20 October 2025
Published on Legal Futures Blog by Dave Seager, Consulting Adviser to SIFA Professional
Published October 1st 2025
It has been widely reported that the Treasury needs to raise money to avoid further cuts in public spending, whilst remaining true to Labour’s election pledge not to raise the main taxes on individuals.
The most obvious target is the current inheritance tax (IHT) regime, which will obviously impact your estate planning clients now and in the future.
Respected media, such as The Guardian, which heavily quote ‘Treasury sources’, have suggested that officials are looking at ways to tighten the current rules on the gifting of money and assets to reduce the current £40bn deficit ahead of November’s Budget.
Whilst it is not wise to use a crystal ball in these circumstances, it does seem extremely likely that there will be changes announced, so in the spirit of forewarned is forearmed here are some possibilities thought to be under consideration:
A lifetime cap: At present, as you will be aware, your clients can give away all their money and assets to their spouse, civil partner, registered charities or political parties. One option which already exists in other countries is that of a lifetime cap on how much an individual can give away. Any gifts over the cap would attract IHT.
Potentially exempt transfers: Of course, if you time it correctly with your client, any gift can be exempt from IHT if the donor lives seven years from the date it was made. Such gifts, referred to as potentially exempt transfers (PETs), are intended to discourage last-minute gifting with an eye to IHT.
If the individual passes away within the seven-year period, there is a reduction in the tax owed through taper relief. For example, full 40% IHT would be due in the first three years, tapering to 8% if the person dies within the final year of the seven.
An obvious alternative to the lifetime cap and an effective way to increase tax incoming, therefore, would be to reduce the seven-year PET period or make the taper harsher.
The introduction of either or both of these quick wins is entirely possible and might follow on from the two significant changes announced in 2024…
Changes to business and agricultural relief: In the 2024 Budget, Chancellor Rachel Reeves made her controversial changes to business and agricultural reliefs which added a 20% IHT rate, where there is currently none, to the value of businesses and farms worth more than £1m.
Unused pension funds will be subject to IHT: Starting April 2027, any unused pension funds passed on will be counted as part of the estate for IHT purposes. The government additionally confirmed in mid-August that the new pension rule will even apply to a person too young to even have access to that pension fund, currently age 55, at the time of death.
We have seen that the current government is loath to increase any taxes which it pledged not to in its election manifesto. Indeed, having already been forced to back down to avoid a revolt on welfare reforms, the Chancellor is extremely unlikely to increase the direct tax burden on working people.
This being the case, and having already made significant moves to catch more individuals in the IHT net, we can quite possibly expect one or both suggested changes to be introduced in November.
With only 4.6% of deaths resulting in IHT, according to HM Revenue & Customs’ 2022/23 figures, this is the obvious target. The average effective tax rate for taxed estates was 13%, considering all available reliefs and exemptions.
When the headline rate is 40%, 27% is a significant difference to address ahead of baby boomers’ massive wealth transfer.
Therefore, now is the time to be speaking to clients with whom you have had conversations about estate planning and efficient transferring of generational wealth and doing so in collaboration with your trusted financial planning partners.