Autumn Budget 2025 - what does it mean for Inheritance Tax

After weeks of speculation about the ways in which the government might try and raise revenue by changing the Inheritance Tax (IHT) rules, in the end the Autumn Budget was actually fairly quiet on IHT, focusing instead on other ways of raising revenue.  

Despite this we would encourage everyone, if they have not done so already, to review their Wills and finances in light of the significant changes announced by the 2024 budget which are due to come into effect over the next 18 months.

Agricultural and Business Relief – some good news

The most significant announcement in this year’s Budget, so far as IHT is concerned, was an amendment to the change set out in the 2024 Budget affecting Agricultural Relief (AR) and Business Relief (BR). 

In the 2024 Budget the Government announced changes to the reliefs available on assets qualifying for BR and AR.  These changes are due to come into effect from 6 April 2026. 

The 2024 Budget puts a cap on the value of assets which can qualify for 100% relief to £1 million per person.  Assets in excess of £1 million will attract a lower relief of 50% only.  The Government made it clear throughout the past year that these allowances would not be transferable between spouses or civil partners, risking the loss of any unused allowance of the first of a couple to die.  

However, the Chancellor announced that this allowance will now be transferable between spouses and civil partners (in the same way as for other IHT allowances).  This means that a married couple can potentially benefit from £2 million of relief on qualifying assets. This is good news for married business owners and farmers, or those in civil partnership, but careful planning is still needed to get the maximum benefit.

Time is running out before these new rules come into effect in April 2026.  Until then, there is 100% relief on the disposal of business or agricultural assets provided that they meet the conditions for that relief. 

If you have business or agricultural assets, you should now urgently seek specialist tax advice on succession planning for your business or farm. 

IHT thresholds frozen for a further year

The Chancellor also announced that IHT thresholds will remain frozen for a further year, until 2031.  The basic Nil Rate Band of £325,000 has stayed the same since 2009, despite a significant increase in property prices in the intervening years. 

The Residence Nil Rate Band (RNRB) - an additional allowance available to estates which leave a residence to direct descendants -  will also remain at £175,000 until 2031.  The taper threshold above which RNRB starts to diminish will also remain at £2 million until 2031.  The £1 million allowance for AR and BR was frozen for a further year, also until 2031.

These IHT allowances can be passed between spouses and civil partners, meaning that a married couple with descendants can potentially leave up to £1 million to those descendants without paying any IHT.

However, this fiscal drag, bringing more and more estates into IHT territory, is compounded by another 2024 Budget measure which brings unused pension funds and death benefits into people’s estates for IHT purposes from 6 April 2027.  This change is likely to mean that many more estates will fail to qualify for the RNRB because they exceed the taper threshold of £2 million. 

We would strongly recommend discussing this change with a regulated independent financial adviser.

Make or review your Will

Now is the time to review your Will (and pension arrangements) as well as considering lifetime giving which can (if carried out correctly) reduce your estate for IHT purposes.

Whether you are a business owner, farmer, or simply want to secure as much of your estate for your loved ones as possible, make an appointment with our Private Client Team for expert advice about your options.  Call 01242 574 244 and ask for our Private Client Team.