🧾 What Is Inheritance Tax (IHT)?
Inheritance Tax is a tax charged on the estate (property, money, and possessions) of someone who has died. In the UK, the standard IHT rate is 40%, charged on anything above the tax-free threshold, known as the nil-rate band, which currently stands at £325,000.
Married couples or civil partners can combine their allowances, and with the residence nil-rate band (RNRB) of £175,000 per person, families passing on the family home can potentially leave up to £1 million tax-free.
⚖️ So, What’s Changing?
As of mid-2025, speculation is strong and government signals suggest that major changes to IHT may be announced in the Autumn Statement or early 2026. Here’s what we know — or expect — so far:
🔍 1. Thresholds May Be Frozen Again
Although the nil-rate band has been stuck at £325,000 since 2009, there’s little indication that it will be increased. In fact, current fiscal plans may freeze thresholds until at least 2028, meaning more estates will become liable as property prices and asset values continue to rise.
Impact: More middle-income families could be drawn into paying IHT, even if they don’t consider themselves “wealthy”.
🧮 2. Reform or Abolition?
There have been strong political discussions about:
- Abolishing IHT altogether, replacing it with a lifetime receipts tax
- A simplified IHT with lower rates but fewer exemptions
- A flat rate of 20% on gifts and inheritance, instead of 40% above the threshold
While these are proposals, none are yet confirmed. However, a General Election expected in 2026 means IHT could become a hot political topic.
🏡 3. Changes to Business Relief or Agricultural Relief?
Two major reliefs allow people to pass on family businesses or farms free of IHT. The government is reviewing these reliefs, which could result in:
- Tighter eligibility criteria
- Caps on how much can be exempted
- Removal of relief in certain trust or corporate structures
This could be a major concern for business owners and farmers.
🎁 4. Lifetime Gift Rules Under Review
Right now, you can give away unlimited amounts and avoid IHT if you survive for 7 years. This “7-year rule” is under pressure and may be replaced with:
- A shorter window (e.g. 5 years)
- A flat lifetime allowance per recipient or giver
- A progressive gift tax model
🧠 What Should You Do Now?
Until formal announcements are made, it’s important to take proactive, sensible steps rather than panic or rush into action.
✅ Review Your Estate Plan:
- Make sure your will is up to date
- Review beneficiaries on pensions and ISAs
- Consider using lifetime gifts and trusts (if appropriate)
✅ Use Current Allowances:
- Annual gift allowance of £3,000
- Small gift exemption of £250
- Gifts for weddings/civil partnerships
- Gifting from surplus income (little known but powerful)
✅ Talk to a Financial Planner or Tax Adviser:
They can help you understand how changes may affect you — especially if you have business assets, property portfolios, or large pensions.
🧭 Final Thoughts from Money Simplified
Whether IHT is reformed, replaced, or removed, it’s clear that the current system is under review. With house prices high and frozen thresholds, more everyday people are affected than ever before.
Here at Money Simplified, we’ll continue monitoring developments and help you plan smarter, simpler, and tax-efficiently.
➡️ Want to estimate your estate’s IHT liability? Find out using our free Inheritance Tax Estimator tool.
