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Inheritance Tax: Successive Reforms to Succession

What can we expect?

According to The Guardian, the Labour Government is looking to introduce further changes to UK inheritance tax. These changes would represent a further squeeze on planning opportunities available to families, following the abolition of the non-dom regime (2025), reforms to agricultural and business property relief (2026), and bringing pensions into chargeability (2027). With these successive yearly reforms, do we have further reforms on the horizon and how might they impact succession plans?

Turning to the latest attempt by the Treasury to gauge public sentiment, ministers are considering introducing:

1. a lifetime cap on gifting; and
2. changes to taper relief that reduces IHT rates on gifts made between three and seven years before death.

Under the current rules, any gift (of whatever amount) made more than seven years before death is typically exempt from IHT. As for taper relief, the rate of tax levied on gifts within that seven year period ranges from 32% down to 8%. In effect, the longer you live, the more you and your heirs are rewarded.

We can only speculate for now, but might a lifetime cap apply to the donor or the donee. For example, might there be a lifetime gifting cap of £1 million to be applied across any number of beneficiaries and once that £1 million cap is hit (even if distributed among, say, 15 recipients), an immediate tax charge arises, much like a gift tax? Or, would the Government look to apply a cap on each donee (or recipient) of, say, £100,000. If this amount is exceeded, then again, it triggers a lifetime gift tax on the excess.

Beyond the speculation, with the Government exploring a range of options (including a wealth tax) to help overturn their £40 billion hole, the reality for clients is that traditional planning might soon be severely curtailed.

What to do?

If introduced, the new cap could squeeze succession and tax planning further, resulting in far greater tax liabilities and possibly the sale of assets if gifting in delayed. Combined with the reforms to APR and BPR, delayed gifting could lead to the fragmentation of family ownership of assets and businesses. A potential reform to taper relief might add insult to injury, whatever form this ends up taking.

There are, of course, other considerations to gifting including potential capital gains tax implications and the loss of control, so gifting may be as much of a psychological burden to overcome as well as one that is fiscal in nature. Given the capital gains tax element, there is always the risk of double taxation which is perhaps its own standalone article.

When should we act?

Lawyers typically answer with ‘it depends’. However, with the ongoing erosion of IHT reliefs, the time is NOW. Don’t wait until the Budget, as there will likely be anti-forestalling rules preventing you from acting once there’s ‘clarity’ means it’s too late by then.

Client’s should therefore look to:

1. Maximise current exemptions: Gifts made today under the current system still benefit from full taper relief and the seven-year exemption window;
2. Use every available relief: Annual exemptions (e.g., £3,000 per year), ‘gifts from surplus income’, wedding gifts, and small gifts are still intact, but these may become more restricted with anticipated reforms;
3. Avoid being caught off guard: Future reforms may apply retrospectively to gifts made after certain dates or impose cumulative limits such that any delay could further erode your ability to gift tax-efficiently.

In summary

If you have assets you can afford to gift, there is no time like the present. The Guardian article is a warning of what is to come and so clients should act with certainty of the current system noting that there is a window of time before any future reforms become law.

If you have any queries relating to inheritance tax and gifting, please contact Ben Rosen of Quastels LLP.

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Does EU Law Still Apply To My Estate?

The EU Succession Regulation more commonly known as the Brussels IV (the Regulation) came into force in 2015. The main objective of the Regulation is to simplify cross-border estates and succession planning which is particularly important with more geographic mobility in the world today than ever before.

Position prior to the Regulation

Prior to the introduction of the Regulation, if an individual had connections to the UK and more than one EU member state, each state had its own rules to determine which court had jurisdiction. This in turn lead to uncertainty and complications in the estate administration.

Position after the Regulation

The key provision of the Regulation is that the court in which the deceased died habitually resident have jurisdiction in succession matters. The Regulation also does not distinguish between property that is movable or immovable.

The default position under the Regulation may, however, be overridden in two circumstances:

1. Habitual residence can be displaced by an election made in an individual’s Will for the law of their nationality to apply; or
2. The individual is manifestly more closely connected with another jurisdiction at the date of their death.

For example, if an individual is habitually resident in a jurisdiction subject to the Regulation, but their Will contains an election for English law to apply to their estate as this is their nationality, this could effectively apply English law to their estate across not just the UK but also other member states in which they hold assets.

How does an EU regulation effect the UK?

