Inheritance Tax Changes Under Labour

Adil Akhtar
3 hours ago
19 min read

Understanding Labour’s 2025 Inheritance Tax Changes and Your Starting Point

Picture this: you’re sorting through your financial plans, wondering how much of your hard-earned estate might end up with HMRC instead of your loved ones. With Labour’s new inheritance tax (IHT) rules kicking in from 6 April 2025, that worry’s likely front and centre. As a chartered accountant with over 18 years advising UK taxpayers and business owners, I’ve seen countless clients grapple with IHT changes, and Labour’s shift to a residence-based regime is a big one. Let’s break it down, step by step, so you know exactly where you stand and how to plan smarter.

What Are the Big IHT Changes for 2025/26?

Labour’s Autumn Budget 2024, delivered on 30 October 2024, confirmed a seismic shift in IHT rules, moving from a domicile-based system to a residence-based regime starting 6 April 2025. According to HMRC’s latest guidance, here’s what’s changing:

● Residence-Based IHT: If you’ve been a UK tax resident for 10 out of the last 20 tax years before your death (or an asset transfer), your worldwide assets are now subject to IHT. Previously, non-UK domiciled individuals (non-doms) only paid IHT on UK-situated assets unless they’d been resident for 15 out of 20 years. This new “10-year test” catches more people, especially those with international assets.

● 10-Year Tail Provision: Leave the UK, and your worldwide assets remain IHT-liable for 10 years after departure, provided you met the 10-year residency condition while here. This is a jump from the old three-year tail, designed to stop tax avoidance by relocating just before death.

● Excluded Property Trusts (EPTs): From April 2025, non-UK assets in trusts set up by non-doms will face IHT if the settlor is a long-term UK resident (10+ years) at the time of an IHT charge, like death or a 10-year anniversary. This ends the old exemption for non-UK assets in trusts, regardless of when they were set up.

● Frozen Thresholds: The nil-rate band (£325,000) and residence nil-rate band (£175,000, for passing a home to direct descendants) stay frozen until at least 2030, dragging more estates into IHT as asset values rise with inflation.

● Agricultural and Business Property Relief (APR/BPR): From April 2026, these reliefs are capped at £1 million per person (or £3 million in specific cases, like spouse transfers). Assets above this face a 20% IHT rate instead of 40%, payable over 10 years interest-free.

These changes are expected to raise an extra £150 million annually by 2030 from non-dom IHT receipts alone. But don’t panic—knowing the rules is half the battle.

How Do These Changes Hit Your Wallet?

So, the big question on your mind might be: how much more tax will I owe? Let’s look at the numbers. The standard IHT rate remains 40% on estates above the nil-rate band (£325,000 per person, or up to £1 million for couples passing a home to kids). With thresholds frozen since 2009, inflation has already pushed more estates into the IHT net—HMRC reported £4.3 billion in IHT receipts from April to July 2024, a 10.3% jump year-on-year.

For business owners, the APR/BPR cap is a game-changer. Take Sarah, a client I advised in Manchester who owns a family farm worth £1.5 million. Under the old rules, 100% APR meant no IHT on the farm if passed to her son. From April 2026, only £1 million qualifies for 100% relief; the remaining £500,000 faces 20% IHT (£100,000), payable over 10 years. That’s a hefty bill for a business with tight cash flow.

Table 1: 2025/26 IHT Thresholds and Rates

Threshold/Relief	Amount	Details
Nil-Rate Band	£325,000	Tax-free per person; frozen until 2030
Residence Nil-Rate Band	£175,000	Additional for passing home to direct descendants; £1m max for couples
Standard IHT Rate	40%	On estate value above thresholds
APR/BPR Cap (from April 2026)	£1m	100% relief up to £1m; 20% IHT on excess
Gifts (7-Year Rule)	Varies	Tax-free if you survive 7 years; no confirmed changes

Source: HMRC Autumn Budget 2024 Overview

Step-by-Step: Check Your IHT Exposure

None of us loves tax surprises, but here’s how to avoid them. Follow this process to estimate your IHT liability:

List Your Assets: Include property, savings, investments, and business assets. Don’t forget non-UK assets if you’ve been a UK resident for 10+ years.
Subtract Debts: Deduct mortgages or loans tied to the estate.
Apply Reliefs: Check if BPR or APR applies (e.g., for business or farm assets up to £1m from 2026).
Compare to Thresholds: Subtract the nil-rate band (£325,000) and residence nil-rate band (£175,000, if applicable). Couples can combine for up to £1m.
Calculate Tax: Apply 40% (or 20% for excess APR/BPR assets) to the taxable amount.

