Catherine Ramsbottom in our Wills, Trusts & Estates team provides a brief summary of the changes to Inheritance Tax announced today

The Autumn Budget announced by the government today brings some key proposed changes to inheritance tax, which are summarised below.

Pension funds and death benefits

Currently, on an individual’s death, any unused pension funds and pension death benefits fall outside of that person’s estate for inheritance tax purposes. The government have announced that, from 6 April 2027, they will bring an individual’s unused pension fund and any death benefits payable from a pension into their estate for inheritance tax purposes.

This is clearly a very significant change to the IHT regime, but we await full details in due course before we can properly assess how this will work in practice, and any planning options that therefore may be available to mitigate this wider scope of Inheritance Tax.

Combined APR and BPR assets

Currently, agricultural and business assets which qualify for agricultural property relief (APR) and business property relief (BPR) in the majority of cases attract an 100% rate of relief for inheritance tax purposes.

The second major change to IHT announced in today’s budget, is that, from 6 April 2026, only the first £1 million of such assets (combined for APR and BPR) in a person’s estate will continue to attract a 100% rate of relief. Thereafter, any amount over this will attract a 50% rate of relief, with an effective rate of inheritance tax on those assets of 20%.

Again, we await full details to be published in due course to fully understand how these changes will be implemented, but clearly clients with business and agricultural assets will need to review their Wills and wider succession planning in due course to minimise IHT arising on their estates.

In addition, from April 2026, the government will reduce the rate of BPR on AIM listed shares from 100% to 50%.

Domicile

In addition, the Chancellor has adopted the same intention of the previous government (laid out in the Spring Budget earlier this year) to abolish the non-domicile regime. From 6 April 2025, this will be replaced with a residence-based system to be applied to both IHT and CGT. Individuals who want to opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence.

Thresholds

Finally, it was announced that the Nil Rate Band and Residence Nil Rate Band thresholds will stay fixed until 5 April 2030 (currently, they are frozen until 5 April 2028).

Accordingly, the government has confirmed that the Nil Rate Band will stay fixed at £325,000 and the Residence Nil Rate Band will remain at £175,000. The Residence Nil Rate Band taper threshold will continue to stay at £2 million.

Crucially, in simple terms, this means that married couples will on their death continue to be able to leave up to £1 million free of inheritance tax, with any amount over the £1 million threshold being charged at a rate of 40%.