Inheritance Tax Planning for 2025: RPGCC’s Guide for IHT efficiency
At RPGCC, we pride ourselves on being the accountants and tax advisers of choice for businesses and private clients. Our expertise ensures that you’re prepared for the significant changes to Inheritance Tax (IHT) rules announced in the Autumn 2024 Budget. We asked our Tax team for their insights into the changes to IHT announced in the Budget and how these will impact us all.
Inheritance Tax Planning – what’s changing?
The 2024 Budget introduced landmark amendments to IHT, particularly affecting assets that qualify for Business Property Relief (BPR) and Agricultural Property Relief (APR).
Historically, these reliefs allowed business and farm owners to transfer assets IHT-free, facilitating intergenerational wealth transfer without the burden of a tax liability. This system provided economic stability and ensured continuity for businesses and agricultural enterprises.
However, from April 2026, only the first £1 million of BPR and APR-qualifying assets will pass IHT-free. Any value above this threshold will be taxed at a reduced rate of 50%—a significant shift from the current unlimited relief. Trusts will likely face a similar 50% reduction in tax rates for periodic and exit charges, with further details expected in early 2025.
Who will be affected?
- Small Businesses and Farms Under £1 Million: Minimal impact, as these remain IHT-free.
- Larger Businesses and Farms: Substantial changes. For example, shares in an unincorporated trading business worth £2 million would face a £200,000 IHT bill under the new rules.
The Government have announced that the intend to introduce an interest-free instalment payment option for any BPR/APR assets that attract IHT at death. Until this becomes law, the usual interest-bearing instalments will apply – currently 7.5%, and set to rise in April 2025.
Additionally, the changes will necessitate stricter asset valuations to determine IHT liability accurately. Assets such as AIM shares face even tougher implications, as the £1 million threshold does not apply to them but the IHT tax rate benefits from a similar 50% reduction as APR/BPR assets.
Inheritance Tax Planning – What can be done now?
Want the good news? There is still time to act. Here are some strategies to consider, however it is important to stress that you should seek professional advice that is relevant to your personal circumstances.
There are anti-forestalling measures in place to stop people banking full APR/BPR relief before the changes come in at April 2026.
- Gift assets before April 2026
- Lifetime spousal gifting is now vital in order to secure two lots of the £1m APR/BPR allowance.
- Making lifetime gifts is a common IHT strategy. If the donor survives for seven years post-gift, the asset’s value is excluded from the estate for IHT purposes.
- However, this may result in losing the Capital Gains Tax (CGT) uplift at death, potentially leading to higher CGT for recipients later. Partial gifting or restructuring of shares might be required to retain control or income streams.
- Insurance policies can mitigate the risk of the donor passing away within seven years, which would still trigger IHT.
- Settle assets into a Trust
- Under current proposals, uUnrestricted BPR/APR is still available for lifetime gifts into trust up to April 2026.
- Trusts have their own £1m allowance so gifting into trust will add a further £1m of available BPR/APR relief as well as taking future growth out of the estate.
- Trusts, however, are subject to ongoing charges under the Relevant Property Regime and higher income tax rates. A cost-benefit analysis is essential to evaluate this strategy’s long-term feasibility.
- Restructure shares or partnerships
- A Family Investment Company (FIC) or growth shares can limit future IHT liabilities by passing value growth onto the next generation while retaining control over the underlying assets.
- This is particularly effective for businesses nearing the £1 million valuation threshold.
- Review and update Wills
- Traditionally, BPR/APR-qualifying assets were passed directly to the next generation to maximize relief. With the £1 million cap, it may be more beneficial to transfer such assets to a surviving spouse, allowing for additional gifting or restructuring opportunities.
- RPGCC can help assess whether life insurance policies should be revisited to cover potential liabilities.
- Insurance solutions
- Insurance can offset risks across various strategies, ensuring liquidity to meet IHT obligations without disrupting business operations.
What are your next steps to Inheritance Tax Planning efficiency?
The changes to Inheritance Tax are complex and far-reaching, requiring careful planning tailored to individual circumstances. At RPGCC, our team of experienced accountants and tax advisers are here to guide you through the implications and help you develop a robust strategy. Contact RPGCC today to schedule a free initial consultation and ensure your assets are protected for the future generation. Let us help you make informed decisions as the trusted choice for inheritance tax planning in 2025.
