Welcome to your Ask Octopus column, written by Tax Product Specialist at Octopus Investments, Toyin Oyeneyin. This is where, each quarter, I will tackle some of the more complex estate and tax planning questions that advisers are asking. Consider this your advice support column for all your estate planning queries!
This quarter’s question is: I’m not sure there was that much new in the Budget from an estate planning perspective. What are the key things we should be telling clients?
Toyin’s answer: In tackling this question, the first thing I’d say is that both the 2024 Budget and the 2025 Budget need to be looked at together for estate planning, as looking at the 2025 Budget alone doesn’t tell the full story.
The overarching message I’d relay to clients is that earlier estate planning and taking a diversified approach are the most important considerations in this landscape.
Let me take you through the key changes and what specifically you could tell clients on each change.
Increases to late payment interest on IHT increase
Announced in the 2024 Budget and already in force as of 6 April 2025, tax not paid on time will be charged an increased rate of interest. This is the Bank of England Base Rate + 4% (up from 2.5%), which, given current interest rates, equates to a steep late payment interest of 7.75%. From an inheritance tax (IHT) perspective the payment date of IHT is unchanged at six months from the death of the individual.
What to tell clients: Consider building estate strategies that incorporate assets that can be accessible for executors or personal representatives, so that they can pay this IHT bill on time. It’s worth noting that late payment interest is not charged on any IHT due on Business Relief (BR) investments, which I discuss below. Additionally, they can be accessed or sold down to pay an IHT bill on other assets.
Frozen allowances
Announced in the 2025 Budget, the nil rate band (NRB) and residence nil rate band (RNRB) are frozen until April 2031. The UK government expects to generate significant additional revenue largely driven by frozen IHT allowances, with projections indicating annual IHT receipts will rise from £8.3 billion at the start of the current Parliament to £14.5 billion by 2030/31.
What to tell clients: This can be viewed as a stealth tax, even though the IHT rate has not changed. Clients should be aware that inflation remaining persistent coupled with frozen allowances means they may be dragged into the IHT net by virtue of this alone.
Non-dom changes to IHT
Announced in the 2024 Budget and already in play as of 6 April 2025 – individuals who have been resident in the UK for 10 out of the last 20 years should be subject to UK IHT on all their worldwide assets. Where an individual is caught by these rules, any offshore trust in which they are a settlor will also be subject to IHT.
What to clients: Even if they have left, or are leaving the UK, they may continue to be subject to IHT for 3-10 years after leaving, depending on how long they were a tax resident for before they left. Additionally, if they previously left the UK and are now returning, they could still be caught by IHT if they weren’t out of the UK for more than 10 years. So, estate planning should be top of the list for multi-jurisdictional clients.
Pensions
The Chancellor confirmed in the 2025 Budget that her previously announced updates to the IHT treatment on pensions in the 2024 Budget was moving ahead, bringing pensions into the IHT net from 6 April 2027.
What to tell clients: The estate planning adage of “touch pensions last” in the decumulation stage of life has been turned on its head. These changes have shown the importance of revisiting estate planning strategies and looking at ways to diversify them. Whether that’s through options such as gifting, life insurance plans or complementary strategies like BR, which we’ve already seen gaining noticeable traction.
Business Relief
Also reconfirmed by the Chancellor in November were that BR changes announced in the 2024 Budget would be moving ahead from 6 April 2026. These changes were 50% IHT relief on AIM BR shares and 100% IHT relief up to an unquoted BR allowance (applying to private company shares, sole traders, partnerships and agricultural property), with 50% IHT relief in values over the allowance.
The key update in 2025 Budget, which was welcome news, was that the unquoted BR would now be shareable by spouses much in the same way the NRB and RNRB are shareable.
Following the 2025 Budget and as an early Christmas present on December 23, the government announced that the unquoted BR allowance would increase to £2.5m (up from £1m announced in the 2024 Budget).
As a quick reminder, for suitable investors comfortable with higher-risk investments, BR-qualifying assets allow clients to retain access and control of their assets while providing relief from IHT, provided the shares are held for at least two years.
What to tell clients: These two changes mean that £5m worth of BR allowances are now available between spouses. This significantly enhances flexibility and reduces complexity for estate planning. It sets out a real opportunity to provide significant IHT relief to their estates, particularly in the light of the pension changes.
Research we carried out in September 2025 found that over 50% of surveyed UK advisers are likely to make use of this new BR allowance, signalling that BR is an increasingly mainstream part of estate planning strategies.
Looking ahead
The new year brings clarity and reinforces that now is the time to engage with clients and beneficiaries on estate planning and the earlier the better. The last year has shown that a robust, diversified and proactive approach to estate planning that keeps clients focused on long-term goals is key. It can help clients to withstand the changes in the increasingly complex estate planning landscape. More importantly, this complexity underlines the necessary role of the adviser more than ever with clients looking for support every step of the way.
Hopefully that helps, and I look forward to tackling more adviser queries around estate planning in the next quarter. If you can’t wait until then please use our free helpdesk Ask Octopus.
