Inheritance Tax Changes – A solicitor’s guide for 2025

Inheritance Tax changes are a critical consideration for anyone involved in estate planning, particularly with some significant updates taking effect in 2025, following the UK Government’s 2024 Autumn Budget. This guide provides a comprehensive review of those changes, focusing on how they impact individuals, families, farmers, and those planning to pass on pension assets. For tailored support, you can speak to our Wills and Life Planning Solicitors.

In England and Wales, the legal framework governing Inheritance Tax (IHT) has seen several revisions in recent years, with 2025 marking further evolution. We now also await the next Autumn Budget this coming November, to see whether there are yet further tax changes by the government. The term “Inheritance Tax changes” refers to updates in how tax is calculated, exemptions, reliefs, and reporting requirements for those inheriting assets or planning estates.

This year, the government’s reforms focused on simplifying IHT administration, focusing on reviewing agricultural and business reliefs, domicile and including pensions within an individual’s estate. Understanding these changes is vital for effective estate planning and ensuring families and beneficiaries retain as much of the estate as possible.

Understanding Inheritance Tax changes

The primary keyword, Inheritance Tax changes, captures the essence of the latest developments for individuals and professionals currently managing estates. The government has implemented a range of measures to modernise the IHT process, including a streamlined application for estates beneath certain thresholds, digitisation of reporting forms, and clarification of the residence nil-rate band.

• Threshold for IHT currently remains at £325,000, but with notable reporting simplifications.
• The digitisation of IHT returns will become mandatory from 2027/28, speeding up administration.
• More estates can now qualify as “excepted estates,” reducing paperwork.

More information on these reforms is available from HMRC guidance.

Pension Inheritance Tax changes

A key area of Inheritance Tax changes relates to pensions. Recent updates ensure that pension pots left to beneficiaries can now be more tax-efficient, particularly for defined contribution schemes.

Key Highlights (current position):

1. Pension funds are exempt from IHT if left to non-spousal beneficiaries before age 75.
2. After age 75, recipients are liable for income tax rather than IHT on inherited pensions.
3. Clarity on reporting requirements for pension administrators reduces the risk of double taxation.

At present, these pension Inheritance Tax changes are especially relevant for those with significant retirement savings or those considering transferring pension assets into their estate.

However, from April 2027 another key change will take place, impacting an individual’s IHT position and seeing most unused pension funds and death benefits included in the value of a person’s estate for IHT purposes. Currently, unused pension funds in discretionary schemes can be passed on after death with no IHT charge, but this will no longer be the case.

Farmer Inheritance Tax changes

Inheritance Tax changes for farmers in 2025 primarily focus on Agricultural Property Relief (APR) and Business Property Relief (BPR), two crucial tools for succession planning on family farms.

• APR currently allows relief of either 50% or 100% on qualifying agricultural property, but eligibility criteria has been tightened – and new allowances will take effect from April 2026.
• Active farmers must now provide more robust evidence of commercial activity.
• Let agricultural land and diversified farm businesses face greater scrutiny regarding relief qualification.
• Farmers must ensure up-to-date partnership agreements and business structures to maintain BPR eligibility.

Failing to adapt to these Inheritance Tax changes could result in substantial IHT liabilities for family farms.

How the Inheritance Tax changes affect estate planning

The Inheritance Tax changes introduced in 2025 have far-reaching effects on how people approach estate planning. Individuals, farmers, and business owners should now review their Wills and succession plans to account for new rules, especially regarding pension assets and agricultural property.

• All estate plans should be reviewed in light of the upcoming digitisation and reporting requirements.
• Pension nomination forms and trust deeds must reflect updated legal and tax considerations.
• Family partnerships and farm businesses may need restructuring to maintain full relief eligibility.

Seeking legal advice is essential to ensure your estate makes full use of available reliefs and exemptions.

Case scenario: Adapting to Inheritance Tax changes

Consider the case of a family farm in Norfolk. Facing generational transfer in 2025, the family initially assumed full APR would shield the farm from IHT. However, following the latest farmers Inheritance Tax changes, their diversified business activities (holiday cottages and solar energy) were scrutinised by HMRC. With the help of a solicitor, the family restructured the business, separated agricultural from non-agricultural activities, and updated partnership agreements to meet new requirements. This ensured they retained APR on their core farmland while using BPR for qualifying diversified activities, reducing their IHT bill substantially.

Expert insights: Navigating the latest Inheritance Tax changes

Legal professionals offer the following tips for individuals and families navigating Inheritance Tax changes in 2025:

• Start estate reviews early to address changes in legislation and relief eligibility.
• For farmers, keep meticulous business records and clearly define farm business activities.
• Review pension nominations and consult with pension administrators about new reporting requirements.
• Use trusts and lifetime gifts strategically to reduce potential IHT liabilities.
• Seek professional advice on structuring wills and business agreements to adapt to new IHT rules.

Our Wills and Life Planning team of experienced experts are happy to talk through with you the potential tax implications relating to your situation – helping you understand any reliefs and exemptions and contacting HMRC if you are an executor of an estate. Our overall aim is to put you in a position where you understand the Inheritance Tax legislation and can reduce your estate’s liability to pay this.

Contact us for more information.

FAQs

What are Inheritance Tax changes?

Inheritance tax changes refer to the new rules and updates for how IHT is applied, calculated, and reported, particularly changes affecting estates, pensions, and agricultural businesses in 2025, following the government’s Autumn Budget 2024.

How do pension Inheritance Tax changes affect beneficiaries?

Pension Inheritance Tax changes in 2025 mean pension pots left to beneficiaries before the original holder reaches age 75 are typically exempt from IHT, while those inherited after age 75 are taxed as income for the recipient.

What are the new rules for farmers Inheritance Tax changes?

Farmers inheritance tax changes include stricter criteria for Agricultural Property Relief, more detailed evidence of commercial farming activity, and closer examination of diversified farm businesses.

Can pension assets be fully exempt from IHT?

In most cases, yes, especially if the pension holder dies before age 75 and the pot is transferred within two years. After age 75, beneficiaries pay income tax instead.

Table: Key 2025 Inheritance Tax Changes

Steps to take following Inheritance Tax changes

1. Review your current Will and estate plan.
2. Update pension nomination forms and trust deeds.
3. Seek professional legal advice on APR/BPR eligibility.
4. Digitise all estate records and reporting documents.
5. Discuss succession plans with family and professional advisers.

This article was produced on the 17th October 2025 for information purposes only and should not be construed or relied upon as specific legal advice.