The Budget: An anti-climax for Inheritance Tax changes?

As anticipation built ahead of the 2025 Autumn Budget, many advisers and taxpayers expected a fresh wave of reform to the Inheritance Tax (IHT) regime, particularly following last year’s significant overhaul of agricultural and business reliefs. In the weeks preceding the announcement, there was considerable discussion about whether the Government might introduce further measures affecting gifting, reliefs and succession planning. Against that backdrop, the final outcome proved far more restrained than predicted. The Budget clarified certain key proposals but stopped short of many of the widely-trailed changes.

Ultimately, IHT changes played a far smaller role in the overall Budget than initially anticipated. This will come as a relief to some following last year’s sweeping reforms, though no doubt disappointing to others who had hoped for more extensive revisions to better protect family farms and businesses.

Among the rumours circulating ahead of the budget were the following:

• A cap on lifetime gifts, above which gifts might become immediately chargeable
• The potential loss of the Capital Gains Tax (CGT) uplift on death
• The ending or limiting of taper relief on lifetime gifts
• The extension of the seven-year rule, after which gifts fall out of a person’s estate for IHT purposes, to ten years

Given that many of these proposals seemed to have found their origins in the same reports which had first suggested the changes to agricultural and business reliefs and the changes to pensions in last year’s budget, it seemed plausible that such further changes were on the horizon this time round. We produced an insight which covered the main themes of these reports on 3 September 2025.

In the end, none of these changes occurred, meaning the net result was that the 2025 budget, when it happened, felt like something of an anti-climax, remarkably light on changes to the IHT rules. However, it was confirmed that the tax-free thresholds would be capped for a further year, so the tax-free allowance of £325,000, the residence allowance of up to £175,000 and the £1m allowance for agricultural and business property will remain at their current levels until April 2031.

Was there any good news?

The answer to this is a tentative yes. The 2025 budget confirmed that the £1 million allowance for Agricultural Relief (APR) and Business Property Relief (BPR) at 100% being introduced in April 2026 would be transferable between spouses. This represents a welcome simplification to the proposals introduced in the 2024 budget and reduces the scope for families and business owners to inadvertently miss out on the full extent of the reliefs when they leave everything to a spouse - although it remains to be seen how this will be implemented in practice.

That said, there will no doubt have been disappointment in some quarters that suggested modifications to the restriction on APR and BPR introduced last year were not more extensively adopted.

An insight prepared by Tozers in September covered calls from the NFU for broader changes to the so-called ‘family farms tax’ and focused on a report produced by Centax, which made several alternative suggestions. These included the allowance being transferable between spouses, which ended up being adopted. However, it also included the following suggestions, which were not.

• Raising the allowance at which 100% APR and BPR can be claimed at 100% to £10 million.
• Restricting the APR/BPR to cases where relievable assets account for less than 60% of the whole estate to target the relief to family farms rather than investors.

Given these wider modifications were not adopted, it will remain the case that where the value of farms and businesses exceeds the £2 million combined threshold, lifetime gifting will be an important tool in estate planning. In this respect, at least, the lack of changes to the gifting rules in this year’s budget may represent some good news as it provides some stability for those currently or expecting to be engaged in estate planning.

What about pensions?

In the wider budget documentation, there were also some amendments to the provisions relating to pensions which make life a little easier for personal representatives of an estate when it comes to settling the IHT which will be due on pensions from April 2027.

The updated rules will allow personal representatives to direct the pension scheme administrators to withhold up to 50% of the pension benefit for up to 15 months in certain circumstances. The budget also confirmed that once the personal representatives of an estate have received clearance from HMRC that they will no longer be liable for the IHT on pensions discovered subsequently. This offers some much-needed additional protection to personal representatives when it comes to their obligation to settle the IHT on pensions over which they have no direct control. However, it will remain the case that the inclusion of pensions into the IHT net from April 2027 will still mean that personal representatives face a greater administrative burden than they did previously.

Summary

Despite extensive speculation in the lead-up to the 2025 Budget, the changes announced this year have not significantly altered the IHT landscape or the approach to succession planning. The headline developments remain those introduced in last year’s Budget, particularly the reforms to APR, BPR and the treatment of pension pots. While the confirmation that APR and BPR will be transferable between spouses from 2026 is a welcome simplification, the Government’s decision not to revisit broader concerns about the reach of last year’s reforms means that succession planning continues to be a key priority for many farm and business owners.

For now, the absence of major changes to the treatment of lifetime gifts means that established IHT planning strategies remain both viable and valuable. With the April 2026 deadline approaching for those affected by the APR and BPR reforms, early action will be crucial.

How Can Tozers Help?

As the 2026 implementation date draws nearer, it is important for individuals and families impacted by the relief changes to review their estate, and succession plans and take tailored advice. Our team can guide you through the evolving IHT landscape, help identify opportunities within the current rules and ensure your planning remains both robust and aligned with your long-term objectives. If you would like support in assessing your options or updating your strategy, we are here to help.

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