UK Inheritance Tax
Inheritance Tax Changes – UK Taxes – 2025
Inheritance Tax (IHT), UK Taxes, Capital Acquisitions Tax.
The 2024 Autumn Budget announced a series of changes to UK Inheritance Tax. As you’re aware, in the UK, Inheritance Tax is a tax payable on the value of a deceased person’s estate. This differs to Irish Capital Acquisitions Tax where the beneficiary pays CAT on gifts and/or inheritances.
Current Rules
Currently, UK IHT is charged at 40% on the value of an estate above the tax-free allowance i.e. the Nil Rate Band of £325,000. This tax-free allowance can be further increased by a Residential Nil Rate Band of £175,000 providing you leave your home to direct descendants i.e. children, step children, grandchildren, etc. As a result, this brings up the total tax-free allowance to £500,000 per person. In certain circumstances, this could potentially equate to £1 million for a couple. These thresholds were fixed until April 2030 in the Autumn Budget. If, however, your estate is worth less than £325,000 when you die, then any unused amount up to the threshold limit can be added to the surviving spouse’s/partner’s threshold amount.
New Rules
From 6th April 2025, the rules for taxing non-UK domiciled individuals will be replaced by a tax residence-based system. This will apply to long-term residents owning non-UK property who were previously outside the scope of UK Inheritance Tax. UK assets will always remain within the scope of inheritance tax. Therefore, from 6th April 2025 onwards, individuals who have held non-domicile status will no longer be exempt from Inheritance Tax on their foreign assets. Instead tax will be based on the individual’s residency status.
Non-UK assets will be within the scope of UK Inheritance tax if an individual qualifies as a long-term resident. This means that anyone who has been resident in the UK for ten out of the last twenty years will be subject to Inheritance Tax on their worldwide assets. This is assessed using the same statutory residence test currently applied for Income Tax and Capital Gains Tax purposes. It’s important to keep in mind that where an individual ceases to be UK resident after 6th April 2025, there will be an “IHT tail.” This effectively means that an individual can remain within the scope of UK Inheritance Tax, on their worldwide assets, for a period of up to ten years after ceasing their UK residence.
In summary, from 6th April 2025, the concept of domicile will no longer determine exposure to inheritance tax. Instead, it will be replaced with the concept of a long-term resident.
For further information, please click:
https://www.gov.uk/inheritance-tax
For all your Irish or cross-border gift or inheritance concerns, please contact us on queries@accountsadvicecentre.ie.
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.
Inheritance Tax Changes – UK IHT – Tax Reliefs
Inheritance Tax, UK IHT, UK Taxes, Agricultural Property Relief, Business Property Relief, Gift and Inheritance Tax
The UK Autumn Budget 2024 announced changes to the current Agricultural and Business Property Inheritance Tax regimes. From 6th April 2026, the combined Agricultural Property Relief and Business Property Relief will be restricted to the first £1 million on “qualifying assets.” The Chancellor of the Exchequer delivered her Budget on 30th October 2024, announcing 100% relief for the first £1 million pounds of combined assets and 50% Relief thereafter. Currently, Agricultural Relief offers two potential rates of Inheritance Tax Relief. These depend on the circumstances of ownership. These rates will remain in place until 5th April 2026.
Old Regime – Agricultural Property Relief
Agricultural Property Relief is an Inheritance tax relief for farmers and landowners. It provides for either 50% or 100% relief on the agricultural value of land and certain buildings.
For the 100% Relief to apply:
- the property must be in the owner’s vacant possession i.e. the owner or transferor has the immediate right to vacant possession of the property or the right to obtain it within the next twelve months.
- the land must be let with the tenancy having commenced on/after 1st September 1995.
- the land must be let and conditions regarding vacant possession must be complied with – This applies by concession.
- the owner had been entitled to his interest in the property since before 10th March 1981 and has met the conditions for ‘Working Farmer Relief”.
The 50% Relief is available in circumstances where the above conditions aren’t met.
If the property is owner-occupied, it must have been owned and used for agricultural purposes for at least two years ending with the date of the transfer. If, however, the property is let to a tenant, it must have been owned by the transferor for at least seven years, ending with the date of the transfer, and the land must have been actively farmed during that time. The property must not be subject to a binding contract of sale on disposal.
Additional rules apply in relation to successive transfers.
Agricultural property includes agricultural land or pasture, grazing land, cottages, farmhouses, farm buildings, woodlands and buildings used in intensive animal rearing, etc.
Old Regime – Business Property Relief
Business Property Relief is a relief from IHT which applies to the transfer of relevant business property. 100% relief is available on the following assets (i) a business or interest in a business operating as a sole trade or partnership and (ii) shares in an unlisted trading company which the donor has owned for a minimum of two years
50% Relief is available on the transfer of shares in a quoted trading company where the donor has a controlling interest (i.e. 51%) in the company. The 50% rate also applies to land and buildings, including plant and machinery, where those assets are used by the donor’s partnership or by a company they control.
With regard to lifetime gifts, Business Property Relief is only available on death provided the donee still owns the relevant business property at the time of death.
If the business owns investments, Business Property Relief is restricted to the business assets. In other words, BPR does not apply to any ‘excepted assets’ in the balance sheet. An ‘excepted asset’ is one which is not used wholly or mainly for the purposes of a trade.
New Regime
From 6th April 2026, the combined Agricultural Property Relief and Business Property Relief will only be available on the first £1 million on qualifying assets. If the individual owns qualifying assets above this threshold amount of £1 million, the rate of the Relief will be reduced to 50% of the excess. This means, from 6th April 2026, an effective IHT tax rate of 20% will apply to the value of qualifying assets above £1 million.
Assets automatically qualifying for the 50% relief rate will not use up the £1 million allowance.
It’s important to keep in mind that any unused part of the £1 million allowance cannot be transferred between spouses in the way that the NIL Rate Band can.
This allowance will not apply to AIM-listed shares and other similar shares not listed on a recognised stock exchange. Instead, they will be entitled to the 50% rate of Relief.
The new rules will apply for lifetime transfers on/after 30th October 2024 in situations where the donor dies on/after 6th April 2026.
The Inheritance Tax liability arising on assets which qualify for Agricultural Property Relief and Business Property Relief can be paid by way of equal annual instalments, over a ten-year period, in certain circumstances.
Full exemptions for transfers between spouses and civil partners will continue to apply i.e. any agricultural and business assets left to a surviving spouse or civil partner will be tax free.
For further information, please click:
https://www.gov.uk/government/news/what-are-the-changes-to-agricultural-property-relief
Following the Inheritance Tax changes in the Autumn Budget 2024, it’s time to consider the practical consequences and what you can do to protect your family wealth. For expert advice and assistance, please contact us on queries@accountsadvicecentre.ie
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.