As the UK government introduces significant changes to Inheritance Tax (IHT) and estate planning, it’s essential for individuals and families to reassess their strategies. These developments, particularly those scheduled for April 2025, will have profound implications for estate management and tax liabilities.
Key Changes in Inheritance Tax
One of the most critical updates is the shift from a domicile-based IHT regime to a residence-based one. From April 2025, UK residents of 10 years or more will be subject to IHT on their global assets, irrespective of their domicile status. This change fundamentally alters the planning landscape for long-term residents and expatriates, as it introduces new IHT liabilities on foreign assets previously exempt under the non-domicile rules.
Implications for Estate Planning
Given these shifts, it’s crucial to review and possibly revise existing estate planning strategies. Trusts, traditionally used to manage and protect foreign assets, will face new challenges. Specifically, non-UK assets held in excluded property trusts (EPTs) will be liable for IHT if the settlor has been UK resident for more than a decade. This could lead to significant tax implications, necessitating a reassessment of the trust’s benefits and the potential need for alternative structures.
Moreover, there is ongoing speculation about further reforms to IHT reliefs, such as Business Property Relief (BPR). Such changes could impact longstanding tax mitigation strategies, making proactive planning more critical than ever to avoid unexpected liabilities.
Strategic Considerations
In light of these developments, there are several key strategies to consider:
- Reviewing Trust Structures: With the impending changes, it’s advisable to revisit the effectiveness of current trusts, especially EPTs, and explore other options that might offer better protection under the new rules.
- Maximising Reliefs: While reliefs such as the Main Residence Nil-Rate Band (RNRB) and BPR are still in place, leveraging these exemptions is crucial to minimise IHT liabilities.
- Effective Gifting Strategies: The seven-year rule for gifting remains a viable way to reduce IHT exposure, but it requires careful planning and execution to ensure compliance.
- Life Insurance in Trusts: Placing life insurance policies within a trust can provide necessary funds to cover IHT liabilities, protecting the estate’s value for beneficiaries.
Conclusion
The forthcoming changes to the IHT regime underscore the importance of staying informed and taking proactive steps in estate planning. As the landscape continues to evolve, working closely with a financial advisor is essential to ensure your estate is structured to minimise tax liabilities and protect your legacy.
At Regent Legacy Limited, we specialise in bespoke estate planning strategies tailored to navigate the complexities of the current and forthcoming tax environment. Contact us today to ensure your estate planning aligns with the latest regulations and secures your family’s future.
