UK Inheritance Tax Planning: Why the Four Weeks Before Budget Day Matter Most
Why the final four weeks before the October Budget could be a critical window for UK inheritance tax planning, trusts, pensions and international structures...
The countdown to 28 October has begun. John Healey's first full Budget as Chancellor will land in four weeks time and if the rumour mill is any indication, inheritance tax is squarely in the crosshairs. For high-net-worth individuals, the next few weeks represent a critical planning window - not because panic decisions are advisable, but because well-considered structures take time to implement properly.
What We Know (and What We Suspect)
The confirmed changes are already significant;
From April 2027, unused defined contribution pensions and death benefits will count toward IHT estates. This single change affects millions of retirement plans and has already triggered an estimated £1.4 billion in "retirement risk" decisions as pensioners scramble to withdraw and gift before the rule takes effect.
But it's the unconfirmed rumours that are concentrating minds:
• Trust taxation - Periodic & exit charges on trusts may increase. The current 6% maximum charge on relevant property trusts could rise.
• Residence nil-rate band - The £175,000 additional allowance for passing a main residence to direct descendants may face restrictions.
• The basic threshold - Frozen at £325,000 since 2009, there's little prospect of it rising, and some speculation it could effectively reduce through interaction with other measures.
• Agricultural and Business Property Relief - The £2.5 million cap introduced in earlier legislation may tighten further. Family businesses and farming estates that have relied on these reliefs for generations are particularly exposed.
The Planning Window Reality
Here's what many people don't fully appreciate: meaningful IHT planning cannot be done overnight.
- Establishing a trust structure requires legal documentation, trustee appointments & careful consideration of the settler's needs.
- Gifting strategies need to account for the seven-year rule for potentially exempt transfers.
- Business restructuring to maximise reliefs requires corporate and tax advice working in tandem.
If you're starting from scratch today, four weeks is tight. If you've been considering action for months, now is the moment to move from consideration to execution.
International Dimensions
For UK-domiciled individuals, IHT applies to worldwide assets. This is where the planning becomes both more complex & more interesting.
The Non-Dom Changes
The abolition of the remittance basis for non-domiciled individuals from April 2025 has already reshaped the landscape. The new four-year Foreign Income and Gains regime offers temporary relief for new arrivals, but long-term UK residents of foreign origin face a fundamentally different tax environment. For some, this has accelerated departure decisions. The UK's loss of approximately 4,400 high-earning executives in a single year tells its own story.
UAE as a Planning Jurisdiction
The UAE's zero income tax and zero inheritance tax regime makes it attractive not just for income purposes but for estate planning. A genuine relocation to Dubai or Abu Dhabi - one that establishes UAE domicile and breaks UK domicile - removes worldwide assets from the UK IHT net. However, this requires genuine relocation, not paper arrangements. The days of "resident nowhere, taxed nowhere" are largely over. Modern tax authorities share information, and HMRC's approach to domicile challenges has become increasingly sophisticated.
Trust Structures: UK and Offshore
Trusts remain a cornerstone of IHT planning, though they're not the silver bullet they once were.
UK Trusts
Discretionary trusts attract the relevant property regime - a 6% charge every ten years on assets above the nil-rate band, plus exit charges when assets leave the trust. Despite this, trusts offer:
• Protection from divorce and creditor claims
• Control over how and when beneficiaries receive assets
• Flexibility to adapt to changing family circumstances
• Potential IHT efficiency when structured correctly
Offshore Trusts
For non-domiciled individuals, offshore trusts can shelter foreign assets from UK IHT. The key is establishing the trust while still non-domiciled - once UK-domiciled, the benefits largely disappear. The interaction between trust taxation and the new non-dom rules creates both opportunities and traps. Professional advice is essential.
Practical Steps for the Next Four Weeks
If IHT planning is on your agenda, consider these actions:
Immediate (Week 1)
• Review your current will and any existing trust structures
• Calculate your potential IHT exposure under current rules
• Identify assets that might qualify for Business or Agricultural Property Relief
• Gather information on any foreign assets and structures
Short-term (Week 2-3)
• Consult with tax advisors on specific planning options
• If gifting, consider what you can comfortably give away now
• Review pension arrangements in light of the 2027 changes
• Consider whether life insurance in trust might help with liquidity
Pre-Budget (Week 4)
• Execute any planned transactions before potential rule changes
• Ensure all documentation is properly completed
• Brief family members on the planning rationale
• Prepare for potential changes - have a Plan B ready
The Relocation Question
For some, the most effective IHT planning is also the most dramatic: leaving the UK entirely.
Becoming non-UK domiciled requires genuine departure - typically living abroad for at least three years and demonstrating intent to remain. For those with the flexibility to relocate, jurisdictions like the UAE, Portugal, Italy, and Singapore offer attractive alternatives.
This isn't for everyone. Leaving behind family, friends, and familiar surroundings is a significant life decision that shouldn't be driven by tax alone. But for those already considering international opportunities, the tax benefits can be substantial.
The Bottom Line
The October Budget will change something. We don't know exactly what, but the direction of travel - more taxation of wealth, fewer reliefs, tighter rules - seems clear. Four weeks isn't long, but it's enough time for well-prepared action. The worst outcome is reaching November realising you could have acted but didn't. If you're considering your options, whether UK-based planning, international structures, or relocation, the time for preliminary conversations is now.
This article is for general information only and does not constitute legal or tax advice.
Mosaic Chambers Group does not provide UAE corporate tax filing, registration, or accounting services.
Individual circumstances vary, and professional advice should be sought before acting on any of the above.
