Inheritance Tax Planning

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You’ve worked hard to build your wealth, so it’s important to ensure its protected and passed on with peace of mind. NFU Mutual Financial Advisers are here to help you minimise the impact of Inheritance Tax and help you make the most of what you leave behind.

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Inheritance Tax is becoming an ever more important consideration for many individuals and families across the UK, and with the right approach it can be managed with confidence and clarity.

Whether you’re employed, self-employed, a farmer, running a business or even retired, financial advice can help you understand how Inheritance Tax may affect you and your loved ones, and how a financial plan could see that tax bill reduced.

In 2024 – 25 tax year HMRC collected approximately £8.2 billion from Inheritance Tax*.

*HMRC tax receipts and National Insurance contributions for the UK (2024-2025)

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate (the property, money, and possessions) of someone who has died. In the UK, it’s paid by the estate, not the people who inherit it. The tax only becomes due if the value of the estate, including any taxable gifts made in the previous seven years exceeds a certain threshold, known as the Nil Rate Band, which from 2009 has been £325,000 per person.

When thinking about how Inheritance Tax could affect your estate, it’s important to know that:

Anything you leave to your spouse or civil partner is usually exempt from Inheritance Tax, as is anything you leave to a registered charity.
If the family home passes to children (including adopted, fostered and stepchildren) or grandchildren a further allowance of up to £175,000 applies through what is called the Residence Nil Rate Band. For estates over £2m, this additional tax-free allowance gradually falls away. Stopping completely for estates valued over £2.35m.
What’s more, for landowners, farmers and some business owners, there are important reliefs, Agricultural Property Relief and Business Property Relief, that when they apply can reduce or even eliminate Inheritance Tax on some assets.

Once all the reliefs available and allowances have been considered, the value of what’s left is taxed at 40%.

The 2024 and 2025 Budget

The recent Budgets introduced several significant changes to Inheritance Tax, which mean that if your estate is caught by these changes, the tax payable will rise:

Both the Nil Rate and Residence Nil Rate Bands will stay at £325,000 and £175,000 respectively, at least until April 2031. This means more estates may become liable as property and asset values rise.
From April 2026 it's proposed to introduce a cap limiting the combined value of qualifying agricultural and business assets that can be passed on free of IHT to £2.5m per person. Any unused £2.5m allowance on the death of a spouse/civil partner is transferable to a surviving spouse/civil partner. A couple will be able to pass on up to £5m of qualifying agricultural or business assets between them on top of those other allowances that can be claimed. For qualifying assets above this limit, relief will reduce to 50%, so half their value will be exempt from IHT, while the remainder will be included in the calculation. This could mean that more Inheritance Tax could become payable by landowners, farmers and business owners.
From April 2027 pensions which are currently exempt from IHT in most cases, will be included, meaning unspent pension funds will be included in a deceased person’s estate for Inheritance Tax purposes.

With these changes it’s more important than ever to have clear financial advice and a plan in place.

What could the impact be?

The potential impact of Inheritance Tax can be significant, particularly if you own property, farmland, or a business.

A straightforward example illustrates this.

Following the death of Mary Jones, her daughter Jane, was left with an estate valued at £750,000. After allowing for the Nil Rate Band of £325,000 and the Residence Nil Rate Band of £175,000, meaning total allowances of £500,000, the value liable to Inheritance Tax was £250,000, which at 40% meant a bill of £100,000.

By taking and acting on advice early enough that £100,000 tax liability potentially could have been reduced or money made available on Mary’s death to pay that £100,000 tax bill.

What can happen is that without planning, assets within the estate may have to be sold to pay the tax bill, which could mean breaking up a family farm or business. For farmers and business owners, the proposed changes to Agricultural and Business Property relief, could have particular consequences, so it’s crucial to have that understanding and plan.

The value of Financial Advice

Inheritance Tax is a complex area, made potentially more complex by the upcoming proposed rule changes. That’s why seeking advice from an NFU Mutual Financial Adviser, with their understanding of how this tax works and how to reduce its impact, could be invaluable.

NFU Mutual Financial Advisers can help you:

Understand the potential Inheritance Tax liability that could arise on your future estate using the latest rules.
Explore reliefs and exemptions that could apply, such as Agricultural Property Relief or Business Property Relief.
Understand how to take advantage of allowances, such as the Residence Nil Rate Band, and gifts.
Advise on the range of IHT solutions we offer, including having investments or life cover written in trusts.

At NFU Mutual, we recognise that every family’s circumstances are different. That’s why we believe in the benefit of tailored advice which reflects your family’s unique situation and future aspirations. By acting early and regularly reviewing the progress of your finances and the plans you have in place, you can minimise the impact of Inheritance Tax and protect what matters most.

Next Steps

Inheritance Tax doesn’t have to be daunting. With expert advice and careful planning, you can have confidence that you’re making the best decisions you can at that time for your family, business, or farm.

If you’d like a review of your situation or to discuss the recent changes, speak to an NFU Mutual Financial Adviser, who can guide you through the options.