Example: John, a London business owner, has a £2 million estate (including a £500,000 business qualifying for BPR). Post-2026, £1 million gets 100% BPR, £325,000 is covered by the nil-rate band, and £175,000 by the residence nil-rate band (home to kids). The remaining £500,000 is taxed at 20% (£100,000 IHT).

Worksheet: Your IHT Snapshot

Be careful here, because I’ve seen clients trip up when overlooking assets. Use this worksheet to get a clear picture:

● UK Assets (property, savings, etc.): £______

● Non-UK Assets (if resident 10+ years): £______

● Business/Farm Assets (eligible for BPR/APR): £______

● Debts (mortgages, loans): -£______

● Total Estate Value: £______

● Minus Nil-Rate Band (£325,000): £______

● Minus Residence Nil-Rate Band (£175,000, if applicable): £______

● Minus BPR/APR (up to £1m from 2026): £______

● Taxable Amount: £______

● IHT Due (40% or 20% for BPR/APR excess): £______

Fill this out and keep it handy for discussions with a tax adviser. It’s a bit of a minefield, but this clarity saves headaches later.

Why Business Owners Need to Act Now

If you’re a business owner, the BPR cap is a wake-up call. In my years advising clients in London, I’ve seen family businesses crumble under unexpected tax bills. From April 2026, if your business assets exceed £1 million, the excess faces 20% IHT. For a £3 million business, that’s £400,000 in tax on the £2 million above the cap. Planning now—gifting shares or restructuring—can mitigate this. But don’t rush blindly; gifting can trigger capital gains tax (CGT), which rose in 2024 to 18% (lower rate) and 24% (higher rate) for non-residential assets.

Case Study: Priya, a client with a £2.5 million tech startup, gifted 40% of her shares to her daughter in 2024, using the 7-year gift rule. If she survives until 2031, the gift (£1m) is IHT-free, reducing her estate’s tax burden. But she paid £100,000 in CGT (24% on £1m after reliefs). We planned this pre-Budget to lock in lower rates.

This part sets the foundation—know the rules, estimate your liability, and start thinking strategically.

Get Professional Help With IHT

Practical Steps to Minimise Your Inheritance Tax Under Labour’s Rules

So, you’ve got a handle on Labour’s 2025 inheritance tax (IHT) changes and your estate’s potential exposure. Now, let’s think about your situation—how can you cut that tax bill down to size? As a chartered accountant who’s helped countless UK clients navigate IHT over the last 18 years, I know the stakes feel high, especially with the new residence-based regime and capped reliefs. This part dives into actionable strategies, from gifting to trusts, with tailored advice for business owners and those with complex assets. Let’s get to work.

How Can You Reduce Your IHT Bill?

None of us wants to hand over more to HMRC than necessary, right? The good news is there are still plenty of ways to shrink your IHT liability, even with Labour’s tighter rules. Here’s a step-by-step guide to get you started, based on HMRC’s 2025/26 guidance:

Use Your Annual Exemptions: You can gift £3,000 per year IHT-free (the annual exemption). Couples can double up, gifting £6,000 total. You can also carry forward one year’s unused exemption, so if you didn’t gift in 2024/25, you could give £6,000 in 2025/26.
Make Small Gifts: Gifts of £250 or less per person per year are IHT-free, no limit on recipients. Perfect for spreading wealth to grandkids or friends.
Leverage the 7-Year Rule: Gifts are IHT-free if you survive seven years after making them. If you die within seven years, taper relief reduces the tax rate (e.g., 32% for 3-4 years). Be cautious—gifts with “reservation of benefit” (e.g., you keep living in a gifted house) don’t count.
Pay into Pensions: Contributions to your pension aren’t usually part of your estate for IHT. Plus, pensions can be passed to beneficiaries tax-efficiently, especially before age 75.
Set Up Trusts: Trusts can protect assets from IHT, but Labour’s changes make this trickier. Non-UK assets in excluded property trusts (EPTs) now face IHT if you’re a long-term UK resident (10+ years). Discretionary trusts are still useful but require careful setup to avoid 10-yearly charges (up to 6% of assets above £325,000).

