The chancellor announced that both reliefs will be significantly reduced from April 2026. A cap will be introduced so only the first £1mn of combined business and agricultural assets will benefit from the full relief. Assets over that cap will only benefit from half the relief, subject to IHT at 20 per cent.
The 20 per cent rate will also apply to Aim shares and related investments, even under the cap. The result is that a business worth £5mn will be subject to £800,000 of IHT, and the family may need to sell part of the business to meet the tax charge.
Business owners and farm owners should consider options for transferring part of these assets into a family trust while the reliefs still apply in full, banking the 100 per cent relief.
This will require careful review of how much of these assets the current owners can afford to give away now, keeping in mind that they must not benefit themselves from the trust in the future.
UK-resident non-doms
Another group affected by the proposed changes will be families that moved to the UK from overseas. Some options have ceased to be available with immediate effect from October 30.
From April 2025, anyone living in the UK for 10 years in the past 20 years will be subject to IHT on death on worldwide assets. This will reset if they cease UK residence again for three to 10 years depending on how long they lived in the UK.
Many families from overseas planned around IHT by transferring non-UK assets into a trust, sheltering those assets. Past governments accepted this as a way to encourage families to move to the UK without applying taxes to overseas wealth. From April 2026 that will come to an end.
Existing trusts will be subject to periodic IHT at up to 6 per cent every 10 years as taxable trusts, and any new trusts from October 30, would be subject to those periodic charges as well as 40 per cent tax on death.
As a result, these families will need to consider alternative planning. This may include excluding themselves from new family trusts – equivalent to gifting the assets during lifetime to their children. They may also wish to consider family investment companies, although typically trusts are preferable if available.
Of course, these families usually have the option of moving away from the UK if they dislike the UK tax treatment, and many of them may choose that option if they find the new tax regime is not to their liking.
