Budget 2025: top five IHT takeaways

Last year’s autumn statement saw the announcement of the most significant IHT changes in a generation. By that yardstick, the 2025 UK Autumn Budget was quite uneventful.

There were of course significant changes which will impact private clients. Perhaps the most notable are the so called “mansions tax” (in England only, at least for now); the freezing of the income tax and NI thresholds for another 3 years; and a 2-percentage point income tax increase on property, dividend and savings income.

However, there were also a few changes affecting inheritance tax and trusts, which are garnering less attention, perhaps because only some were mentioned (and even those only in passing) by the Chancellor in the House of Commons.

1. The transferable £1m: in a welcome move, there was confirmation that the £1m allowance (or any unused portion of it) for 100% relief for agricultural and business property will be transferable between spouses and civil partners. Clients who had taken steps to try to ensure that they captured what was expected to be a non-transferable allowance on the first death, may now be able to streamline their planning. It may also be possible to reverse previous planning, but there are dangers in doing this in relation to the ownership qualification periods for such property.

2. Frozen thresholds: the nil rate bad and residence nil rate band freeze has been extended by a further year to April 2031. Much like with the income tax threshold freezes, the effect of fiscal drag will see more and more people brought into the IHT net – particularly when this freeze is coupled with the pension changes effective from April 2027.

3. IHT on pensions: there was a welcome update on the pension front more generally, which was that personal representatives (i.e. executors) will be able to direct pension scheme administrators to withhold 50% of the taxable pension benefits, for up to 15 months, and even to pay the IHT in certain circumstances. This should help tackle some of the headaches discussed here. Executors will also be discharged from a liability for IHT on pensions which are only discovered after they have clearance form HMRC. This is also welcome. However, as ever, executors should take advice because it seems, on the face of it, that this will not extend to a pension discovered late in the administration process, and perhaps even after interim distributions are made to beneficiaries, if those happen before clearance.

4. Excluded property trusts: in what seems to be a slight row-back on the original position, the government will cap relevant property trust charges at £5m for pre-30 October 2024 excluded property trusts. Given that the rate of tax is 6% every ten years, it seems this cap will only limit IHT charges for such trusts if they are holding property of very considerable value.

5. Anti avoidance measures: there are some IHT anti avoidance measures to be aware of, aimed at non-UK entities holding UK agricultural property (such property to be treated as UK-sited); and restricting charity exemption to direct gifts to UK charities or clubs.

Many of these changes are perhaps best described as refinements. There is certainly no sign that the government is changing course on its IHT reforms, and the best advice continues to be that clients should speak to their advisers about how the changes affect them, and what can be done by way of mitigation. The changes to APR and BPR come fully into effect on 6 April 2026 and there is still therefore a window for some actions before then. Please get in touch with your usual Brodies contact if you would like to discuss.