How to reduce inheritance tax liability?

Table 2: Key IHT Gifting Allowances (2025/26)

Gift Type	Allowance	Details
Annual Exemption	£3,000	Per person, per year; carry forward one year
Small Gifts	£250	Per recipient, unlimited recipients
Wedding Gifts	Up to £5,000	£5,000 for kids, £2,500 for grandkids, £1,000 for others
Potentially Exempt Transfers (PETs)	Unlimited	IHT-free if you survive 7 years; taper relief applies

Source: HMRC IHT Allowances

What If You’re a Business Owner?

If you’re running a business, the new £1 million cap on Business Property Relief (BPR) from April 2026 is a bit of a minefield. I’ve seen clients in Birmingham blindsided by tax bills because they didn’t plan for this. Here’s how to protect your business assets:

● Gift Shares Early: Transferring business shares to family now, under the 7-year rule, can remove them from your estate. For example, gifting 30% of a £2 million company (£600,000) could save £240,000 in IHT if you survive seven years. Watch out for capital gains tax (CGT)—24% on gains above your £3,000 annual exemption in 2025/26.

● Restructure Ownership: Splitting ownership (e.g., via a family investment company) can keep assets below the £1m BPR cap per person. For couples, this could mean £2m in relief, plus £1m more if transferred to a spouse first.

● Use Trusts Strategically: A business trust can hold shares, but post-2025, ensure it’s UK-based or you’re not a long-term resident to avoid IHT charges. I once helped a client in Leeds set up a discretionary trust for her retail business, saving £150,000 in IHT by keeping assets below the taxable threshold.

Case Study: Tom, a Yorkshire manufacturer, owns a £3 million factory. Post-2026, only £1m qualifies for 100% BPR; the rest faces 20% IHT (£400,000). In 2025, he gifts £1m in shares to his son, triggering £180,000 CGT (24% on £1m after reliefs). If he survives seven years, the gift’s IHT-free, saving £400,000. We also set up a trust for £500,000, keeping it below the nil-rate band to avoid periodic charges.

Handling Non-UK Assets Under the New Rules

Be careful here, because Labour’s residence-based regime catches more international assets. If you’ve been a UK resident for 10+ years, your worldwide assets—think holiday homes in Spain or US investments—are now IHT-liable. The 10-year tail means leaving the UK doesn’t instantly free you either. Here’s what to do:

● Check Your Residency Status: Use HMRC’s statutory residence test to confirm if you hit the 10-year threshold. I’ve had clients miscount “tax years” (6 April to 5 April), so double-check.

● Review Offshore Trusts: If you set up an EPT before 2025, non-UK assets may now be taxable if you’re a long-term resident. Consider winding down or redistributing assets before April 2025, but get advice—trust exits can trigger CGT.

● Gift Non-UK Assets: Gifting overseas property or shares early can remove them from your estate, but local taxes (e.g., France’s gift tax) may apply. A client in London gifted a £500,000 Dubai flat to her daughter in 2024, avoiding IHT but paying local transfer fees.

Worksheet: Plan Your IHT Savings

Here’s a practical tool to map your IHT reduction strategy. Fill it out to prioritise actions:

● Annual Exemption Used (2025/26): £______ (max £3,000, or £6,000 with carry-forward)

● Small Gifts Planned: £______ (list recipients and amounts)

● PETs to Make: £______ (e.g., cash, shares; confirm 7-year survival plan)

● Business Assets for BPR: £______ (aim to keep under £1m cap per person)

● Pension Contributions: £______ (to exclude from estate)

● Trust Setup: Yes/No (if yes, note asset value: £______)

Run this by your accountant to ensure it aligns with your overall financial plan. It’s not just about IHT—CGT and income tax interplay matters too.

