Inheritance Tax in 2025: What’s Changing and How It Affects You

Inheritance Tax (IHT) is undergoing significant reforms in 2025, with changes that will particularly impact non-domiciled individuals (non-doms), business owners, and those with overseas assets. The most notable shift is the move from a domicile-based system to a residence-based system, which means many long-term UK residents will face IHT on their worldwide estates for the first time.

With stricter rules on Business and Agricultural Property Relief (BPR & APR) and the continued freeze on the Nil-Rate Band (NRB) and Residence Nil-Rate Band (RNRB), understanding these changes is crucial for effective estate planning.

1. The Move to a Residence-Based IHT System (From 6 April 2025)

Previously, the UK determined IHT liability based on domicile, meaning that non-doms (individuals whose permanent home was outside the UK) only paid IHT on their UK assets, while their overseas assets remained outside HMRC’s reach.

From 6 April 2025, the system will shift to residency-based taxation, meaning:

Individuals who have been UK tax residents for 10 out of the last 20 tax years will be subject to IHT on their worldwide estate, regardless of domicile.

If someone leaves the UK, their foreign assets will remain within the IHT net for 10 full tax years before they regain full exemption.

This marks a fundamental change, especially for long-term UK residents who previously relied on their non-dom status to protect foreign assets from IHT.

Who Is Affected?

✅ Non-doms who have been UK tax residents for 10+ years—as they will now face IHT on global assets.

✅ UK residents with significant overseas assets, such as property, investments, or trusts.

✅ Expatriates leaving the UK—who will need to plan carefully, as their foreign assets may still be taxed for up to a decade after departure.

2. The End of IHT Exemptions for Non-Doms

Under current rules, Excluded Property Trusts (EPTs) allow non-doms to shield their foreign assets from UK IHT. However, from 6 April 2025:

• EPTs created after this date will no longer protect overseas assets from UK IHT for individuals who meet the new residence-based test.
• EPTs created before 6 April 2025 should remain protected, but they may come under increased scrutiny.
• Non-doms planning to safeguard foreign assets should consider making use of EPTs before the deadline, while also seeking professional advice on long-term strategies.

3. Tighter Rules on Business and Agricultural Property Relief (Effective 2025)

• Inheritance Tax reliefs on business and agricultural assets have also been adjusted to prevent tax avoidance.
• Business Property Relief (BPR) Changes
• Businesses that rely on investment-based activities (rather than active trading) may no longer qualify for IHT relief.
• HMRC will apply stricter tests to ensure only genuine trading businesses benefit.
• Agricultural Property Relief (APR) Changes
• Land with minimal UK farming activity may lose relief, making it harder to pass on farms tax-free.
• Land held within certain corporate structures or trusts may face additional restrictions.
• For business owners and farmers, a review of existing estate plans is essential to ensure they still qualify for these reliefs under the new rules.

4. No Change to the Nil-Rate Band (NRB) and Residence Nil-Rate Band (RNRB)

Despite calls for reform, the Nil-Rate Band (NRB) and Residence Nil-Rate Band (RNRB) remain unchanged in 2025:

The NRB stays at £325,000—the amount that can be passed on tax-free.

The RNRB remains at £175,000, allowing those passing on their homes to direct descendants to benefit from a higher tax-free allowance.

The RNRB tapering threshold is still £2 million, meaning estates above this amount will see a reduction in RNRB relief.

With inflation and rising property values, more estates are falling into the IHT net. Careful estate planning, gifting strategies, and trust structures are increasingly necessary to mitigate tax exposure.

How to Prepare for the 2025 IHT Changes

With these significant reforms, taking proactive steps now can help minimise IHT liabilities:

✅ Review Your Residency Status – If you’re a long-term UK resident with overseas assets, assess whether you will fall under the new residence-based rules from April 2025.

✅ Consider Gifting or Trusts Before the Deadline – Non-doms who wish to protect foreign assets from IHT should consider establishing Excluded Property Trusts before April 2025.

✅ Reassess Business and Agricultural Relief Eligibility – If your estate relies on BPR or APR, check whether you still qualify under the new rules.

✅ Maximise Existing IHT Allowances – With the NRB and RNRB unchanged, ensure your estate is structured to use all available tax-free allowances efficiently.

✅ Seek Professional Advice – The complexity of these changes means that specialist tax planning is more important than ever.

Final Thoughts

The shift to a residence-based Inheritance Tax system represents one of the most significant changes to UK tax policy in years, particularly affecting non-doms, expatriates, and those with international assets. With tighter rules on business and agricultural reliefs, alongside the continued freeze on NRB and RNRB, more estates will face a higher IHT burden.

Planning ahead is essential to protect your wealth and ensure your estate is passed on efficiently. If you haven’t reviewed your IHT strategy recently, now is the time to act.

Would you like personalised guidance on navigating these changes? Get in touch today to ensure your estate is structured in the most tax-efficient way for 2025 and beyond.