Income from inheritance tax increased by 10% before the unveiling of the Autumn Budget
The upcoming Autumn Budget, scheduled for 2025, is set to bring significant changes to the UK's Inheritance Tax (IHT) system. The proposed reforms aim to increase tax revenues by adjusting reliefs on business and agricultural property, potentially introducing a lifetime gift cap, and possibly changing exemption thresholds and taper relief rules.
A Key Shift in Agricultural and Business Property Relief
One of the key changes proposed is the adjustment to the relief on qualifying agricultural and business property. From April 2026, the first £1 million of such property will receive 100% relief, while amounts above this will only get 50% relief. This new threshold is in addition to the existing Nil Rate Band and Residential Nil Rate Band. Farmland and business assets beyond about £1 million combined could face up to a 20% tax rate, where previously they were tax-free. The tax due can be paid in interest-free instalments over 10 years.
Lifetime Cap on Gifts: A New Gift Tax?
The government is reportedly considering introducing a lifetime cap on gifts, effectively creating a new gift tax. Current IHT rules on gifts might be extended from the 7-year exemption period to 10 years, aligning with other recent tax timelines. These changes aim to increase tax receipts but will likely affect taxpayer behavior, possibly encouraging earlier gifting.
Adjustments to Exemptions and Taper Relief
Some exemptions may be adjusted, including the annual exemptions of £3,000 per person, small gifts of £250 per recipient, and wedding gifts allowed between £1,000 and £5,000 depending on the relationship. These thresholds might be reconsidered or updated in the budget. There is also discussion about revisiting taper relief, which reduces IHT on gifts made between 3 and 7 years before death, but details are less clear on whether it will be scaled back or abolished.
Impact on IHT Receipts
IHT receipts hit an all-time high of £7.5 billion in the 2023/24 tax year. With the proposed changes, the government could be set to rake in even more money from death duties going forward. The latest figures suggest we are on track for another record year in 2024/25.
Rumours and Expectations
Rumours suggest the chancellor could be looking at tightening up IHT exemptions, potentially targeting business and agricultural property relief, AIM shares, and potentially pension pots in the upcoming Budget. It's important to fully understand the rules to avoid inadvertently running into a tax penalty when giving gifts.
In conclusion, the Autumn Budget 2025 aims to raise additional IHT revenues by reducing certain reliefs on business and agricultural property, potentially introducing a lifetime gift cap, and possibly changing exemption thresholds and taper relief rules, with these reforms set to take effect from April 2026 onwards. It's advisable for individuals concerned about IHT to seek professional advice and consider making any necessary adjustments to their estate planning before the changes come into force.
References:
[1] HM Revenue & Customs. (2025). Inheritance Tax: Business Property Relief. [online] Available at: https://www.gov.uk/guidance/inheritance-tax-business-property-relief
[2] HM Treasury. (2025). Budget 2025: Reforming Inheritance Tax. [online] Available at: https://www.gov.uk/government/publications/budget-2025/budget-2025-documents
[3] HM Revenue & Customs. (2025). Inheritance Tax: Gifts. [online] Available at: https://www.gov.uk/guidance/inheritance-tax-gifts
[4] HM Revenue & Customs. (2025). Inheritance Tax: Exemptions. [online] Available at: https://www.gov.uk/guidance/inheritance-tax-exemptions
[5] HM Revenue & Customs. (2025). Inheritance Tax: Taper Relief. [online] Available at: https://www.gov.uk/guidance/inheritance-tax-taper-relief
- The Autumn Budget 2025 plans to increase IHT revenues by modifying agricultural and business property relief, introducing a potential lifetime gift cap, and possibly changing the exemption thresholds and taper relief rules, according to reports.
- To further boost IHT receipts, the government may consider tightening exemptions for business and agricultural property, AIM shares, and potentially pension pots, as rumored for the upcoming Budget.
- Personal finance experts suggest individuals concerned about IHT seek professional advice and consider adjusting their estate planning strategies before the changes to reliefs on business and agricultural property, potential lifetime gift caps, and exemption thresholds and taper relief rules take effect from April 2026.