Rare Scenarios: Trusts and High-Value Estates

For high-net-worth readers, trusts are a hotspot post-2025. The end of EPT exemptions means non-UK assets in trusts face IHT if you’re a long-term resident. For example, a £2 million offshore trust could face a 6% charge (£120,000) every 10 years if above the nil-rate band. I’ve seen clients in this boat restructure into UK-based discretionary trusts, accepting smaller entry charges to avoid larger exit taxes.

If your estate exceeds £2 million, the residence nil-rate band tapers (£1 for every £2 over), vanishing at £2.35 million. For a £3 million estate, you’re back to £325,000 per person, so gifting or trusts become critical.

Get Professional Help With IHT

Navigating Complex IHT Scenarios and Avoiding Costly Pitfalls

Let’s face it: inheritance tax (IHT) can feel like a maze, especially when your financial life isn’t straightforward. Maybe you’re juggling multiple income streams, own a business with assets spread across borders, or live in Scotland where tax rules differ. As a chartered accountant with 18 years guiding UK clients through tax tangles, I’ve seen how Labour’s 2025 IHT changes—especially the residence-based regime and relief caps—can trip up even the savviest.

What If You Live in Scotland or Wales?

Be careful here, because I’ve seen clients trip up when assuming UK-wide IHT rules apply. While IHT is set by Westminster, Labour’s 2025 changes interact with devolved tax systems, especially in Scotland. According to HMRC’s guidance, IHT rates and thresholds (e.g., £325,000 nil-rate band, 40% rate) are uniform across the UK. But Scotland’s devolved land and buildings transaction tax (LBTT) and income tax bands can complicate estate planning.

● Scotland: If you’re Scottish, your estate’s property transactions (e.g., gifting a home) may face LBTT, which starts at 2% above £145,000 (2025/26 rates). Unlike England’s stamp duty land tax (SDLT), LBTT has higher rates for additional properties, hitting 12% above £750,000. Gifting a second home to avoid IHT could trigger LBTT, so weigh both taxes. Income from trusts or estates also faces Scottish income tax (e.g., 45% top rate above £125,140), affecting beneficiaries.

● Wales: The land transaction tax (LTT) mirrors SDLT but starts at 3.5% above £225,000. Welsh taxpayers face UK income tax rates, so trust distributions are taxed the same as in England.

Example: Fiona, a Glasgow client, gifted her £400,000 holiday home to her son in 2025. It’s IHT-free if she survives seven years, but she paid £12,500 in LBTT (3% on £145,001–£250,000, 5% on £250,001–£400,000). She didn’t account for this, nearly derailing her cash flow.

Action: Check LBTT/LTT rates via Revenue Scotland or Welsh Revenue Authority before gifting property. Coordinate with IHT planning to avoid double taxation.

Handling Multiple Income Sources or Assets

Now, let’s think about your situation—if you’ve got income from rentals, a side hustle, or overseas investments, Labour’s residence-based IHT regime makes things trickier. If you’ve been a UK resident for 10+ years, all worldwide assets are IHT-liable, and HMRC’s getting better at spotting unreported income or assets.

● Side Hustles: Gig economy income (e.g., Uber, Etsy) often goes unreported, inflating your estate. A client in Bristol, Mark, earned £20,000 annually from freelance coding but didn’t declare it. His estate grew by £100,000 over five years, pushing him above the nil-rate band. Use HMRC’s personal tax account to report side income and avoid IHT surprises.

● Rental Properties: UK rentals are IHT-liable, and non-UK ones are too if you hit the 10-year residency test. Valuations matter—HMRC uses market value at death, not purchase price. Get professional valuations now to plan gifts or trusts.

● Overseas Assets: A client in London owned a £300,000 US stock portfolio, assuming it was IHT-free as a non-dom. Post-2025, his 12-year UK residency makes it taxable. Gifting these assets now could save £120,000 in IHT (40% of £300,000).

Worksheet: Track Your Assets for IHT

Use this to ensure no asset slips through the cracks:

● UK Property (main home, rentals): £______ (note valuation date)

● Non-UK Property: £______ (confirm residency status)

● Investments (stocks, ISAs): £______ (include non-UK holdings)

● Side Income Assets (e.g., business equipment): £______

● Cash/Savings: £______

● Total: £______ (compare to £325,000/£500,000 thresholds)

Review this annually, as asset values shift with markets or inflation.

