Inheritance Tax Planning in 2025

It is sometimes said that “what goes around, comes around” and that many trends are often cyclical.  This would certainly appear to be the case when considering options for Inheritance Tax Planning in 2025, particularly in relation to the Nil-Rate Band Allowance.

The evolution of Nil-Rate Band Allowances

For those of us that were preparing Wills before the introduction of the Transferable Nil-Rate Band Allowance, which came in during 2007, it used to be standard practice to advise upon the importance of using the Nil-Rate Band Allowance on the first death for a married couple.  Failure to use the allowance on the first death would mean that the allowance would be lost, with only one allowance available on the second death.

Since 2007 and the introduction of the Transferable Nil-Rate Band Allowance, it has become more common to rely upon the transferability of allowances, rather than crystallising them on the first death.  There are, of course, exceptions to this, but certainly in my experience, the number of times Wills were prepared incorporating a Nil-Rate Band Discretionary Trust were much reduced after the changes.

Impact of the October 2024 budget

Following Labour’s Budget in October 2024, the various changes that were announced to Inheritance Tax, means that we are now seeing a trend towards considering the use of the Nil-Rate Band Allowance on the first death once again.  Assuming that the changes announced, which will bring the value of inherited pensions into the Inheritance Tax calculation, proceed as planned in April 2027, this is likely to result in more estates breaching the £2m threshold at which the Residential Nil-Rate Band Allowance starts to taper away.

As more estates will now be valued within the £2m to £3m bracket, it is likely to see an increase in Wills being prepared that now make use of the Nil-Rate Band Allowance on the first death.

How the Nil-Rate Band Allowance is applied

How the Nil-Rate Band Allowance is satisfied, whether assets are held by the trustees of a discretionary trust, or whether it may be satisfied by way of a debt owed by the survivor, will, as always, depend upon the individual circumstances.  However, what is clear is that with the announcements made in October 2024, it has become even more important for everyone to consider their own potential exposure to Inheritance Tax and whether or not their Will is up to date.

Here to Help

If you would like assistance in reviewing the terms of your Will and considering your Inheritance Tax position, please do get in touch with members of the Private Client Team at Longmores.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.