Budget 2025, delivered on 26 November 2025, made one direct change to inheritance tax: the freeze on the main tax-free thresholds was extended by a further year, to 5 April 2031. It did not raise inheritance tax rates or cut the nil-rate bands.
The nil-rate band stays at £325,000 and the residence nil-rate band at £175,000 across that period (gov.uk, Budget 2025 overview, 26 November 2025, subject to change). This guide sets out that change alongside two other reforms already in the pipeline that reshape the wider inheritance tax picture: new limits on agricultural and business property relief from April 2026, and unused pensions being brought into estates from April 2027. Figures are current as at August 2026 and are subject to change.
Budget 2025 inheritance tax changes at a glance
Three dates matter for anyone reviewing an estate plan. The first came out of Budget 2025 itself; the other two were announced earlier and confirmed as going ahead.
| Change | What it does | Takes effect |
|---|---|---|
| Threshold freeze extended | Nil-rate band, residence nil-rate band and the £2m taper threshold stay fixed for one more year | Now frozen until 5 April 2031 |
| Agricultural and business property relief reform | 100% relief capped at a combined allowance per person, with 50% relief above it | From 6 April 2026 |
| Pensions within inheritance tax | Most unused pension funds and death benefits counted as part of the estate | From 6 April 2027 |
Sources: gov.uk, Budget 2025 overview (26 November 2025); gov.uk, relief allowance (23 December 2025); gov.uk, pensions (as at August 2026). Subject to change.
The threshold freeze, extended to 2031
The single inheritance tax measure announced at Budget 2025 was an extra year of the existing freeze. The main thresholds were already fixed until 5 April 2030, and Budget 2025 extended that to 5 April 2031, the end of the 2030-31 tax year (gov.uk, Budget 2025 overview, 26 November 2025, subject to change). A frozen threshold is not the same as a rising one. While the cash figures hold still, house prices and savings can keep growing, so more estates can drift above the tax-free level over time. This is sometimes called fiscal drag.
| Allowance or rate | Level (August 2026) | Frozen until |
|---|---|---|
| Nil-rate band | £325,000 | 5 April 2031 |
| Residence nil-rate band | Up to £175,000 | 5 April 2031 |
| Residence band taper threshold | £2,000,000 | 5 April 2031 |
| Standard inheritance tax rate | 40% | Unchanged |
| Reduced rate (10%+ of net estate to charity) | 36% | Unchanged |
Source: gov.uk/inheritance-tax and Budget 2025 overview (26 November 2025), as at August 2026, subject to change.
The residence nil-rate band is worth up to £175,000 where a home passes to direct descendants such as children or grandchildren. A single person leaving a home to direct descendants can therefore have up to £500,000 tax free, and a married couple or civil partners up to £1,000,000 by combining both sets of bands. That residence band is withdrawn by £1 for every £2 by which the estate exceeds £2,000,000 (gov.uk, residence nil-rate band, as at August 2026, subject to change). Our guide to how inheritance tax works walks through those bands in more detail.
What Budget 2025 did not change
It helps to be clear about what stayed the same, because headlines about a Budget can suggest more upheaval than there was. The 40% standard rate, the 36% reduced rate where at least 10% of the net estate passes to charity, and the nil-rate band amounts themselves were all left as they were (gov.uk/inheritance-tax, as at August 2026, subject to change).
The lifetime gift rules were also untouched. The seven-year rule for potentially exempt transfers still applies, and the everyday exemptions remain in place, including the £3,000 annual exemption, small gifts of up to £250 per person, and gifts in consideration of marriage or civil partnership. Taper relief can still reduce the tax due on a gift made between three and seven years before death; it reduces the tax on the gift rather than the value of the gift itself (gov.uk, inheritance tax on gifts, as at August 2026, subject to change).
| Gift exemption | Amount |
|---|---|
| Annual exemption | £3,000 per tax year |
| Small gifts | £250 per person |
| Wedding or civil partnership gift (parent) | £5,000 |
| Wedding or civil partnership gift (grandparent) | £2,500 |
| Wedding or civil partnership gift (anyone else) | £1,000 |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change. Normal gifts out of surplus income can also be exempt where conditions are met.
Agricultural and business property relief, reformed from April 2026
This reform was first announced at Autumn Budget 2024 and does not come from Budget 2025, but it changes the picture for family farms and businesses and is easily confused with the Budget headlines. From 6 April 2026, agricultural property relief and business property relief give 100% relief on the first £2,500,000 of combined qualifying agricultural and business property per person, and 50% relief above that level (gov.uk, relief changes, as at August 2026, subject to change).