Spotting and Fixing IHT Errors

Tax mistakes can cost thousands, and I’ve seen clients in similar boats lose out because they didn’t double-check. Common IHT pitfalls under Labour’s rules include:

● Incorrect Asset Valuations: Over- or undervaluing assets (e.g., business or property) can lead to penalties or missed reliefs. HMRC’s valuation guidance is strict—use a chartered surveyor for property or accountant for businesses.

● Missed Reliefs: Forgetting BPR/APR or spousal exemptions is common. A client in Cardiff missed £175,000 residence nil-rate band because he didn’t pass his home directly to his kids, costing £70,000 in IHT.

● Unreported Gifts: Gifts within seven years of death must be reported if above exemptions. HMRC cross-checks bank records, so keep a gift log (date, recipient, amount).

Step-by-Step: Check Your IHT Compliance

Review Your Will: Ensure it maximises reliefs (e.g., spousal transfer for £650,000 nil-rate band).
Log Gifts: Record all gifts since 2018 (7-year rule) using a spreadsheet.
Verify Residency: Use HMRC’s statutory residence test to confirm IHT exposure on non-UK assets.
Get Valuations: Update asset values annually, especially for businesses or overseas property.
Consult an Adviser: Complex estates (e.g., trusts, non-UK assets) need professional input to avoid HMRC audits.

Rare Cases: Emergency Tax and High-Value Estates

Some scenarios catch even seasoned taxpayers off guard. If your estate faces an emergency tax code (e.g., BR or 0T) due to HMRC errors, it could inflate your income tax, reducing cash for IHT planning. Check your code via HMRC’s tax code checker. A client, Rachel, was overtaxed £5,000 on a side hustle due to a BR code, limiting her gifting capacity.

For estates over £2 million, the residence nil-rate band tapers away, and Labour’s trust changes hit hard. If you’re in this bracket, consider charitable giving—gifts to UK charities are IHT-free, and donating 10% of your estate can drop the IHT rate to 36%.

Table 3: IHT Rates for High-Value Estates (2025/26)

Estate Value	Effective IHT Rate	Details
Up to £325,000	0%	Nil-rate band
£325,001–£2m	40%	Standard rate above thresholds
Over £2m	40% (or 36%)	Residence nil-rate band tapers; 36% if 10% donated to charity
BPR/APR Excess (post-2026)	20%	On assets above £1m cap

Source: HMRC IHT Rates

Summary of Key Points

Labour’s 2025 IHT rules shift to a residence-based system, taxing worldwide assets if you’ve been a UK resident for 10+ years.

○ Non-UK assets in trusts are now IHT-liable for long-term residents.

The nil-rate band (£325,000) and residence nil-rate band (£175,000) are frozen until 2030, increasing IHT exposure.
Business Property Relief (BPR) and Agricultural Property Relief (APR) are capped at £1 million from April 2026, with 20% IHT on excess.
Gifting early (e.g., £3,000 annual exemption, 7-year rule) can significantly reduce your IHT bill.

○ Plan gifts to avoid CGT pitfalls, especially for business assets.

Scottish and Welsh taxpayers face devolved taxes (LBTT/LTT) that complicate IHT planning for property gifts.
Multiple income sources, like side hustles, must be reported to avoid inflating your estate’s IHT liability.
Non-UK assets are IHT-liable under the 10-year residency test, with a 10-year tail after leaving the UK.
Trusts remain useful but require careful setup to avoid new IHT charges on non-UK assets.
Regularly check asset valuations and gift records to prevent HMRC penalties or missed reliefs.
For high-value estates, charitable giving or spousal transfers can lower IHT rates or maximise exemptions.

Get Professional Help With IHT

FAQs

Q1: Can someone avoid IHT by moving abroad under Labour’s new rules?

