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.
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