2025 Budget: Focus on Inheritance Tax (‘IHT’)

We are delighted that the speculated changes regarding Inheritance Tax (‘IHT’) did not come to pass in the latest Budget announcement.

The Chancellor’s 2025 Autumn Budget introduced important updates to Inheritance Tax reliefs that will affect families, farms and business owners across the UK. These changes aim to address fairness concerns in previous reforms. However, the Chancellor also extended the freeze on IHT thresholds, increasing the long-term tax burden.

What Changes were announced?

There were two key announcements in the budget that will affect estate planning for families and business owners. First, the freeze on IHT nil-rate bands and related allowances has been extended by an additional year to April 2031.Secondly, the government has introduced a transferable £1 million allowance for agricultural and business property relief.

Extended freeze on IHT thresholds

The Chancellor has announced an extension to the frozen nil-rate band and residence nil-rate band which will now carry through to April 2031. This extra year of frozen thresholds means more estates will become liable for IHT in the coming years as asset values rise.

Transferrable £1m allowance for agricultural and business relief

From 6 April 2026, any unused portion of the £1 million allowance for 100% agricultural and business relief can be transferred between spouses or civil partners, even if the first death occurred before that date. This was a clear gap from when the cap was announced in the last budget and could remove the need for some of the complex ownership restructuring that had been taking place. 

The effect

The transferable allowance is a welcome fix to one of the most problematic aspects of the 2024 reforms, which previously required both spouses to own shares of a business to fully benefit from relief. Without this change, many families faced the risk of selling land or businesses to meet tax bills.

However, the extended freeze on thresholds, combined with the inclusion of unspent pension assets in IHT from April 2027, is expected to significantly increase IHT receipts. The Office for Budget Responsibility forecasts annual IHT revenue to reach £14.5 billion by 2030/31, up from £9 billion in 2025/26. This underscores the growing importance of proactive estate planning.

What didn’t change?

Another Budget and another year of considerable pre-budget speculation focussing on pensions and further changes to IHT. Fortunately, these speculated changes didn’t manifest:

  • The seven year rule for Potentially Exempt Transfers (PETs) hasn’t been changed.

  • No changes to the normal expenditure out of income rules

  • The Nil-Rate Band can still be used and recycled during lifetime.

 

Planning for inheritance tax changes

Professional advice is essential to help preserve family wealth and avoid unnecessary tax liabilities.

We suggest that families and business owners review their wills and succession plans now to ensure they make full use of available reliefs.