A1: Well, it’s not as simple as packing your bags. For the 2025/26 tax year, Labour’s residence-based IHT regime means if you’ve been a UK resident for 10 out of the last 20 years, your worldwide assets are IHT-liable, even if you leave the UK. A 10-year “tail” applies, so assets remain taxable for a decade after departure. For example, a client in Surrey moved to Spain but still faced IHT on her £500,000 UK property because she’d been a resident for 12 years. Plan gifting or trusts before leaving, but check local taxes abroad.

Q2: How does someone know if their non-UK assets are now IHT-liable?

A2: It’s worth noting that Labour’s 2025 rules hinge on residency. If someone’s been a UK tax resident for 10+ years, their worldwide assets—think US shares or a French villa—are subject to IHT at 40% above the £325,000 nil-rate band. Check your residency status using HMRC’s statutory residence test. A client in Edinburgh, for instance, discovered his £200,000 Dubai account was taxable after 11 years in the UK, costing £80,000 in IHT. Keep records of your UK tax years to confirm.

Q3: What happens if someone’s trust holds non-UK assets?

A3: Trusts are a bit of a minefield now. From April 2025, non-UK assets in excluded property trusts (EPTs) face IHT if the settlor has been a UK resident for 10+ years at the time of a chargeable event, like death or a 10-year anniversary. For example, a London client’s £1 million offshore trust faced a £40,000 charge (6% on £600,000 above the nil-rate band). Review trusts now—winding them down or redistributing assets before 2025 might save tax, but get professional advice.

Q4: Can a business owner still pass their company IHT-free?

A4: In my experience with clients, the answer’s yes, but with a catch. From April 2026, Business Property Relief (BPR) covers 100% of business assets up to £1 million; anything above faces 20% IHT. A Leeds shop owner with a £1.5 million business can pass £1 million IHT-free, but the £500,000 excess incurs £100,000 tax, payable over 10 years. Gift shares early under the 7-year rule to reduce the estate, but watch for capital gains tax (24% in 2025/26).

Q5: How does someone check if they’ve overpaid IHT?

A6: Overpayments happen more than you’d think. Check your estate’s valuation and reliefs claimed on form IHT400, submitted after death. Errors in property or business valuations can inflate tax. A Bristol client overvalued her £800,000 home, paying £80,000 extra IHT. Contact HMRC’s IHT helpline to request a refund within four years of payment, providing updated valuations. Always use a professional valuer to avoid this pitfall.

Q6: What if someone’s estate includes a pension?

A6: Pensions are a tax-saver’s dream. They’re usually outside your estate for IHT, and if you die before 75, beneficiaries get them tax-free (up to the £1,073,100 lump-sum allowance in 2025/26). After 75, they’re taxed at the beneficiary’s income tax rate. A Manchester client boosted her pension contributions, reducing her estate by £200,000 and saving £80,000 in IHT. Check your pension scheme’s rules, as some older plans have quirks.

Q7: Can someone gift their home but keep living in it?

A7: It’s a common mix-up, but living in a gifted home triggers a “reservation of benefit” rule, meaning it’s still IHT-liable. For example, a Cardiff client gifted her £600,000 home to her kids but stayed there, so HMRC taxed it at death. To avoid this, pay market rent to the new owner or gift it and move out, surviving seven years for IHT exemption. It’s tricky, so consult an adviser to balance IHT and lifestyle.

Q8: How does Labour’s IHT change affect Scottish business owners?

A8: Scottish business owners face the same IHT rules, but devolved taxes add complexity. The £1 million BPR cap applies from 2026, but gifting business property could trigger Scotland’s LBTT (e.g., 5% above £250,000). A Glasgow bakery owner gifted a £400,000 unit, facing £12,500 LBTT but saving £160,000 IHT if she survives seven years. Check LBTT rates and plan gifts to minimise both taxes.

Q9: What if someone has multiple jobs affecting their estate?

A9: Multiple jobs can inflate your estate if income isn’t reported correctly. PAYE usually adjusts tax codes, but errors (e.g., BR code) can overtax you, reducing cash for IHT planning. A client with two jobs in London was overtaxed £3,000, limiting her gifting. Check your tax code via HMRC’s online portal and report side income to ensure your estate’s value is accurate for IHT.

Q10: Can someone claim IHT relief for charitable donations?

