After several years of fiscal uncertainty, the 2025 Budget sets out clearer, and in some cases more challenging, rules for wealth transfer and inheritance. These reforms will have a direct bearing on how advisers help clients protect family assets, manage business succession and plan for the future. The overview below captures the points that you need to be aware of as you help your clients to navigate the new landscape.
Inheritance Tax: Thresholds Still Frozen
The nil-rate band of £325,000 and the residence nil-rate band of £175,000 will remain frozen until at least 2031. As asset values continue to rise against fixed thresholds, more estates that previously sat comfortably below the IHT line are likely to fall into charge. You may need to encourage your clients to revisit how this may affect them, particularly where property values or portfolio growth have been significant.
Business & Agricultural Reliefs: Major Restructure from April 2026
From April 2026, business property relief and agricultural property relief will still offer 100% relief, but only on the first £1 million of combined qualifying assets. Anything above this will attract only 50% relief. A key improvement is the introduction of spousal transferability for any unused portion of the £1 million allowance, including where the first death occurs before the new rules take effect. Attention should be paid to existing succession plans for business owners and farming families, as previous assumptions around full relief may no longer hold for larger estates.
Pensions to Become IHT-Chargeable from April 2027
A significant shift comes with the decision to bring pension pots and death-benefit lump sums fully into the taxable estate from April 2027. This change overturns the long-held principle that pensions provide a highly IHT-efficient vehicle for passing on wealth. Estate planners should reassess pension-heavy estate strategies and consider whether trusts, lifetime gifting, or amended drawdown approaches offer better long-term outcomes for clients.
Higher Taxes on Asset-Based Income
Dividend tax rates will increase from April 2026, while savings interest and rental income will see higher tax rates from April 2027. For clients who rely on investment or property income to support regular gifting, trust contributions, or broader succession strategies, these higher tax burdens may reduce flexibility. You may need to adjust your approach to cash-flow planning and gifting advice accordingly.
Planning Priorities for 2025–2027
Given these rule changes, estate planners should prioritise full estate reviews for clients, particularly those with significant business, agricultural or pension wealth. Many will benefit from bringing forward lifetime gifting while allowances remain static. It is also increasingly important to model scenarios based on the timing of death relative to the 2026 and 2027 reforms, as liabilities could differ materially. Finally, advisers should update client-facing materials and conversations, ensuring clients understand that long-standing assumptions, especially around pensions and 100% relief on business and agricultural assets, are changing.