The £2,500,000 allowance is transferable between spouses and civil partners, so a couple can pass on up to £5,000,000 of qualifying agricultural or business property between them at 100% relief, on top of the ordinary nil-rate bands. That £2.5m figure was confirmed on 23 December 2025 and replaced the £1,000,000 allowance first announced at Autumn Budget 2024 (gov.uk, 23 December 2025, subject to change). If you have seen the older £1,000,000 figure or a note that the allowance cannot be transferred, that is the superseded version.
Pensions brought into inheritance tax from April 2027
The other change on the horizon affects a much wider group. From 6 April 2027, most unused pension funds and death benefits will be brought within the value of the estate for inheritance tax, a change announced at Autumn Budget 2024 (gov.uk, unused pension funds and death benefits, as at August 2026, subject to change). Until then, many unused pension pots sit outside the estate for inheritance tax purposes. For families who have used a pension as a way to pass wealth on, this is a reason some choose to review the position ahead of the start date rather than after it.
- Nil-rate band £325,000 and residence nil-rate band up to £175,000, both frozen until 5 April 2031 (gov.uk, Budget 2025).
- Standard rate 40%, reduced rate 36% where 10%+ of the net estate passes to charity (gov.uk).
- Agricultural and business property relief: 100% on the first £2,500,000 per person, 50% above, transferable to a spouse or civil partner, from 6 April 2026 (gov.uk, 23 December 2025).
- Most unused pensions counted within the estate from 6 April 2027 (gov.uk).
What the changes mean for families
For most households, Budget 2025 did not change the arithmetic on the day it was announced. The tax-free bands are the same, and a couple leaving a home to children may still be within the combined £1,000,000 of allowances. What changed is the length of time those figures stay put while values around them may rise, which tends to pull more estates into scope over the years to come.
A frozen threshold looks like standing still, but rising asset values can move an estate across the line without anyone changing a thing.
Reviewing an estate plan after a Budget is general good practice rather than a response to any single announcement. Common prompts include a change in the value of a home, a business or farm, or a pension, and the approach of the April 2027 pension change. Considered use of allowances, exemptions and lifetime gifts may reduce a future liability, though it cannot guarantee any particular outcome. If care costs are also a concern, our guide on planning for the impact of care fees looks at that separately, and our wider estate planning guide shows how the parts fit together. You can also see our fixed fees or book a consultation.
Scotland and Northern Ireland
Inheritance tax is a UK-wide tax, so the thresholds, rates and the Budget 2025 freeze extension apply across the whole of the UK, including Scotland and Northern Ireland. What differs is the surrounding law of succession. Scotland has its own rules, including legal rights that can entitle a spouse and children to a fixed share of an estate, and it uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate touches more than one jurisdiction, it can be worth taking advice in each.
Frequently asked questions
What did Budget 2025 change about inheritance tax?
Budget 2025, on 26 November 2025, extended the freeze on the main inheritance tax thresholds by one further year, to 5 April 2031. The nil-rate band, residence nil-rate band and the £2,000,000 taper threshold stay at their current levels across that period. Rates and band amounts were not otherwise changed (gov.uk, 26 November 2025, subject to change).
Are inheritance tax thresholds frozen until 2031?
Yes. Following Budget 2025 the nil-rate band of £325,000, the residence nil-rate band of up to £175,000 and the £2,000,000 taper threshold are frozen until 5 April 2031, the end of the 2030-31 tax year (gov.uk, 26 November 2025, subject to change). Earlier reports that referred to 2029-30 pre-date this one-year extension.
Did the nil-rate band or inheritance tax rate change in Budget 2025?
No. The nil-rate band remains £325,000 and the residence nil-rate band up to £175,000. The standard rate stays at 40%, and the reduced rate of 36% still applies where at least 10% of the net estate passes to charity (gov.uk/inheritance-tax, as at August 2026, subject to change). Budget 2025 changed how long these figures are frozen, not the figures themselves.
What is happening to agricultural and business property relief from April 2026?
From 6 April 2026, agricultural property relief and business property relief give 100% relief on the first £2,500,000 of combined qualifying agricultural and business property per person, and 50% relief above that. The £2,500,000 allowance can transfer to a spouse or civil partner, up to £5,000,000 per couple (gov.uk, 23 December 2025, subject to change). This £2.5m figure replaced the £1m originally announced at Autumn Budget 2024.
Will pensions be included in inheritance tax?
From 6 April 2027, most unused pension funds and death benefits will be brought within the value of the estate for inheritance tax, a change announced at Autumn Budget 2024 (gov.uk, as at August 2026, subject to change). Before that date many unused pensions sit outside the estate for inheritance tax purposes.
Does the frozen threshold mean more families will pay inheritance tax?
A frozen threshold holds the cash figure still while asset values such as house prices may rise, so over time more estates can move above the tax-free level. Whether a particular estate becomes liable depends on its value and make-up. The current thresholds are set out on gov.uk/inheritance-tax (as at August 2026, subject to change), and this article is general information rather than a calculation for any individual estate.