Retirement and Will Planning
The UK’s inheritance tax (IHT) landscape is undergoing significant changes between 2025 and 2030. These affect not only non-UK domiciled individuals but also anyone with property, pensions, or assets they wish to pass on. Here’s a clear summary of what’s changing, who is affected, and what practical steps you should consider if you’re planning for retirement or updating your will.
Key Changes to Inheritance Tax (2025–2030)
- From April 2025: Residency-Based IHT for Non-Doms
- The IHT system will move from a domicile-based to a residency-based test.
- Non-UK assets will be within the scope of IHT if the individual has been UK resident for 10 out of the last 20 years (the “long-term resident” test).
- After leaving the UK, individuals remain liable for IHT on worldwide assets for up to 10 years, provided they met the 10-year residency rule.
- Trusts settled by long-term residents will also be subject to IHT on non-UK assets (with some transitional provisions).
- IHT Thresholds Frozen Until 2030
- The nil-rate band (£325,000) and residence nil-rate band (£175,000) remain frozen until at least 2030.
- With rising property values and inflation, more estates will be caught by IHT over time.
- April 2026: Business and Agricultural Relief Capped
- Farms and businesses valued above £1m will face IHT for the first time, as reliefs are capped.
- April 2027: Pensions Included in IHT
- Most unused defined contribution pension funds will be included in estates for IHT purposes from 6 April 2027.
- This could significantly increase the tax burden for those with substantial pension savings.
What you can do – Actions for Retirement and Will Planning
1. Review and Update Your Will
- Ensure your will is tax-efficient and reflects the latest rules, especially if it was drafted before April 2017 or if your circumstances have changed.
2. Assess Your Residency Status
- If you are a non-UK domiciled individual or have international assets, review your residency history to determine if you meet the new “long-term resident” criteria.
- If you plan to leave the UK, understand that you may remain liable for IHT on worldwide assets for up to 10 years after departure.
3. Plan for Frozen IHT Thresholds
- With thresholds frozen until 2030, rising asset values may push your estate into the IHT net. Regularly reassess your estate’s value and potential IHT exposure.
4. Consider Pension Strategies
- From 2027, pensions will be included in your estate for IHT. If you have significant pension savings, consider:
- Drawing down more from your pension during retirement, rather than leaving a large pot to heirs.
- Reviewing beneficiary nominations and pension arrangements with a financial adviser.
- Understanding that, while you don’t need to include your pension in your will, the value will now count towards your estate for IHT purposes.
5. Gifting and Lifetime Planning
- Consider making gifts during your lifetime to reduce your taxable estate, using annual exemptions and the seven-year rule for potentially exempt transfers 67.
- Gifting to children or grandchildren (e.g., into ISAs or pensions) can be tax-efficient, but ensure you retain enough for your own needs.
6. Business and Agricultural Assets
- If you own a farm or business, be aware that reliefs will be capped from April 2026. Review your succession and sale plans accordingly.
Actionable Notes for Those with Property or Assets
- Review your will and estate plan with a qualified solicitor or financial adviser-especially if you have international ties, substantial pensions, or business interests.
- Check your residency status and understand the new rules if you are a non-dom or have lived abroad.
- Consider making gifts or creating trusts to reduce your estate’s value, but seek advice to avoid unintended tax consequences.
- Monitor your estate’s value as property and asset prices rise, and plan for potential IHT exposure due to frozen thresholds.
- For business owners, plan for the new relief caps and consider succession strategies well in advance.
In summary
The upcoming changes to UK inheritance tax rules mean more estates will be liable, and planning ahead is crucial. Regularly review your will, assess your residency, consider pension and gifting strategies, and seek professional advice to ensure your assets are passed on as tax-efficiently as possible
Estate planning UK 2025
With recent changes to inheritance tax (IHT) thresholds and increased scrutiny on estate values, Whole of Life insurance policies are becoming an increasingly valuable tool for estate planning. These policies provide a guaranteed lump-sum payout upon death, which, when structured correctly, can help mitigate the impact of IHT on your estate.
One of the key benefits of Whole of Life insurance is its ability to provide liquidity precisely when it’s needed—on death. By placing the policy in a trust, the payout is kept outside of the deceased’s estate, ensuring that the proceeds are not subject to IHT. This means your beneficiaries receive the full value of the policy without it increasing the taxable estate, helping to preserve your legacy and provide for your loved ones efficiently.
Additionally, the premiums paid on Whole of Life policies can themselves serve as an IHT mitigation strategy. When premiums are paid from excess income and meet the criteria for gifts out of surplus income, they may be exempt from IHT. To qualify, the payments must be regular, come from income (not capital), and leave the individual with enough to maintain their usual standard of living. This makes the policy a dual-purpose solution: it reduces the overall value of the estate over time while ensuring a tax-free benefit is passed on to beneficiaries.
In summary, Whole of Life insurance, particularly when written in trust and funded through surplus income, can play a vital role in estate planning under the current inheritance tax regime. It allows individuals to reduce their estate’s value during their lifetime while protecting family members from potential tax liabilities in the future.
Links to relevant pages on our site and two of our trusted partners who are able to advise on wills.
- https://snfinancial.co.uk/protection/whole-life-insurance/
- https://www.whitedeerlegal.co.uk/
- https://www.kw-wills.co.uk/