Thresholds and Exemptions

The nil rate band threshold of £325,000 and the residential nil rate band threshold of £175,000 will remain in place until April 2031 (previously until April 2030). For a couple (married or civil partnership), this means that there is potentially £1 million of taxable estate before Inheritance Tax is payable. Transfers between spouses and civil partners will continue to be exempt from Inheritance Tax. Transfers to individuals more than 7 years before death will continue to fall outside the scope of inheritance tax in the normal way.

Reforms to Agricultural Property Relief and Business Property Relief

In the October 2024 Budget, the government announced reforms to agricultural property relief and business property relief from 6 April 2026, whereby the 100% rate of relief will continue for the first £1million of combined agricultural and business property, and it will be 50% thereafter. The government will also reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. 

The £1million is a lifetime allowance (similar to the BADR allowance for capital gains tax) and will apply for transfers on or after 30 October 2024 if the donor dies on or after 6 April 2026.

Budget 2025 has announced that any unused £1million allowance for the 100% rate of agricultural property relief and business property relief will be transferable between spouses and civil partners, including if the first death was before 6 April 2026. This will take effect from 6 April 2026.

Assets automatically receiving 50% relief will not use up the allowance.

The allowance covers the following transfers:

  • property in the estate at death
  • lifetime transfers to individuals in the 7 years before death (“failed potentially exempt transfers”)
  • chargeable lifetime transfers where there is an immediate lifetime charge, so for example, when property is transferred into trust

Where the rate of relief for the agricultural property or business property is at 50%, for example, quoted shares in company giving the transferor control, the rate of relief will not be affected by the new allowance. 

The combined allowance for the 100% rate of agricultural property relief and business property relief will be fixed at £1million until 5 April 2031.

Infected Blood Compensation Scheme

All payments from the infected blood scheme will be given exemption from IHT. This includes cases where the original infected or affected person eligible for compensation has died before the compensation is paid. First living recipients of compensation payments will receive an IHT credit to pass on the value of the compensation following their own death without an IHT charge and also have two years in which to gift some or all of the compensation payment without an inheritance tax charge.

Inheritance Tax on Pensions

Following the announcement in the October 2024 Budget that unused pensions will be brought into the scope of Inheritance Tax from April 2027, the government has announced that personal representatives will be liable to report and pay Inheritance Tax on pensions from 6 April 2027.

It also confirms that all death in service benefits payable from a registered pension scheme will be excluded from the value of an individual’s estate for Inheritance Tax purposes.

Please click here to go back to our full Autumn Budget 2025 analysis.