The current government have recently announced a tranche of changes to inheritance tax which will start from April 2025, most notably the reduction in Agricultural Property Relief which has been heavily criticised by the farming community who have faced spiralling input costs alongside other issues such as climate change.

The proposed changes, staggered over three-years, will lead to reductions in Business and Agricultural Property Relief, the incorporation of unused pension assets into deceased estates and the closure of the non-domiciled tax regime.

Changes to Inheritance Tax from April 2025

Domicile Status and Inheritance tax

The non-domiciled tax regime will be changing in April 2025 and a person’s estate, including worldwide assets, will now be subject to inheritance tax if they have been resident in the UK for at least 10 years out of a 20-year period.

Agricultural and Business Property Relief

Agricultural Property and Business Property inheritance tax exemptions designed to help families pass their business, shares and land onto the next generation, without being broken up, will change in April 2026, with reduced benefits for higher-value estates.

Pensions

From April 2027 unused pensions, previously exempt from IHT, will now be considered as part of an estate and also subject to inheritance tax. Previously unused pension could be passed on to beneficiaries with 100% tax relief so many families will now need to review their pension arrangement plans.

Life Policies and Inheritance Tax

Families are now considering how to plan for these changes and life policies can be a welcome solution to the inheritance tax burden. Ali Adham, Castleacres’s Life insurance advisor says:

“Whether you want to gift your assets in your own lifetime or pass your property, farm or business as a legacy to your family after death, different life insurance policies can really help with inheritance tax.

There are essentially three basic policies on the market, Whole of Life, Term Life and Short-term Gift Inter-Vivos policies. You can choose which policy suits you family requirements but these policies are all designed to provide a lump sum to your beneficiaries on your death, crucially, if it is held in trust, your family can access it immediately.

Traditionally a family may have used a life insurance settlement to pay off a mortgage or provide an income but if you plan carefully it can also be used to settle an inheritance tax bill enabling your family to hold your property intact ”

Learn more about Life Insurance and Inheritance Tax