The Budget 2025 inheritance tax changes extended the freeze on the nil-rate bands to April 2031, brought most unused pensions inside estates from April 2027, and reshaped relief for farms and businesses. One headline figure moved after the Budget, and most summaries have not caught up. General information for England and Wales, not advice.
What changed for inheritance tax in the 2025 Budget?
| Change | What it means | From |
|---|---|---|
| Nil-rate bands frozen longer | £325,000 NRB and up to £175,000 RNRB held until 5 April 2031 | Now |
| Pensions inside inheritance tax | Most unused pension funds count as part of the estate | 6 April 2027 |
| Farm and business relief capped | 100% relief on the first £2.5m per person, 50% above (raised from £1m) | 6 April 2026 |
| Charitable trust gifts | Gifts to trusts for charitable purposes lose the exemption unless the recipient is itself a charity | Announced |
| Infected blood compensation | Payments made free of inheritance tax however they pass down | Announced |
Source: gov.uk, Autumn Budget 2025, as at August 2026, subject to change.
The rate itself did not move. Inheritance tax stays at 40%, or 36% where at least 10% of the net estate passes to charity. The pressure comes from frozen thresholds and a widening base, not a higher rate.
Are the inheritance tax thresholds frozen for even longer now?
A single person can still pass up to £500,000 free of inheritance tax where a home goes to children or grandchildren, and a couple up to £1m combined. The residence band is withdrawn by £1 for every £2 an estate exceeds £2m, so larger estates keep less of it (how inheritance tax works).
Source: gov.uk, Inheritance Tax, as at August 2026, subject to change.
What most Budget summaries get wrong: the relief cap is £2.5m, not £1m
The original Budget position was a £1m allowance, and because most summaries were written in the days after 26 November 2025, that older figure is still circulating. Planning off £1m understates the relief now available on farms, family companies and qualifying shares.
| Feature | As first announced (26 Nov 2025) | As confirmed (23 Dec 2025) |
|---|---|---|
| 100% relief cap per person | £1m | £2.5m |
| Transferable between spouses | Yes | Yes, up to £5m per couple |
| Relief above the cap | 50% | 50% |
| Effective date | 6 April 2026 | 6 April 2026 |
Source: gov.uk, APR and BPR reforms, as at August 2026, subject to change.
Transferability matters as much as the number. A widow or widower can inherit an unused allowance, so a couple who plan together can shelter up to £5m of qualifying business or farm value at 100% before the 50% band begins.
Are unused pensions really taxed from 2027?
This is the largest change for ordinary savers, because a pension that once passed outside inheritance tax may now be counted alongside the house. Your executors, not the scheme, report and pay the charge, so estate liquidity needs thought. We work through a numeric example in pensions and inheritance tax from 2027.
Source: gov.uk, Inheritance Tax on pensions technical note, as at August 2026, subject to change.
What should you do after the 2025 Budget?
- Re-check any farm or business plan. If your planning assumed a £1m relief cap, revisit it against the confirmed £2.5m per person (£5m per couple).
- Review your pension nominations. A pension left to a spouse or civil partner stays exempt from April 2027, so make sure your expression of wishes reflects who you intend to benefit.
- Use the gift exemptions that still stand. The annual £3,000 exemption, £250 small gifts and the seven-year rule with taper on the tax were untouched (how much you can gift tax free).
- Check your estate has cash to pay. With pensions and property both potentially inside the estate, executors may face a bill before assets can be sold.
- Take joined-up advice before large moves. These taxes interact, so a financial adviser and your estate planner are best consulted together before emptying a pension or restructuring a business.
Most people fold these checks into their wider estate planning. For a discreet review, you can book a consultation or see our fixed pricing.
Frequently asked questions
Did inheritance tax go up in the 2025 Budget?
The 40% rate and the £325,000 nil-rate band did not change. What changed is that the freeze was extended to 5 April 2031, unused pensions enter inheritance tax from April 2027, and farm and business relief was capped. Frozen bands with rising asset values mean more estates pay over time, even though the rate is the same.
How long are the inheritance tax thresholds frozen for?
Until 5 April 2031. The Budget extended the freeze on the £325,000 nil-rate band, the residence nil-rate band of up to £175,000, and the £2m taper threshold by a year, having previously been due to end in 2030 (gov.uk, as at August 2026, subject to change).
Is the £1 million business property relief cap still correct?
No. The £1m figure was the first announcement, but on 23 December 2025 the government confirmed the cap starts at £2.5m per person, transferable to £5m per couple, from 6 April 2026. Property above the cap keeps 50% relief. Many Budget summaries still show the old £1m number.
When do pensions become subject to inheritance tax?
From 6 April 2027. Most unused pension funds and lump sum death benefits will count as part of your estate and can be charged at 40% above your available bands. Pensions passing to a spouse or civil partner keep the spousal exemption, so the charge tends to arise where a pension goes to children.