Will Inheritance Tax Change in the 2025 Budget? What UK Families Should Expect Under Labour’s New Rules

With a newly elected Labour government and its first Budget delivered in October 2024, families across the UK are asking one crucial question:

“Will inheritance tax change again in the 2025 Budget?”

The answer isn’t straightforward - but it is significant.

The 2024 Budget introduced substantial reforms to the inheritance tax (IHT) system, fundamentally reshaping how wealth is passed down in Britain.

While those changes were some of the most consequential in years, speculation continues about whether further adjustments could appear in the next fiscal statement.

At Belgravia Capital Wealth Management, we specialise in long-term estate planning that anticipates political shifts and legislative developments.

In this guide, we’ll take you through the key changes already made, what to expect next, and what steps you can take now to protect your family’s wealth.

Inheritance Tax in the UK: The Foundations

IHT has long been one of the UK’s most debated taxes. It applies at a standard rate of 40% on the value of an individual’s estate above a tax-free threshold. That threshold currently includes:

• A £325,000 nil-rate band available to all

• A £175,000 residence nil-rate band if the family home is left to direct descendants

• Unused allowances from a deceased spouse or civil partner can also be transferred, making it possible for couples to pass on up to £1 million tax-free

Any value above this is subject to tax. While relatively few estates historically triggered IHT, frozen thresholds and rising property prices have dramatically increased the number of families affected.

What Changed in the 2024 Autumn Budget?

The Labour government’s 2024 Autumn Budget included sweeping reforms that shifted the IHT landscape. The most impactful changes take effect from April 2026:

1. Business Property Relief for AIM Shares Reduced

Previously, shares listed on the Alternative Investment Market (AIM) qualified for 100% Business Property Relief (BPR) if held for two years.

This allowed many investors to pass on substantial portfolios free from inheritance tax. From 2026, that relief will be reduced to 50%, resulting in a 20% effective tax rate on AIM shares.

This affects not only investors but families using AIM portfolios as an IHT-mitigation strategy.

2. Cap on Agricultural and Business Relief

A combined cap of £1 million per person will be applied to both Agricultural Property Relief (APR) and Business Property Relief. Above that threshold, assets will only receive 50% relief. This significantly increases the taxable estate value for landowners and entrepreneurs.

3. Freezing of Inheritance Tax Thresholds Extended

The nil-rate band (£325,000) and residence nil-rate band (£175,000) will now remain frozen until at least 2030, further reducing the real value of the tax-free allowance.

4. Inclusion of Pension Wealth in Estates

From April 2027, unused pension pots and death benefits will become part of the taxable estate, a major shift for individuals using pensions as inheritance vehicles.

Will There Be More Inheritance Tax Changes in the 2025 Budget?

The 2024 Budget marked a major realignment of inheritance taxation, but signs point to further changes still being on the table in 2025.

These may include:

1. A Review of Trust Taxation

Trusts are currently used to manage succession planning, protect wealth, and mitigate IHT.

However, Labour has signalled its intent to examine how trusts are used - particularly discretionary trusts - and may introduce reporting requirements, limit duration, or alter how trust property is taxed.

2. Further Restrictions on Business and Agricultural Relief

The government may decide to further limit these reliefs or tighten definitions around what constitutes a qualifying business or agricultural asset.

This would primarily impact farmers, private business owners, and those who hold shares in trading companies.

3. Reform or Elimination of the Residence Nil-Rate Band

This band, introduced in 2017, allows families to pass on the home with an additional £175,000 allowance.

However, it has been criticised for favouring property owners and those with linear descendants.

Labour may reform or phase out this relief, folding it into a broader nil-rate system.

4. Introduction of a Lifetime Receipts Tax

Although not confirmed, policy advisers have floated the idea of taxing individuals based on what they receive in total across their lifetime, replacing the estate-based IHT model.

This would be a radical shift and is unlikely to be implemented immediately, but early consultation could appear in the 2025 Budget.

What This Means for UK Families and Estates from an IHT Perspective

The 2024 changes alone will significantly increase IHT bills for many families - especially those with property, pensions, or businesses.

The freezing of allowances, combined with inflation and rising house prices, will continue to push more estates above the threshold.

The cap on reliefs - particularly for entrepreneurs and landowners - could add hundreds of thousands to future tax liabilities.

The inclusion of pensions in IHT calculations from 2027 further closes a long-standing planning gap.

Even without a formal increase in the 40% IHT rate, these structural changes will result in much higher tax bills for middle and high income families.

How to Protect Your Estate in Advance of the 2025 Budget

It’s no longer enough to have a will - proactive estate planning is essential.

Consider the following strategies now, before further changes restrict your options:

1. Use Gifting Strategies Immediately

Gifts made more than 7 years before death are outside your estate. Families should consider making larger gifts now to trigger the 7-year clock while all exemptions and reliefs are still in place.

2. Review Any Business or Agricultural Assets

If you currently hold property or trading business assets expected to benefit from relief, review whether they still qualify under the 2026 rules - and consider transferring them while full relief still applies.

3. Establish Trusts Before New Rules Arrive

If Labour introduces tighter controls on trusts, earlier creation could help preserve favourable tax treatment under current laws. Trusts can also help control the flow of wealth across generations.

4. Equalise Estates Between Spouses

Ensure both partners can take advantage of their respective nil-rate and residence nil-rate bands. Joint planning and balanced asset ownership can optimise the available allowances.

5. Insure Against the Liability

A whole-of-life insurance policy written in trust can provide liquidity to pay the IHT bill when it arises, ensuring that assets like the family home or business are not forced to be sold.

6. Reassess Pension and Investment Planning

With pensions being brought into scope from 2027, it’s important to rethink your retirement strategy, particularly if you were planning to use pension funds as an inheritance shelter.

Case Study: IHT and The Landowner’s Dilemma

Mr and Mrs Carter own a 400-acre agricultural estate and a family business valued at £2.5 million.

Under the old rules, most of their estate would have been passed on free from IHT using full Agricultural and Business Relief. But from 2026, their relief is capped at £1 million each, leaving £500,000 potentially taxable.

With no planning, their children face a tax bill of £100,000.

By restructuring ownership, creating trusts, and utilising surplus income gifting, they could reduce the eventual bill by more than half - but only if they act before April 2026.

How Belgravia Capital Wealth Management Can Help with Structuring Your Estate to Avoid IHT

We work with business owners, landowners, and high-net-worth individuals across the UK to:

• Analyse IHT exposure and model tax liability under both current and future rules

• Create bespoke gifting, trust, and insurance strategies

• Preserve family wealth through multi-generational planning

• Rebalance estate holdings and liquidity to avoid forced sales

• Keep you up to date with legislative and policy changes that may impact your estate

We offer integrated planning in collaboration with solicitors, accountants, and tax specialists to ensure all legal and financial considerations are aligned.

Conclusion: Will Inheritance Tax Change in the 2025 Budget?

The 2024 Budget brought major changes to inheritance tax, and more are likely to follow.

Whether it’s through the reform of trusts, further caps on reliefs, or a new tax model entirely, the direction is clear:

UK families will face rising exposure to inheritance tax over the next five years.

The best time to act is now. Planning ahead not only saves money - it gives your family clarity, security, and control.

Contact us at contact@belgraviacapital.co.uk to book a confidential estate planning consultation before the next Budget announcement.