Metis AM
Inheritance Tax (IHT) is the nation’s most hated tax. According to research cited by Corporate Adviser, nearly 1 in 4 people surveyed named IHT as the tax they resented the most.
Each year, more and more wealth is collected by HMRC under IHT. The Office for Budget Responsibility (OBR) forecasts that IHT receipts will reach £9.1 billion in 2025/26, rising to £14.3 billion by 2029/30.
In the weeks and months leading up to the 2025 Autumn Budget, there was widespread speculation that chancellor Rachel Reeves might seek to drive IHT receipts even higher.
The Budget announcements on 26 November 2025 were, thankfully, less severe than some had predicted (regarding IHT). Nevertheless, the changes could still see more of your wealth exposed to this tax.
Read on to learn about the IHT changes announced in the Autumn Budget and how they could affect your estate when it is passed on to your beneficiaries.
1. The nil-rate band freeze has been extended to 2031
As of 2025/26, IHT is typically charged at a rate of 40%. However, you can usually pass on up to £500,000 tax-free. This is the total of the two nil-rate bands:
- The nil-rate band exempts the first £325,000 of your estate from IHT.
- The residence nil-rate band is a £175,000 tax-free allowance available when you leave your primary residence to a direct descendant.
The nil-rate band has been frozen since 2009. Meanwhile, the residence nil-rate band hasn’t changed since 2020.
Before the Budget announcements, these freezes were expected to end in April 2030. The chancellor has now frozen the nil-rate bands for a further year – meaning they won’t change until at least April 2031.
According to MoneyWeek, had these tax-free thresholds risen with inflation, they would have reached the following levels in 2025:
| Level fixed until 2031 | 2025 level if adjusted by inflation | Difference | |
| Nil-rate band | £325,000 | £517,007 | £192,007 |
| Residence nil-rate band | £175,000 | £221,633 | £46,633 |
As a result, the tax-free portion of your estate would be £238,640 larger in 2025 if the nil-rate bands had risen with inflation. While the impact of the one-year freeze extension remains to be seen, HMRC forecasts it could raise an additional £130 million in 2030/31.
The value of many of your assets may rise over time. So, with tax-free thresholds remaining static, the proportion of your estate that will be exposed to IHT is likely to keep growing.
You may be able to mitigate the impact of a rising IHT liability by adopting various tax-efficient measures. A financial planner could help you define an estate plan and gifting strategy that maximises the value received by beneficiaries, while minimising the amount claimed by HMRC.
2. Gifting rules and exemptions remain unchanged
In the run-up to the Budget, many sources speculated that the government may opt to clamp down on tax-free gifting. In reality, Reeves made little mention of gifting in her November announcements.
That said, the fact that the tax-free gifting exemptions remain unchanged despite inflation could result in a higher IHT bill for some estates.
As of 2025/26, if you die within seven years of making a gift, the value exceeding the tax-free exemptions and nil-rate band may be subject to IHT. Exempt gifts are often used as an effective tool to pass on wealth without risking a future IHT bill.
The annual exemption for gifting was first set in 1981, allowing you to gift up to £3,000 a year without it being included in your estate when you die. It has remained unchanged for over 44 years. Had it risen with inflation, MoneyWeek reports that you would now be able to gift up to £11,529 a year tax-free.
Likewise, the wedding gift allowance has been static for decades. This allows you to gift the following amounts upon marriage or civil partnership:
- £5,000 to your child
- £2,500 to your grandchild or great-grandchild
- £1,000 to anyone else
As such, the value you can gift tax-free continues to be eroded by inflation as the exemptions remain frozen. That said, for many people, the lack of stricter measures in the recent Autumn Budget will be welcome news, keeping the door open to continue mitigating your IHT bill through regular gifting.
To reiterate, IHT is typically only charged on gifts made within seven years of your death. If you’re worried about your gift potentially becoming liable for IHT, you may be able to reduce the risk by gifting early. However, it’s often worth speaking with a financial adviser before making substantial transfers, as they can advise on the impact of gifting on your finances and IHT bill.
3. Pension pots are still set to become liable for Inheritance Tax in 2027
In the 2024 Autumn Budget, Reeves announced plans to include unused pension pots in IHT calculations. Although some speculated that the government would reverse this commitment, in November 2025, the chancellor confirmed that the legislation remains set to be introduced in April 2027.
According to OBR figures, this could see 10,500 estates attract an IHT bill for the first time, as their pension value pushes their total estate over the nil-rate band. Meanwhile, 38,500 estates already liable for IHT could face a larger bill.
In addition to reiterating the upcoming changes, in the 2025 Autumn Budget, Reeves also clarified how IHT on pension pots can be paid. Executors of an estate will be able to ask the pension scheme to withhold 50% of the total fund for up to 15 months and pay the tax directly to HMRC.
So, beneficiaries typically won’t need to pay the IHT bill for a pension out of pocket while they wait for the funds to be released.
4. Planned changes to Inheritance Tax relief on agricultural and business property will go ahead
Despite the convoy of tractors lined up outside Parliament in protest of the upcoming IHT changes, as reported by Sky News, Reeves pressed ahead with reconfirming her plans.
While certain agricultural and business properties are currently subject to 100% relief from the tax, IHT will be levied on such properties worth over £1 million at a rate of 20% from April 2026.
As well as confirming the upcoming rule change, Reeves also clarified that the relief threshold will be fixed at £1 million until 2031, whereafter it will rise with inflation.
Additionally, the chancellor also reneged on previous assertions that the £1 million allowance would not be transferable between spouses. Provided you haven’t used up your allowance, you can now transfer your allowance to your spouse or civil partner when you die.
In theory, the surviving spouse could pass on up to £2 million in agricultural and business property tax-free – even if their spouse dies before the tax is introduced on 6 April 2026.
Get in touch
If you’re worried about how the Budget announcements could impact your estate’s IHT bill, get in touch for estate planning support. Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.