IHT liability: over £400,000

Had they transferred part of the business in 2025, set up a trust, and insured the shortfall, they could have avoided the tax completely.

How Belgravia Capital Wealth Management Can Help Reduce your Inheritance Tax Burden

We help clients:

Identify reliefs they may currently qualify for
Prepare for the 2026 and 2027 changes in advance
Minimise exposure through gifts, trusts, and insurance
Review pension, trust, and investment structures
Provide cross-generational wealth planning

Our team of experts ensures your estate plan evolves with the law - not against it.

Conclusion: What Inheritance Tax Changes Are Happening?

The inheritance tax landscape is shifting fast. With relief caps, frozen thresholds, and new asset categories coming into scope, every estate needs to be reviewed.

The cost of doing nothing could run into hundreds of thousands.

The reward for acting now?

A well-protected estate and a lasting legacy for your loved ones.