Inheritance Tax overhaul: impact on non-UK individuals

The UK has started implementing significant changes to Inheritance Tax (IHT) reliefs which may impact non-UK individuals with UK assets.

We have outlined two scenarios based on the changes currently confirmed which may make a significant impact on the GGI client base, particularly where individuals have financial investments or retirement provisions in the UK.

Business Relief

Prior to 6 April 2026, 100% relief from IHT under Business Relief (BR) was available for shares held in an unlisted trading company.  This commonly meant that non-UK investors in UK businesses did not need to consider their holdings in UK entities when planning for any potential IHT liability in the UK.

From 6 April 2026, 100% Business Relief for IHT will be removed. Full relief will be available on the first £2.5m of qualifying assets held, whilst assets valued over £2.5m will are subject to a value reduction before applying IHT at 40%. This is shown below.

Example
An international investor holding £3 million of BR-qualifying shares:

• First £2.5m: fully relieved
• Remaining £500k → reduced by 50% = £250k
• £250k × 40% = £100,000 IHT
  This results in an effective 20% tax rate on the excess above £2.5m.

Similar 100% relief was available under Agricultural Property Relief (APR) for qualifying assets. From 6 April 2026 agricultural relief is available alongside BR based on a lifetime allowance of £2.5m per individual. Please note, this allowance may be transferred between spouses, giving the second spouse a possible maximum £5m allowance.

Pension savings

At present, UK pension funds typically fall outside an individual’s estate for IHT, meaning unused pension wealth can pass to beneficiaries tax-free.

From 6 April 2027, UK pension savings will be included in the estate for IHT. This means pension pots may also be taxed at 40%, depending on the individual’s available allowances.

We consider an individual with a taxable estate of £650,000 and pension savings of £300,000.

• If death occurs before 6 April 2027:
  Only the £650k estate is taxed.
  £650,000 − £325,000 Nil Rate Band = £325,000 × 40% = £130,000 IHT
  Beneficiaries receive £820,000.
• If death occurs after 6 April 2027:
  Estate + pension = £950,000
  £950,000 − £325,000 = £625,000 × 40% = £250,000 IHT
  Beneficiaries receive £700,000.

This change sees an additional tax cost of £120,000 to the total estate.

Other Announced Changes

The UK has moved from a domicile-based to a residency-based IHT system from 6 April 2025. This means IHT exposure on non-UK assets is now dependent on where an individual lived during the ten years before their death.

If you have any concerns about these changes or are looking to confirm the application of these new rules, please get in touch. Our international services team would be pleased to help.