New rules and thresholds for Inheritance Tax
Chancellor Rachel Reeves has extended the Inheritance Tax threshold freeze until 2030, allowing the first £325,000 of any estate to be inherited tax-free. If the estate includes a primary residence passed to direct descendants, this allowance rises to £500,000 (depending on personal circumstances), and up to £1 million when the unused allowance is transferred to a surviving spouse or civil partner .
Starting in April 2027, inherited pensions, including SIPPs, will be subject to Inheritance Tax.
Lifetime gifts will still be exempt from tax if given more than seven years before someone passes away, but there's a sliding scale of Inheritance Tax charge for gifts made within that seven-year window. For a full breakdown of current allowances, see our guide: Key tax rates, limits and allowances: At-a-glance.
There are also plans to reform Agricultural Property Relief and Business Property Relief. Agricultural and business property relief will change from April 2026. The first £1 million will continue to be tax free, but over £1 million will receive 50% relief (resulting in a 20% tax rate).
Actions to consider: Investors may be able to reduce Inheritance Tax exposure by using annual gift allowances (up to £3,000) and gifting larger amounts to children early. Placing assets in trusts may also shield wealth from Inheritance Tax, however tax advice should be considered in advance.
Although ISAs are included in an estate for Inheritance Tax purposes after death, transfers to a spouse or civil partner remain exempt. Additionally, with inherited pensions now subject to Inheritance Tax starting April 2027, it's important to consider these implications when planning your estate.
Given the complexity, it’s always advisable to speak to a financial and tax adviser before making any decisions regarding Inheritance Tax.
British ISAs scrapped
In what was the only change to the ISA system, Chancellor Rachel Reeves’ decision to scrap the British ISA makes it easier for investors to focus on straightforward savings and investing strategies.
While the British ISA may have been a noble idea, it risked making ISAs more complicated for investors. ISAs continue to be the most straightforward, tax-efficient way to grow your money.