Inheritance Tax (IHT) has long been a focal point of tax planning for high-net-worth individuals (HNWIs) in the UK. As political and economic landscapes evolve, so too do tax policies. With increasing scrutiny on wealth transfers and mounting speculation around potential reforms, it’s essential that HNWIs remain informed and prepared.
This article explores the current IHT framework, confirmed upcoming changes, and practical steps that high-net-worth individuals can take to safeguard their estates. Our team at Midwinters provides tailored estate planning support to help you prepare for changes with confidence.
What Is Inheritance Tax?
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. In the UK, IHT is generally charged at 40% on the value of the estate above the nil-rate band, currently set at £325,000. There is an additional residence nil-rate band of £175,000 for passing on the family home to direct descendants.
Why Are Changes to IHT Being Considered?
There is growing pressure on the UK government to reform IHT due to concerns over its complexity, perceived unfairness, and limited contribution to overall tax revenues. Proposals have ranged from simplification of the rules to a complete overhaul of the system.
Potential reforms are also driven by wider policy objectives, such as addressing intergenerational inequality, closing tax avoidance loopholes, and raising additional public revenue.
Potential Changes from April 2026
From 6 April 2026, the scope of Agricultural Property Relief (APR) and Woodland Relief will be narrowed. Under current legislation, these reliefs can significantly reduce the value of qualifying land or woodland for IHT purposes.
Key upcoming changes may include:
- Relief will only apply to land located in the UK, whereas previously EU and EEA-based land could qualify.
- This change will affect individuals who hold overseas agricultural property or woodland as part of their estate.
In addition, a separate proposal being reviewed is to apply a new reduced rate of IHT at 20% (half the current standard rate) on agricultural and woodland assets that qualify for only partial relief.
These adjustments underscore the importance of proactive estate planning, especially for landowners, farmers, and those holding rural or cross-border property. The Midwinters private client team can help you reassess how these changes might impact your existing IHT strategy.
Key Areas Under Review
- Reducing or Removing the Nil-Rate Bands
One possible change is to adjust or eliminate the existing nil-rate band thresholds, meaning more estates would become subject to IHT. This would significantly affect estates that are currently just below or above the threshold.
- Reforming Reliefs and Exemptions
Current IHT rules include generous reliefs, such as Business Property Relief (BPR) and Agricultural Property Relief (APR). There is concern that these reliefs are being used too broadly, allowing individuals to pass on significant wealth tax-free. Reforms could tighten eligibility or reduce the scope of these exemptions.
- Lifetime Gifts and the Seven-Year Rule
Under current rules, gifts made more than seven years before death are exempt from IHT. Some proposals suggest shortening or scrapping the seven-year rule, which would bring more lifetime transfers within the IHT net.
- Introducing a Flat-Rate Tax or Annual Wealth Tax
A more radical suggestion is to replace IHT with a flat-rate inheritance tax or an annual wealth tax on net assets above a certain threshold. Although politically controversial, such reforms have been recommended by some think tanks and are gaining traction in policy circles.
- Tightening Trust and Offshore Structures
High-net-worth individuals often use trusts and offshore arrangements as part of estate planning. New rules could increase transparency and taxation of these structures, closing existing planning routes.
What High-Net-Worth Individuals Should Consider
- Review Your Estate Plan Regularly
Given the uncertain future of IHT rules, it is vital to review your estate planning strategy regularly. This includes reassessing wills, trust arrangements, asset holdings, and gifting plans to ensure they remain tax-efficient.
- Make Use of Current Allowances
HNWIs should ensure they are maximising the use of existing exemptions and reliefs, including:
- Annual gifting allowances
- BPR and APR
- Spousal exemption
- Charitable donations, which can also reduce the IHT rate to 36%
- Consider Lifetime Gifting
Making gifts during your lifetime remains a valuable tool for reducing the size of your taxable estate. Although reforms could change the treatment of gifts, acting sooner rather than later could secure valuable exemptions.
- Establish or Review Trusts
Trusts can still play a role in estate planning but should be reviewed regularly to ensure they align with the latest legislation and guidance. Professional advice is essential to avoid unintended tax consequences.
- Plan for Liquidity
IHT liabilities must typically be paid before the estate can be fully administered. Ensuring that your estate includes sufficient liquid assets to cover any potential IHT bill is a crucial step in avoiding disruption to your legacy. - Stay Informed and Seek Professional Advice
Tax laws are complex and subject to change. High-net-worth individuals should work closely with legal and financial advisers to stay informed and make proactive decisions based on the latest developments.
Conclusion
While no sweeping reforms to Inheritance Tax have been passed, targeted changes are already scheduled from April 2026, with more under review. These developments could have a meaningful impact on how estates are taxed and require careful, tailored planning.
At Midwinters, our experienced private client team can help you navigate the complexities of estate planning, offering bespoke advice to protect your wealth and provide for future generations. Whether you’re a business owner, landholder, or managing a large family estate, we are here to guide you through the evolving IHT landscape.
Partner Hugh Harries heads the department, working alongside fellow partner Mark Lynham and experienced solicitors Andrew Hart and Laura Lyes and former partner Alexis Cassin, now a consultant.
To contact one of our specialists, call 01242 514674
Contact us today to discuss how potential IHT changes could affect you and how best to prepare.
