Advice on Managing UK Inheritance Tax Reforms From the Accountants for Landlords

The numerous reforms and announcements made at the Spring Statement and the Autumn Budget in 2025 have affected landlords and other property professionals in various ways. This includes the changes to Inheritance Tax (IHT) rules, which are of particular concern to those planning to leave portfolios and assets to their beneficiaries.

Much may depend on how rental assets are owned, whether individually or through a limited company structure, and on the tax residency position of the current owner, given the changes to how overseas citizens are taxed and exposed to IHT.

Our specialist accountants for landlords have summarised the main reforms and provided insight into their potential impact on long-term succession planning. 

The Impacts of Frozen Inheritance Tax Thresholds and Rates

Traditionally, few estates have been exposed to IHT, with government data showing that only 4.62% of deaths within the 2022-23 tax year attracted an IHT liability. However, the extensions to frozen IHT thresholds mean more may become liable, with a 13% increase in the same tax period leading to 31,500 estates being subject to the tax.

In addition, IHT revenues reached £3.1 billion in the four months to July 2025 and were forecast to climb to £14 billion by 2029/30, even before the most recent reforms.

It is widely anticipated that more landlords will need to factor IHT into their plans, owing to rising average property values, particularly in regions around the south east, and the fact that the IHT band freezes have now been extended further, as follows:

• The nil-rate band remains at £325,000 until April 2031
• The Residence Nil Rate Band, applied to properties passed to direct relatives, will also be frozen until April 2031 at £175,000

The inclusion of pension assets in IHT calculations, which we’ll explain shortly, will also mean that a larger proportion of estates will far exceed the thresholds, with a broader range of assets considered taxable for IHT purposes.

IHT rates remain at 40%, a considerably higher rate than in many countries, and are borne by the estate rather than the individual beneficiary. Still, exposure does, of course, affect the wealth that landlords can leave to their heirs.

How Residence-Based Taxation Affects Landlords Living Overseas

Announced in April and effective immediately, the UK government has changed the way it categorises British citizens for tax purposes, moving away from the previous domicile-based system and instead considering how long individuals have been tax-resident in each country.

This means that landlords who are currently overseas tax residents but were UK residents for 10 of the last 20 years will be exposed to UK IHT on all worldwide assets, not solely on rental properties they own in the UK.

Landlords who retain UK property portfolio assets and decide to relocate will remain liable for UK IHT for up to a decade, depending on their previous tax residency history. Those with overseas assets linked to UK trusts will also find that such assets may fall within the scope of IHT.

Understanding the Implications of Pensions Being Included in Taxable Estates

While not specifically related to the valuation or tax exposure of the landlord’s portfolio properties, the inclusion of pension assets within estates from April 2027 will, as we’ve mentioned, be meaningful. 

In short, pension funds and death benefits that haven’t been used before the individual passes away will be subject to IHT, both in terms of calculating the overall value of the estate, applying this to the frozen tax thresholds, and calculating the liability payable.

Transfers of unused pension benefits to a spouse or civil partner are exempt, as are donations of pension funds to recognised charities, but otherwise, pensions that were previously exempt from IHT and are held in a discretionary trust will be fully exposed.

There are additional changes that enable pension administrators to withhold up to half of the taxable benefits to help cover the additional IHT liability, although the charge remains payable and withholding is permitted for up to 15 months.

Executors and representatives are responsible for reporting and paying IHT on all taxable pension assets, which means the tax will be applied directly and without named beneficiaries having any control over the process.

How Landlords and Property Professionals Can Manage Their Future IHT Exposure

Exposure to IHT has long been a concern for landlords, particularly those with larger portfolios with a value that already exceeds the static thresholds.

Recent changes have made it more important than ever for landlords to be proactive about estate planning and to work with an experienced property tax accountant who can recommend the most appropriate structures and strategies to protect their families and heirs from unnecessary tax.

Leaving anything to chance or hoping that future governments might revise these relatively new rules is strongly inadvisable, and landlords with complex tax positions or larger pension savings need to be mindful of the potential tax burdens that will, ultimately, be borne by their families.

Access Professional Inheritance Tax Planning Support From Our Property Sector Accountancy Team

There isn’t one specific plan or option we would recommend, and the right solutions will depend on each individual, business and estate. 

However, there may be opportunities, for example, to gain clarity over an individual’s residency status to ensure they have full oversight of their projected tax exposure. Others may assess the benefit of drawing down pension benefits in advance of reforms to limit tax liabilities in the future.

In addition, lifetime gifts are commonly used to manage the taxable value of an estate while ensuring wealth is passed down to younger generations, although this is an area that should be approached with professional accountancy advice, as there is the potential for future reforms to tighten the rules.

The takeaway is that IHT tax reforms are significant and consequential. Although many more estates will bear a liability, especially after the latest changes take effect, acting now through effective tax planning is the best way to forecast tax obligations and take compliant action to minimise them.

Should you wish to speak to a member of the James Todd & Co team about IHT, how reforms affect you, or the right approaches to protect your wealth, please get in touch to arrange a convenient time to talk to one of our property accountancy experts.