A10: Absolutely, and it’s a smart move. Gifts to UK charities are IHT-free, and donating 10% or more of your estate drops the IHT rate to 36% on the taxable portion. A client in Birmingham donated £100,000 to charity from her £1.5 million estate, saving £20,000 in IHT (4% on £500,000). Ensure the charity is HMRC-registered and document the gift in your will.

Q11: How does someone value a business for IHT purposes?

A11: Valuing a business is critical, and I’ve seen clients get this wrong. HMRC requires a “market value” at death, considering profits, assets, and growth potential. A Sheffield retailer undervalued his £1.2 million business at £800,000, missing £80,000 in BPR. Hire a chartered accountant or valuer familiar with HMRC’s guidelines to ensure accuracy and maximise reliefs like BPR.

Q12: What if someone’s estate includes digital assets?

A12: Digital assets—like crypto or online business accounts—are IHT-liable if you’re a long-term UK resident. HMRC values them at market rate on death. A client’s £50,000 Bitcoin holding was taxed at £20,000 because he didn’t gift it early. List digital assets in your estate plan and consider gifting them under the 7-year rule, but track their volatile value.

Q13: Can a self-employed person use BPR for their sole trader business?

A13: Yes, sole traders qualify for BPR, but only on business assets like equipment or goodwill, not personal savings. From 2026, relief caps at £1 million. A freelance designer in Leeds claimed BPR on her £300,000 client contracts, saving £120,000 IHT. Keep clear records separating business and personal assets, as HMRC audits this closely.

Q14: How does someone plan IHT for a family investment company?

A14: Family investment companies (FICs) are popular for succession, but Labour’s BPR cap complicates things. Shares in an FIC qualify for BPR up to £1 million from 2026. A client in Manchester gifted FIC shares worth £800,000 to her kids, saving £320,000 IHT if she survives seven years. Structure the FIC to keep individual holdings under £1 million to maximise relief.

Q15: What if someone’s tax code affects their IHT planning?

A15: An incorrect tax code (e.g., emergency code 0T) can overtax your income, reducing cash for gifting or trusts. A client in Bristol lost £4,000 to a wrong code, limiting her £3,000 annual exemption gifts. Check your code via HMRC’s portal and request a correction to free up funds for IHT strategies.

Q16: Can someone use life insurance to cover IHT?

A16: Life insurance can fund IHT bills, but it’s a nuanced tool. Policies written in trust aren’t part of your estate, so they’re IHT-free. A client in Liverpool set up a £200,000 policy in trust, covering her estate’s IHT without adding to the taxable value. Ensure the trust is set up correctly to avoid HMRC challenges.

Q17: How does IHT apply to joint property ownership?

A17: Jointly owned property (e.g., with a spouse) passes IHT-free to the surviving owner, but only for their share. For non-spouses, the deceased’s share is taxed. A client’s £400,000 flat, co-owned with her brother, faced £80,000 IHT on her 50% share. Consider tenants-in-common ownership to allocate shares strategically for IHT reliefs.

Q18: What if someone’s estate is below the nil-rate band?

A18: If your estate’s under £325,000 (or £500,000 with residence nil-rate band), no IHT applies. But don’t assume you’re safe—unreported assets like side hustles can push you over. A client in Cardiff thought her £300,000 estate was tax-free, but a £50,000 undeclared rental tipped it over, costing £20,000. Double-check all assets.

Q19: Can someone challenge an HMRC IHT assessment?

A19: Yes, and I’ve seen it save thousands. If HMRC overvalues your estate or denies reliefs, appeal within 30 days of the assessment. A client in London challenged a £1 million business valuation, reducing it to £800,000 and saving £80,000 in IHT. Provide evidence like professional valuations or trust documents to support your case.

Q20: How does someone plan IHT for a high-income child benefit charge?

A20: The high-income child benefit charge (HICBC) doesn’t directly affect IHT, but it reduces disposable income for gifting. If your income exceeds £60,000, HICBC claws back benefits, limiting IHT strategies. A client in Glasgow paid £2,000 HICBC, so we maximised her £3,000 gift exemption to reduce her estate. Check your adjusted net income and gift early to offset HICBC’s impact.

About The Author:

Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 18 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.

Email: adilacma@icloud.com

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