With the 2025 Autumn Budget just over 2 months away (expected late October or early November), and the government suggesting that further tax rises are on the way, there is much speculation as to where those rises may be introduced.
Keir Starmer and Rachel Reeves look to be keeping to their manifesto promise of leaving the Income Tax regime untouched, and recent comments suggest that a previously mentioned ‘wealth tax’ is looking less likely – though not entirely off the table.
With this in mind, there is a growing consensus that the government may look to Inheritance Tax (IHT) again in this budget.
Last year’s Autumn Budget marked a significant change to the IHT regime with the introduction of restrictions to the Agricultural Property Relief and Business Property Relief, and by also bringing pension pots back into the scope of IHT.
This time, it has been suggested that the government may be looking at changes to gifting in lifetime.
WHAT ARE THE CURRENT RULES?
Currently, where gifts are made and the donor survives that gift by 7 years, it will not be subject to IHT. In addition, “taper relief” will apply to gifts made 3 to 7 years before death under which the rate of IHT reduces each year on a sliding scale basis from 32% to 8%.
This a longstanding rule – and a cornerstone of UK estate planning for a number of decades.
WHAT COULD CHANGE?
It is rumoured that a cap could be introduced in the budget to restrict the value of gifts an individual can make during their lifetime. There is also the possibility that the rules around taper relief could be reviewed as part of this budget.
The intention of this cap would be to impede an individual’s ability to reduce the value of their estate for IHT purposes and therefore bring many more estates into the scope of IHT.
It is not yet understood what level this cap could be set at, or when it will be set from. Regardless, the introduction of any such cap would represent a further sizeable change to the IHT regime.
WHAT DOES THIS MEAN FOR YOU?
With these potential changes on the horizon, this would be an appropriate time to review your estate, succession planning, and whether gifting could help reduce your IHT liability.
If you have any questions, please get in touch. Our team of specialist advisers can assist you with careful planning and help you stay one step ahead.
