The UK’s Inheritance Tax (IHT) landscape is undergoing significant changes in 2025, impacting property owners, investors, and expats alike. In a recent London Property Podcast episode, Matt Bird, Tax Partner at Sayers Butterworth, broke down the latest IHT reforms, covering taxable assets, rates, thresholds, trusts, and implications for non-UK residents. With a 40% tax rate and new rules for global assets, proactive planning is more critical than ever. Whether you’re managing a property portfolio or planning your estate, this guide explores the key IHT changes and expert strategies to navigate the 2025 tax landscape with confidence.
What’s Taxable: UK and Global Assets Under IHT
The 2025 IHT reforms expand the scope of taxable assets, affecting both UK residents and non-residents with UK ties.
• UK Assets: IHT applies to UK-based assets, such as property, savings, and investments, at a 40% rate on estates above the £325,000 nil-rate band (or £500,000 for homes passed to direct descendants).
• Global Assets: From April 6, 2025, individuals resident in the UK for 10 out of the last 20 tax years are liable for IHT on worldwide assets, a shift driven by the abolition of non-domiciled (non-dom) status.
• Impact: Long-term residents and expats with global portfolios face increased tax exposure, particularly on high-value London properties in areas like Mayfair or Kensington.
Action Step: Map out your UK and global assets with a tax advisor to assess IHT liability and explore mitigation strategies before the new rules take effect.
The 40% Rate and Key Thresholds
The IHT rate remains a steep 40%, but understanding thresholds is crucial for effective planning.
• Nil-Rate Band: Each individual has a £325,000 tax-free allowance, with an additional £175,000 residence nil-rate band for homes passed to children or grandchildren, totaling £500,000 (or £1M for couples combining allowances).
• Excess Taxation: Assets above these thresholds are taxed at 40%, meaning a £2M London property could incur £600,000 in IHT without planning.
• No Major Threshold Changes: Unlike non-dom reforms, 2025 IHT thresholds remain static, but the expanded scope of global assets increases tax burdens for high-net-worth individuals.
Investor Tip: Maximize allowances by transferring assets to spouses or civil partners, who inherit tax-free, to reduce the taxable estate.
Gifts and Trusts: New Rules and Opportunities
The treatment of gifts and trusts under IHT is evolving, offering both challenges and planning opportunities.
• Gifts: Gifts made within seven years of death may be subject to IHT, with tapering relief reducing the tax rate for gifts made 3–7 years prior. Annual exemptions (£3,000 per person) and small gifts (£250 per recipient) remain tax-free.
• Trusts: Pre-April 2025 trusts holding non-UK assets for non-doms retain IHT exemptions, but new trusts are taxable under the residence-based regime, complicating estate planning.
• Strategic Use: Trusts can still protect assets from IHT if set up early, but complex rules require expert navigation to avoid unexpected tax liabilities.
Planning Strategy: Use gifting exemptions strategically and establish trusts before April 2025 to shield non-UK assets, consulting a tax specialist for compliance.
Big Changes for Non-UK Residents and Expats
The 2025 IHT reforms significantly impact non-UK residents and expats with UK connections, driven by the non-dom abolition.
• Residency-Based IHT: Individuals resident for 10 out of 20 tax years face IHT on worldwide assets, with liability persisting 3–10 years after leaving the UK, depending on residency duration.
• Expat Challenges: Non-UK residents owning UK property (e.g., a London pied-à-terre) are already subject to IHT on those assets, but the new rules increase scrutiny on global wealth for long-term residents.
• Relocation Trends: The reforms are driving expats to tax-friendly jurisdictions like Dubai or Singapore, where IHT is minimal, to avoid the 40% rate.
Expat Action: Consider relocating before reaching the 10-year residency threshold or restructuring UK property ownership (e.g., via trusts) to minimize IHT exposure.
Why Tax Planning Is More Important Than Ever
With IHT changes amplifying tax burdens, proactive planning is essential for property owners, investors, and advisors.
• Early Action: Plan before April 2025 to leverage pre-reform trust exemptions and gifting strategies, reducing your taxable estate.
• Expert Guidance: Old IHT strategies may no longer work due to the residence-based regime. Work with a tax advisor to tailor a compliant, efficient plan.
• Property Strategies: For London property owners, consider downsizing or transferring assets to family members to stay below IHT thresholds, or invest in tax-efficient vehicles like Reserved Investor Funds (RIFs).
• Holistic Approach: Integrate IHT planning with broader wealth management, factoring in income tax, capital gains tax, and property investment goals.
Expert Advice: Partner with a specialist, like Matt Bird, to navigate the complex IHT landscape and secure your financial legacy in 2025.
Navigate IHT Changes with Property Wealth
The 2025 IHT reforms are reshaping estate planning for UK property owners and expats, demanding strategic action to minimize tax burdens. The London Property Podcast, featuring insights from experts like Matt Bird, empowers you to stay ahead. Our network of tax and real estate specialists transforms these challenges into opportunities, helping you protect your wealth and optimise London property investments.
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