As families across the UK brace for significant changes to the Inheritance Tax (IHT) system, thousands are scrambling to understand new legislation set to take effect next month. Probate specialist Josh White provides an essential guide to help demystify these updates and the potential impact they might have on your family finances. According to Daily Express, these changes could reshape the financial landscape for many.

The Residency-Based Shift

Gone are the days when non-domiciled individuals could rely on their foreign status to mitigate IHT responsibilities. Next month’s changes will eradicate this exemption, instituting a new residency-based tax system. Under the new ‘Long-Term Resident’ rule, anyone residing in the UK for 10 of the last 20 years will face IHT on their global assets. This rule significantly tightens the net, impacting around 9,300 individuals annually.

Key Implications for Offshore Trusts

Traditionally sheltered from IHT, offshore trusts will now be scrutinized if the settlor has a ‘Long-Term Resident’ status. This means hefty IHT bills for those originally counting on these trusts as an escape route, making strategic planning more crucial than ever.

Impacts on Farms and Businesses

Arguably the most controversial aspect of the legislative changes is the inclusion of certain farms and businesses under the IHT banner starting in 2026. While families can still pass on up to £1 million worth of agricultural and business assets tax-free, anything above this will now be taxed at 20%. With estimates suggesting 500 farms will be immediately affected, the true number could be as high as 70,000 according to the National Farmers Union.

Pensions on the Radar

In a surprising twist, April 2027 will mark the inclusion of defined contribution pension plans in estate valuations. This inclusion could lead to nearly 40,000 estates being subject to increased tax liabilities.

Preparation is Key

For families, understanding these changes is paramount. Estate planning and consulting with financial advisers can make a significant difference in minimizing IHT liabilities. The era of loopholes is closing, and proactive preparation seems to be the wisest path forward.

The countdown to these pivotal changes has begun. As stated in Daily Express, strategic planning remains the best defense against the looming tax burdens that could alter family legacies for generations to come.