Inheritance Tax Reform 2025 onwards: What It Means for Families in Lancaster & the Lake District

Major Changes in UK Inheritance Tax Law

Sweeping changes announced by Chancellor Rachel Reeves aiming to redefine inheritance tax (IHT) rules are causing financial stress, in what tabloids are deeming the ‘biggest tax raid on farmers and pensioners’ in the last few decades. The changes will have a significant impact on millions, especially for local families with pensions, farming estates, or business assets.

Key dates for your succession planning diary:

6 April 2025: Residency-based IHT begins (no longer based on domicile)
6 April 2026: Major changes to Agricultural & Business Property Relief (APR & BPR)
6 April 2027: Unused pension pots counted in IHT calculations

What’s Already Changed: Residency Rules

Under new legislation, anyone deemed to be ‘long-term resident’ in the UK will be liable for IHT on their worldwide assets if they are resident in the UK for 10 out of the last 20 years. Anyone leaving the UK will also be caught by the scope of the rules for 10 years following their departure. The new rules essentially abolish the previous concept of ‘domicile’ to favour a residence-based test.

Farming Families & Small Businesses: Reliefs Reduced

Starting in April 2026, reliefs on agricultural and business property will be capped. The first £1million of assets will attract agricultural relief at the usual rate, but values in excess of this threshold will only be entitled to one half of the old APR rate. With farmhouse and land values ever increasing, farmers are justifiably concerned that their livelihoods will not be passed on to the next farming generation. Those who have lived and breathed farming from the moment they set foot on the farm may be forced into selling assets to pay the IHT bill. While options are limited, if you are concerned about your farming legacy there may be some steps you can take in succession planning to mitigate your exposure to IHT. Our team are here to guide you through.

Pension Tax: Forced to save and forced to pay

Beginning in April 2027, ‘unused pensions’ become part of the taxable estate in a complete U-turn of the former tax break on pensions after death. Worse than that, the Government are yet to announce any relief from the subsequent 45% income tax suffered by loved ones inheriting the pension pot, meaning they may face both IHT and income tax on the same asset. We are yet to see how this will be apportioned or accounted for in real-time.

The reforms may initially seem a marginal concern only affecting the top percentage of earners and their long-awaited massive final-salary schemes but in reality, the Lake District, Barrow-in-Furness and South Cumbria houses a vast community of farmers serving the nation and beyond. Together with employers such as BAE Systems who boast a favourable pension scheme for their workforce of over 15,000 individuals locally, the impact of the pensions tax reform is going to have a widespread effect.

Planning Ahead with Progression Solicitors

Whether you’re based in Lancaster, Ulverston, Windermere, Grange-over-Sands, Barrow-in-Furness, or further afield, proactive estate planning is essential. We recommend reviewing your will and affairs with our professionals to ensure they reflect the current relief limits and speaking to a financial advisor regarding pension strategy. We hold strong connections with many finance professionals and can put you in touch with someone able to help with your needs.