With the Autumn Budget set to be delivered on 26 November 2025, many are waiting with bated breath to find out how their finances could be impacted.
Many news outlets and commentators are speculating about potential changes to Inheritance Tax (IHT).
Indeed, Chancellor Rachel Reeves targeted IHT receipts in 2024’s Autumn Budget by making some agricultural holdings subject to IHT from April 2026, as well as including unused pension pots in estates for IHT purposes from April 2027.
What’s more, the government has previously pledged not to increase taxes for “working people” – such as Income Tax and National Insurance – as BBC News reports. As a result, IHT could be a prime target for the government as it seeks to boost revenue by £41.2 billion.
While no changes have been confirmed, understanding the possible outcomes of the upcoming Autumn Budget can help you plan for different eventualities and act when changes are announced.
Read on to learn how the 2025/26 rules on IHT and gifting could change, how your finances could be impacted, and why it’s important not to act based on rumours.
The freeze on the nil-rate bands could be extended
The value at which your estate becomes liable for IHT has remained fixed at £325,000 since 2009. While this was previously frozen until April 2028, in the 2024 Autumn Budget the freeze was extended to April 2030.
Over the past several years, inflation has quickly eroded the value of this tax-free sum. According to MoneyWeek, had the nil-rate band grown with inflation, in 2025/26 it would be £517,007 – an increase of over £192,000.
Meanwhile, the residence nil-rate band, which allows for an additional £175,000 tax-free when a primary residence is passed down to direct descendants, has been frozen since 2020. Had it kept pace with inflation, today it would be worth £221,633 – an increase of over £46,000.
IHT receipts are increasing year-on-year, and the frozen nil-rate band thresholds are widely considered a significant contributor to this rise. According to HMRC, IHT receipts between April and July 2025 were £200 million higher than the same period in the previous year.
If the freeze was to be extended beyond 2030 – as some sources have speculated – the number of estates liable for IHT would likely continue rising, while taxed estates could see a larger portion of their wealth affected.
The seven-year rule could be extended
Generally, large financial gifts are classified as potentially exempt transfers (PETs) for seven years after being given. In effect, this means the gift may still be included in your estate for IHT purposes if you pass away within seven years.
However, as of the 2025/26 tax year, your gift will not be liable for IHT if it qualifies for another exemption, such as:
- Annual exemption: For gifts totalling up to £3,000 a year
- Small gifts: Up to £250 per person
- Spousal exemption: For gifts of any amount to your marital or civil partner
- Wedding gifts: £5,000 for your child, £3,000 for your grandchild or great-grandchild, or £1,000 for anyone else
Crucially, after seven years have passed since the gift was made, it usually won’t be subject to IHT. As a result, you may be able to give an unlimited amount of your wealth to loved ones without those gifts being subject to IHT – depending on when you pass away.
However, there has been some speculation that this period could be extended, with some sources claiming it could be increased to 10 years. If so, donors may need to live longer after giving financial gifts for them to be exempt from IHT.
In effect, this would mean more lifetime gifts could be subject to IHT in the future.
Taper relief rates for PETs could be reduced, or even removed entirely
In addition to potentially delaying the point at which certain gifts become exempt from IHT, the Guardian reports that the government is reviewing the rules around taper relief for PETs.
Currently, the applicable rate of IHT begins tapering down three years after you make a PET, depending on when you pass away.
- Within three years – 40%
- Between three and four years – 32%
- Between four and five years – 24%
- Between five and six years – 16%
- Between six and seven years – 8%
However, since PETs will be the first part of your estate assessed against your nil-rate band, your gift may not benefit from taper relief – even if you do pass away within seven years.
With multiple sources claiming these rates could now be under review, it’s possible that gifts will become liable for a higher rate of IHT if you pass away between three and seven years.
Additionally, Which? reports that taper relief could even be removed entirely – potentially creating a “cliff edge” between a PET and a substantial IHT bill for your estate after you pass.
If either change was to be introduced, you could see your opportunities to reduce your estate’s IHT bill restricted. However, it’s important to remember these changes are speculative at this stage. Therefore, while you may wish to go ahead with any planned gifts ahead of the Budget, it’s important not to allow panic to cloud your judgement.
If you’re concerned about how changes to taper relief could impact your estate’s IHT bill, it’s often worth discussing your options with a financial planner before acting.
There could be a lifetime cap on tax-free gifting
As it stands, you can gift an unlimited amount of your wealth tax-free, provided you live for seven years after giving the gift.
However, rumoured changes, as reported by the Guardian, could see a limit placed on how much you can give away tax-free in your lifetime.
Depending on the level at which the cap is set, this could have a substantial impact on your estate’s IHT bill when you pass – as well as your ability to support loved ones with large gifts, such as a housing deposit.
As posited by Fidelity International, if the government imposed a lifetime gifting cap of £100,000, and you gifted a total of £300,000 throughout your life, your beneficiaries could pay £80,000 in IHT on the gifts – assuming the tax rate remained at 40%.
Of course, at this stage any calculations and estimates are mere conjecture. Until any changes are officially announced, the details of how your finances will be impacted remain unclear. Hasty actions based on rumours could potentially prove unnecessary once the details of any changes are confirmed.
Get in touch
While the speculation around the Autumn Budget can be daunting, it’s important to remember that nothing is certain at this stage. While this article has outlined possible changes based on speculation, and you may wish to create a plan for how you could react to protect your finances in various scenarios, it may not be wise to act before the Budget is delivered in November.
If you’re thinking about using gifts to reduce your estate’s IHT liability, email info@doddwealthcare.co.uk or call 01228 530913 / 01768 864466 to learn more about how we can help.
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 or tax planning.
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.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
