Post Budget Thoughts from an IHT perspective

While IHT changes mainly flew under the radar in the most recent Budget, they could have major consequences for your estate planning and significantly impact families and business owners planning to pass on wealth. We can’t forget the major changes which were announced in the previous Budget and are set to take effect next year.

Understanding the developments and proactive estate planning can make all the difference.

Static Thresholds, Rising Property Prices: A Tax Trap in Disguise

The nil rate band (£325,000) and the residence nil rate band (£175,000) remain frozen until 2031. At first glance, this may seem harmless, but rising property prices mean more estates will quietly fall into the IHT net. This is known as ‘fiscal drag’ whereby tax thresholds stay static whilst asset values rise.

The Office for Budget Responsibility predicts this freeze will push IHT receipts to £14.5bn annually, a drastic jump from the current £9bn.

For example, a married couple with children who bought their family home in the early 2000’s for £250,000, well, their home today would be valued at approximately £900,000. Add in other savings and investments and their estate exceeds the £1m combined allowance, facing a substantial 40% tax bill without acquiring any extravagant assets.

A Tiny Silver Lining for Agricultural Property Relief and Business Property Relief

As advised in the previous budget, from 6 April 2026 Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at 100% relief on qualifying assets up to £1m and 50% relief on assets exceeding that (effectively creating a 20% charge on the surplus).

The Chancellor provided a tiny silver lining in the recent budget announcing that the reliefs will be transferrable between spouses which is in keeping with other allowances available. This will even apply retrospectively, meaning where the first spouse or civil partner died before 6 April 2026 it can still be utilised.

Unfortunately, the announcements weren’t all appreciated as the £1m cap on the 100% relief allowance will remain fixed until the 2030/31 tax year, after which it will only rise with inflation creating another quiet fiscal drag.

For families with trading businesses or farmland, this is a wake-up call. The upcoming months are critical for reviewing ownership structures and ensuring assets qualify for relief and that relief is utilised.

Pensions Enter the IHT Net: What Happens After April 2027?

The previous budget also announced that from 6 April 2027, most unused pension funds and pension death benefits will be included in the taxable estate for IHT purposes. This will create unexpected liabilities for families and requires careful planning, especially where the intended beneficiaries of a pension and an estate are not the same. It will add further strain to the role of acting as a personal representative which is already burdensome.

Although the 2025 Budget didn’t provide any freedom in this regard it introduced some practical measures aimed to ease administration. Personal representatives will be able to instruct pension administrators to withhold up to 50% of the pension value for 15 months to cover inheritance tax, and executors will be discharged from liability if pension assets surface after HMRC clearance. Although helpful, these steps don’t reduce the tax burden they, in theory are just meant to make it easier to manage.

Estate Planning Strategies to Beat the Budget Changes

These changes may not have made headlines, but they will affect a lot of real families in very real ways. Rising property values, capped reliefs, and pension inclusion means that estates once considered safe and ‘not wealthy’ could now face significant tax exposure. More people than ever before need to start taking advice as early as possible.

At Private Client Solicitors, we specialise in guiding families through tax complexities whilst considering your bespoke family circumstances. By acting now, you can turn concern into opportunity – to restructure and engage in thorough estate planning, ensuring your wealth passes to the next generation, not the taxman. If you would like to discuss further, please feel free to call 0161 509 5020 or email enquiries@privateclientsolicitors.co.uk