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Post updated: September 15th, 2025
Ahead of November’s Budget, the Treasury is looking at ways to raise more money from inheritance tax as one way of plugging a hole in the country’s finances, according to reports.
Inheritance tax changes being considered include:
Under current inheritance tax rules, no tax is due on any gifts you give if you live for 7 years after giving them – unless the gift is part of a trust. This is known as the 7 year rule.
If the person dies within 7 years of giving a gift and there’s inheritance tax to pay on it, the amount of inheritance tax due after your death depends on when you gave it. There is a sliding scale known as ‘taper relief’ of between 8% and 32% on gifts given between 7 and 3 years before death. Money given less than 3 years before is taxed at the full inheritance tax rate of 40%.
For more detailed information read our guide on Inheritance tax on property.
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Introducing an inheritance tax lifetime cap means more people would likely pay inheritance tax and greater amounts.
Similarly, by scrapping the 7 year inheritance tax rule or making changes to taper relief, the expectation would be that more people would pay greater amounts of inheritance tax.
David Sturrock, of the Institute for Fiscal Studies, said that chancellor Rachel Reeves was unlikely to be able to raise significant sums from inheritance tax without hitting small gifts made by middle earners, reports The Times.
These proposals follow inheritance tax changes outlined in the 2024 Autumn budget where chancellor Rachel Reeves said:
Under current rules, when you die any money that’s left in a private pension fund can be passed on to your loved ones free of inheritance tax.
The government estimates that 10,500 estates will have an Inheritance Tax liability as a result of these inheritance tax and pension changes and around 38,500 estates will pay more inheritance tax than would previously have been the case.
However, many homeowners have already taken action to protect themselves from these inheritance tax changes, according to reports.
Equity release advisers report having seen a rise in enquiries from over-55s following the inheritance tax changes announced in last year’s Budget.
The most common type of equity release are lifetime mortgages. These allow homeowners over 55 to borrow against their homes in return for a tax-free lump sum. This loan is repaid when the borrower dies or moves into long-term care. Find out more about the different types of equity release and how they work in our guide Is equity release right for me?
Andy Shaw, of broker SPF Private Clients, told The Telegraph he had seen more inquiries from homeowners looking to gift money following the Government’s inheritance tax changes:
“We expect this to continue as we move nearer to April 2027, when pensions are due to fall into the inheritance tax calculation,” he said.
“Most commonly, the funds released are gifted by the borrowers to their children or grandchildren, and will usually become a potentially exempt transfer, and thus fall outside of their estate after seven years.”
The UK government has also announced plans, beginning in April 2026, to tax inherited agricultural assets worth more than £1m at 20%, this is half the usual rate.
You don’t have to make life’s big financial decisions alone. Get the right IFA for you today with our partners at Unbiased.
Paula Higgins, CEO of HomeOwners Alliance, said:
“We believe inheritance tax should not penalise ordinary families whose only significant asset is their home. Rising property prices, particularly in cities, now mean that many ordinary families are being unfairly dragged into inheritance tax — not because they are wealthy, but simply because they own a home..
“Families pay income tax to earn the money, and stamp duty when buying their home. Taxing that same home again on death through inheritance tax amounts to double taxation.
“We support reforms that protect the family home, ensure thresholds rise in line with house prices, and simplify the system so families can plan for the future with confidence.”
In the 2025-2026 tax year, everyone has a tax-free inheritance tax allowance of £325,000 – this is known as the nil-rate band.
If your estate is below £325,000, then it sits in your “nil-rate band” and no tax is payable. But if the value of your estate is above £325,000, everything above that threshold is subject to inheritance tax rate of 40%.
However there are some exceptions to this rule:
This means an individual dying could pass on assets worth up to £500,000 tax free. Married couples and those in civil partnerships can transfer any unused nil-rate band when the first person dies to the survivor. This means a couple could pass on up to £1,000,000 without being liable for inheritance tax. Find more detailed information in our guide on Inheriting a house.
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