UK: Potential Changes to Inheritance Tax (IHT) in the Upcoming November Budget in the UK

1. Lifetime Gifting: Introduction of a Cap

One of the most notable proposals is the introduction of a lifetime cap on tax-free gifts. Under current rules, individuals can make gifts of any value without incurring IHT, provided they survive for seven years after the gift. These are known as Potentially Exempt Transfers (PETs).

The proposed reform would introduce a cumulative lifetime allowance, beyond which gifts may become immediately chargeable to IHT. This would represent a major shift in policy, limiting the scope for long-term estate planning through lifetime gifting.

2. Extension of the Seven-Year Rule and Taper Relief

Further changes under consideration include:

• Extending the seven-year rule to ten years, increasing the period during which gifts remain within the donor’s estate for IHT purposes.
• Reforming or abolishing taper relief, which currently reduces the IHT rate on gifts made between three and seven years before death. Removal of taper relief could result in a “cliff-edge” effect, where gifts become fully taxable if the donor dies within the extended period.

These changes would significantly impact the timing and strategy of lifetime gifting.

3. Reform of Existing Exemptions

The government is also reviewing long-standing exemptions, including:

• The annual gift allowance of £3,000, which has remained unchanged for decades.
• The small gifts exemption of £250 per recipient, which may be consolidated or updated.

Modernising these thresholds could make them more reflective of current economic conditions and simplify the IHT framework.

4. Business and Agricultural Property Relief

The Spring Budget 2024 announced substantial changes to Business Property Relief (BPR) and Agricultural Property Relief (APR), effective from 6 April 2026:

• Relief will be capped at £1 million per individual or trust for assets qualifying for 100% relief.
• Any value above this threshold will receive only 50% relief, resulting in an effective 20% IHT charge.
• Non-listed shares, such as those on the AIM market, will only qualify for 50% relief regardless of value.
• Anti-avoidance measures will apply to multiple trusts created after 30 October 2024, preventing circumvention of the new caps.

These reforms aim to ensure that reliefs are targeted at genuine family businesses and farms, and not used as vehicles for tax avoidance.

Conclusion

While these changes are still under consultation and subject to legislative approval, they signal a clear intent to modernise the IHT regime. Individuals and advisors should monitor developments closely and consider reviewing estate planning strategies in anticipation of potential reforms.

Reference/Citation

Inheritance Tax Under the Microscope: What's in Store for the 2025 Autumn Budget? | mfg solicitors blog

https://www.mfgsolicitors.com/site/blog/mfg-blog/inheritance-tax-under-the-microscope-autumn-budget#:~:text=However%2C%20the%20Government%20is%20considering,IHT%20charge%20from%20the%20estate

lifetime gifting to plug budget black hole | SE Solicitors

https://www.se-solicitors.co.uk/article/102l01j/chancellor-considers-caps-on-lifetime-gifting-to-plug-budget-black-hole/#:~:text=There%20is%20a%20concern%20that,gifts%20to%20high%2Dvalue%20transfers

Inheritance Tax Changes 2025: Why You Must Act Now to Protect Your Estate | Will Protect

https://willprotect.co.uk/inheritance-tax-changes-2025-gifting/#:~:text=Taper%20Relief%20Could%20Be%20Scrapped,Allowance%20May%20Replace%20Annual%20Exemptions

Reforms to Inheritance Tax agricultural property relief and business property relief: application in relation to trusts | HM Revenue & Customs

https://www.gov.uk/government/consultations/reforms-to-inheritance-tax-reliefs-consultation-on-property-settled-into-trust/reforms-to-inheritance-tax-agricultural-property-relief-and-business-property-relief-application-in-relation-to-trusts