Despite the UK not being part of the EU, the Regulation is important for individuals who have assets and connections to the UK and an EU Member State.

In 2015, the UK was one of the few Member States to opt out of the Regulation and considered a “third state”. Practically, this means that whilst the UK is not bound by the Regulation or subject to its application, it does affect the way in which conflict of law rules in the UK interact with the EU Member States where the Regulation does apply.

It is important to add that there has been no change in how the Regulation affects the UK since Brexit.

The importance of making an election and a practical example

Rose is a UK national, who has lived in Spain for the last 15 years. She still has a property in the UK that her husband lives in, but they are separated, and she has two estranged children she has not seen for 20 years. Spain has forced heirship rules and Rose does not wish for her children or husband to benefit from her estate and instead wishes for her estate to pass to her nephews.

Rose could therefore put in place a worldwide Will that includes an election for the law of her nationality to apply to the succession of her estate therefore disapplying forced heirship. She would therefore have testamentary freedom under English law to leave her estate to her nephews regardless of the fact she is habitually resident in Spain.

A nationality election also gives greater certainty than relying on habitual residence as a default. This is particularly relevant for internationally mobile individuals who move around regularly therefore meaning that their habitual residence is changing constantly. By electing for the law of their nationality to apply to their estate, this gives them certainty of the succession of their estate in relation to their assets within the EU. Rose in this circumstance would therefore also have certainty that this will remain the position even if she moves in the future.

If you have any queries relating to cross-border estate planning, please contact Ben Rosen or Eleanor Catling at Quastels LLP.

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Demystifying Trusts: Answers to Google’s Top Questions with Ben Rosen

In the video, private wealth & tax partner Ben Rosen tackles the most-searched public queries around one of the most frequently misunderstood vehicles in wealth planning–trusts. Following the response to our video on Diary of a CEO‘s tax debate, it became clear from the online commentary that people are unfamiliar with how they operate, particularly regarding taxation, asset protection, and on the death of a family member. Ben steps in to clarify.

Why are trusts used?

One of the most common misconceptions is that trusts exist primarily to avoid tax. In the UK, this simply isn’t the case. While tax considerations may come into play, trusts are fundamentally tools for succession planning, helping individuals preserve and manage wealth across generations.

Ben illustrates this with a relatable scenario: Imagine a successful business owner with two children, one actively involved in the business, the other not. The family may have concerns about inheritance being affected by potential issues like divorce, bankruptcy, or addiction. A trust can provide a balanced, protective structure, allowing the parent to support both children while safeguarding the longevity and values of the family business.

Why are trusts seen as complicated?

This often depends on who you ask. At their core, they are not complex. They are not standalone entities, but rather legal relationships between:

• The trustees, who look after the trust assets in accordance with the trust deed; and
• The beneficiaries, who can benefit from those assets.

The trust deed is a legal document outlining the powers and responsibilities of the trustees. Often accompanying this is a letter of wishes, a non-binding document that guides trustees on how to exercise their discretion in line with the settlor’s values and intentions.

The complexity often arises from legal terminology, not the concept itself. As Ben points out, understanding the “code” behind the legalese can make things clearer, something lawyers are trained to do for their clients.

Why are trusts so expensive?

Trusts exist on a spectrum. Some, like bare trusts, are straightforward and inexpensive. These might simply hold assets until a child reaches 18. Others, especially those involving complex family dynamics, business interests, or long-term planning, require tailored legal and tax advice, which can increase costs. The level of complexity, and therefore expense, should reflect the needs and goals of the person setting up the trust.

Why are trusts allowed?

Trusts are not shadowy loopholes; they are lawful, regulated structures. In the UK, most trusts must be registered with HMRC’s Trust Registration Service (TRS). This ensures transparency and compliance with financial and anti-money laundering regulations. Trusts are allowed within strict legal boundaries, and their existence supports legitimate planning needs, particularly where families are navigating intergenerational wealth or complex personal circumstances.

Final Thoughts

As Ben make clear, the purpose of trusts is not to game the tax system, but to provide flexible, legally recognised ways to protect assets, plan for the future and honour family wishes. When designed and administered properly, trusts are not about secrecy, they’re about clarity, control, and care. 

Watch the full video to hear Ben’s answers in depth and understand why, far from being loopholes for the wealthy, trusts are vital tools for anyone navigating life’s complexities with foresight.

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