The government has announced several changes to inheritance tax in the 2025 Autumn Budget that will affect estates, families and trustees over the coming years. While some measures extend existing freezes, others introduce new rules that could impact your estate planning. Here's what you need to know about each change brought forward by the Autumn Budget of 2025.
The Extended Freeze on Tax-Free Allowances
The amount you can leave tax-free when you die will remain frozen for another year until April 2031. This means the standard inheritance tax allowance stays at £325,000 per person, while the additional allowance for passing on your family home remains at £175,000 per person.
For married couples and civil partners who meet all the conditions, this means they can potentially pass on up to £1 million free of inheritance tax. However, with property prices and inflation continuing to rise while these allowances stay frozen, more families will find themselves paying more inheritance tax over time.
The government is also freezing the new £1 million allowance for family farms and businesses at that level until April 2031. From 6 April 2026, full 100% relief will only apply to the first £1 million of qualifying agricultural and business property. Above this level, qualifying assets will receive 50% relief, giving an effective inheritance tax rate of 20% on the excess.
New Tax Relief for Infected Blood Compensation Recipients
People receiving compensation from the Infected Blood Compensation Scheme will benefit from new inheritance tax protections. When compensation is paid to the estate or family after the person affected by contaminated blood has died, that payment won't be subject to inheritance tax. Additionally, the first living recipients of these compensation payments will have two years to gift some or all of the compensation to others without triggering inheritance tax charges.
This change recognises that these payments are redress for historic medical harm and shouldn't create additional tax burdens for bereaved families The relief applies to compensation payments made before or after 26 November 2025, and the two-year gift window applies to gifts made on or after 4 December 2025.
Changes for Farming and Business Families
From 6 April 2026, if one spouse or civil partner dies without using all of their £1 million allowance for 100% business and agricultural property relief, the unused proportion can be transferred to the survivor. This works in a similar way to the transferable nil-rate band, so a couple can potentially shelter up to £2 million of qualifying farm and business assets at 100% relief.
Example
If a farmer dies leaving £400,000 of qualifying agricultural property, their surviving spouse can claim the unused £600,000 when they die, provided they also leave qualifying assets. This prevents unfair outcomes where the order of deaths could dramatically affect the family's tax bill.
Importantly, this will apply even if the first spouse died before April 2026, meaning families should review past estates to identify potential claims.
New Rules for Pension Death Benefits
Personal representatives will gain new powers from April 2027 to manage inheritance tax on pensions more effectively. They'll be able to instruct pension providers to hold back up to half of any taxable pension death benefits for up to 15 months, ensuring funds are available to pay any inheritance tax due.
Additionally, once HMRC provides clearance that an estate's tax affairs are settled, executors will be protected if unknown pension benefits emerge later.
Closing Tax Avoidance Loopholes
Protection for Historic Offshore Trusts
As part of the wider reforms that replace the non-dom regime with a residence-based system, the government is introducing a cap on inheritance tax charges for certain long-established offshore trusts.
From 6 April 2025, individuals who become long-term UK residents will, in broad terms, be within the scope of UK inheritance tax on their worldwide assets, including interests in many offshore trusts. Under the older rules, if you were non-UK domiciled when you set up a trust holding non-UK assets, that trust could remain outside UK inheritance tax, even if you later lived in the UK for many years. These structures are often referred to as “excluded property trusts”.
The new regime changes that position. Once an individual is treated as a long-term UK resident, their excluded property trust may fall within the relevant property regime so that ten-year charges and exit charges can arise on the trust assets. This could otherwise produce very large tax liabilities for high-value historic structures.
To limit that impact, the government will introduce a cap so that, for excluded property trusts created before 30 October 2024, the total inheritance tax payable on relevant property charges is limited to £5 million. This protection applies to trust charges arising from 6 April 2025 and is designed as transitional relief for historic offshore trusts that were established by individuals who were non-UK domiciled at the time.
In practice, this means that many long-term UK residents who previously relied on non-dom status may still see their offshore trusts brought into the UK inheritance tax net from April 2025, but the cumulative ten-year and exit charges on qualifying pre-30 October 2024 excluded property trusts should not exceed £5 million in total. Without this cap, some very wealthy families could have faced extremely high inheritance tax bills as previously protected trust assets became fully exposed to UK inheritance tax.
What This Means for Estate Planning
These changes reflect several clear policy directions. The government is maintaining pressure on estates through frozen allowances whilst targeting perceived unfairness in the system. The reforms show particular focus on ensuring agricultural property and businesses contribute more to tax revenues.
For most families, the frozen allowances mean inheritance tax will affect more estates as asset values grow. Those with farms, businesses or international connections face more complex changes requiring professional advice. The message is clear: inheritance tax is becoming harder to avoid, and early planning becomes increasingly important.
If you're affected by any of these changes, particularly the new rules for farms, businesses or international structures, you should review your estate planning well before the April 2026 implementation date. The transitional periods and caps won't last forever, and understanding your position now could save your family significant tax in the future.
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