A Closer Look at Tax Adjustments in the Autumn Budget

There has been unprecedented anticipation of this Autumn’s Budget and a huge amount of speculation on how Inheritance Tax might be affected. Many were predicting rises in rates and the scrapping of exemptions and reliefs. There was a lot of talk of the rules around lifetime gifting being changed and perhaps the seven-year period for these gifts being increased to ten years.

Predictions for Inheritance Tax

Others thought there might be a total abolition of the residential nil rate band (set at £175,000) or a culling of the current ability to pass unused nil rate bands to a spouse or civil partner.

In the Wills, Trust, and Probate department here, we were waiting with bated breath to hear which of these rumours were true.

Budget Discussion and Changes

In reality, the discussion of Inheritance Tax and Capital Gains Tax lasted a matter of minutes, but how much change was contained in those brief comments?

Turning to Inheritance Tax, the Chancellor stated she had taken a “balanced approach,” and the vast majority of the comments seemed to imply very little change.

Current Allowances and Tax Rates

The current allowances remain and are frozen until 2030. Those are the tax-free allowance of £325,000 on all estates and an additional residence nil rate band of £175,000 for those passing residential property to their descendants with an estate of under £2,000,000. The tax rates, with the standard being 40% on any assets above those thresholds, remain unchanged.

Spousal and Civil Partner Allowances

The Budget confirms that unused allowances can still be passed to spouses and civil partners, meaning that the possible inheritance tax-free allowance on a combined estate remains at £1,000,000.

Lifetime Gifts and Compliance

There was notably no mention of lifetime gifts as they relate to inheritance tax, so we can only assume the rules around these will remain. However, it is worth noting separately that Capital Gains Tax rates are increasing from 10% to 18% for standard rate taxpayers and 20% to 24% for higher rate.

Changes to Reliefs

As well as this, the Business Property and Agricultural Property reliefs are changing from 2026 to make 50% of qualifying assets over £1,000,000 taxable.

Significant Changes Impacting Estates

Perhaps the most substantial change for the majority of people came next with the announcement that inherited pensions will be included in estates for inheritance tax purposes from the year 2027. This marks a return to the pre-2015 approach to pensions.

Whilst it was phrased as being the closure of a loophole, this is a considerable shift and will affect many estates. Pensions are routinely mentioned in every one of our initial meetings with clients looking to put Wills in place. They are generally quickly dealt with by advising clients to ensure their nomination forms are up to date. When we turn to calculating the size of the estate, pensions aren’t accounted for, and we explain that these fall outside of the estate.

Impact on Estate Planning

This portion of our advice is set to change and lead to more careful consideration over the impact of pensions being passed between generations and how best to manage these assets.

The Chancellor stated that, at present, only 6% of estates pay IHT; it will be interesting to see how steeply this statistic rises with the inclusion of inherited pensions.

Conclusion and Ongoing Considerations

There is no one-size-fits-all advice at this stage. We always encourage clients to review their estates after any major life changes or, in any case, every few years to ensure their Wills and tax planning through trusts, gifts, and other means are working most efficiently in the given circumstances and accurately reflect their intentions.