Budget 2025: Will there be changes to inheritance tax?

Read our Autumn Budget 2025 commentaries for businesses, individuals and employers.

With last year’s major inheritance tax (IHT) reforms impacting certain businesses, farms and pension savings – and further changes expected in the Autumn Budget 2025 – many individuals are questioning how best to protect their wealth. Frozen tax thresholds, the rising cost of living and stagnant economic growth are adding further pressure, leaving individuals wondering whether their current plans remain fit for purpose.

Now is the ideal time to take stock of your position and seek professional advice to ensure your wealth is structured as efficiently as possible. Here, we explore what changes could be made.

Potential changes to inheritance tax

As the UK government prepares for the Budget on 26 November 2025, there is speculation about further reforms to IHT. With thresholds frozen and the need for additional revenue increasing, possible changes could affect many families.

Current IHT rules

Inheritance tax is currently paid by around 4.6% of estates. The main thresholds have been frozen since 2009 and 2021 respectively:

• Nil-rate band: £325,000 for individuals, £650,000 for couples.
• Residence nil-rate band: An additional £175,000 for estates leaving a home to direct descendants, provided the estate value is below £2 million.

This means a married couple could leave up to £1 million without giving rise to IHT. However, rising property prices and unchanged thresholds mean more families are now affected. From April 2027, pensions will also be included in estates for IHT purposes, likely bringing even more people into scope.

Gifting rules and the seven-year rule

Currently, individuals can make lifetime gifts to other individuals without immediate IHT liability. Broadly, these gifts are exempt (known as a potentially exempt transfer or PET) if the donor survives for seven years after the gift. If the donor dies sooner, IHT applies on a sliding scale:

• Within 3 years: 40%
• 3–4 years: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%

Certain gifts are always exempt, such as up to £3,000 per tax year, small gifts of up to £250 per recipient, regular gifts from surplus income and wedding gifts within limits. Transfers between spouses remain fully exempt.

Possible reforms under discussion

Speculation ahead of the Budget suggests the government may consider:

1. Lifetime gifting cap: A cap on the total amount of assets an individual can give away tax-free during their lifetime, possibly around £100,000. Gifts above this limit could be taxed either during the donor’s lifetime or upon death.
2. Ending the PET exemption period: Increasing the current seven-year period to ten years or possibly counting all lifetime gifts towards IHT regardless of when they were made.
3. Capital gains tax (CGT) changes: Potential removal of the “rebasing” rule for inherited assets, meaning those who inherit assets could pay CGT on the full gain since the asset’s original purchase, rather than since the date of inheritance.

Such changes could significantly affect estate planning and the timing of wealth transfers, particularly given predictions that a significant amount of value in assets will pass down generations by 2050.

Next steps for individuals

At this stage, these reforms remain speculative. However, with IHT receipts already at record levels (£8.2 billion in the last tax year) and thresholds frozen for the time being, it is possible that further changes will be announced in the Autumn Budget.

Families should review their estate plans, consider the timing of major gifts and seek professional advice before acting.