How the recent changes to Inheritance Tax rules could affect you

If you’ve been paying attention to news in the past year, you’ll likely know that Inheritance Tax (IHT) has been a significant topic of debate, especially following the 2024 Autumn Budget.

Delivered on 30 October 2024, this was the Labour Party’s first Budget in 14 years. The new chancellor, Rachel Reeves, announced £40 billion in tax rises to fill the hole in public finances and rebuild services in the UK, the Guardian reveals.

A significant share of the extra revenue will come from pensions being included in the scope of IHT, which MoneyWeek estimates will push around 8% of estates into paying the tax each year.

So, continue reading to discover four changes to IHT announced in the Autumn Budget, and some practical ways to keep your estate as tax efficient as possible.

1. The nil-rate bands remain frozen

The standard rate of IHT stands at 40%. Before your estate faces this tax, you can benefit from several allowance thresholds.

In 2025/26, the “nil-rate band” – the amount of your estate you can pass on without incurring IHT – stands at £325,000.

On top of this, if you leave your primary residence to a direct lineal descendant, you can benefit from the residence nil-rate band of £175,000, resulting in a tax-free allowance of £500,000.

In the Budget, Reeves announced that these thresholds would be frozen until 2030.

While this might not sound like a significant change, it could contribute to “fiscal drag”. This is when certain tax-free allowances remain in place, while asset prices continue to rise, potentially pulling more of your estate towards the threshold and increasing your IHT liability.

2. Unused pension funds will be included in your estate for Inheritance Tax purposes

Perhaps one of the most significant changes announced in the Budget is that, from 6 April 2027, your pension could start to form part of your estate for IHT purposes.

Pensions previously offered an IHT-efficient way to manage your wealth. You could access other sources of funding first to provide a retirement income. Leaving your pension largely untouched might have meant that it could pass to your loved ones without incurring IHT.

When the aforementioned changes come into effect, the value of your pension could push your estate closer to or further above the IHT thresholds, increasing the potential tax burden for your beneficiaries.

If your primary residence is already worth £500,000 or more – the value of the nil-rate bands combined – even a modest pension could result in a significant IHT bill.

3. Business and Agricultural Property Reliefs were revised

Agricultural Property Relief (APR) and Business Property Relief (BPR) currently offer up to 100% exemption from IHT on qualifying assets, such as farmland and certain business assets.

Reeves announced that, starting from 6 April 2026, the first £1 million of most combined qualifying business and agricultural assets will continue to attract no IHT. Then, anything above this will receive 50% IHT relief, effectively resulting in a 20% charge.

This could significantly increase the tax burden for the families of farmers and business owners, making early planning essential.

4. The non-dom regime is being reformed

Non-domicile – or “non-dom” as it’s commonly referred to – is a term used to describe someone whose permanent home is outside the UK for tax purposes.

Non-dom exemptions have long been discussed in the news, so it might have come as no surprise that the chancellor reformed the regime.

In April 2025, the tax regime for non-doms was abolished and replaced with a residence-based scheme. While there is a transitional period for existing non-doms, the changes mean that a wider range of foreign-held assets may now fall within the scope of UK taxation.

So, if you are a non-dom, these changes could mean you need to reassess any estate planning strategies.

There are several methods you can employ to make your estate more Inheritance Tax-efficient

Due to the changes mentioned above, it’s vital to rethink your estate planning to minimise as much IHT as possible.

Your nil-rate bands

Perhaps one of the simplest ways of doing so is by making full use of your nil-rate bands.

While they have been frozen, it’s worth noting that if you’re married or in a civil partnership, you can typically transfer the unused portion of these allowances to one another. This might allow you to pass on up to £1 million, effectively doubling your tax-free threshold.

Just beware that if your estate is valued above £2 million, you could trigger the residence nil-rate band taper.

This gradually reduces your residence nil-rate band by £1 for every £2 above £2 million. As such, you will lose the allowance entirely if your estate exceeds £2.35 million, or £2.7 million for couples.

Tax-efficient gifting

You could also use your gifting allowances to reduce your estate’s overall value.

As of 2025/26, you can give up to £3,000 worth of assets each year without being counted as part of your estate, known as the “annual exemption”.

You can also carry this forward to the following year, effectively doubling your allowance to £6,000.

There are other IHT-efficient gifts you can make, including:

Wedding gifts of £5,000 to children and stepchildren, £2,500 to grandchildren, £1,000 to anyone else
Gifts to charities in your will, which could reduce the rate of IHT you pay to 36%, provided you leave at least 10% of your estate to charity
Unlimited regular gifts from income that don’t affect your standard of living
As many £250 gifts as you like, provided they don’t form part of a larger gift.

Trusts

If you feel these allowances aren’t enough, you could always place some of your wealth in a trust.

These legal arrangements allow you to hold wealth aside for loved ones. Since the assets within a trust no longer belong to you, they’re typically not included in your estate for IHT purposes.

Get in touch

If you’re concerned about the changes announced in the 2024 Autumn Budget, we could help you manage your IHT liability.

Email [email protected] or call us on 01625 466360 to find out more.

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, trusts, 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.