UK households may soon face the removal of key exemptions on inheritance tax (IHT), long known as the country’s most unpopular tax. Chancellor Rachel Reeves is set to deliver the Autumn Budget on November 26 amid widespread speculation about reforms targeting IHT rules.
Adam Kemp of Hargreaves Lansdown highlights the growing financial impact of IHT: “In the first half of this tax year alone, inheritance tax contributed £4.4 billion to the Treasury—an increase of £100 million compared to the same period last year.” This rise is reflected not only in receipts but also in a surge of inquiries from individuals seeking tax planning advice, fueled by rumors of potential changes.
Among these are proposals following last year’s Budget announcement that most unspent pension pots will come under the IHT net starting April 6, 2027. This alone is projected to push an additional 10,500 estates into paying the tax in 2027/28.
READ MORE: HMRC Warns UK Households Against Early Pension Cash Withdrawals Amid Budget Speculation
READ MORE: Morrisons Launches New Sushi Counters Following Closure of Meat and Fish Counters
Rumors suggest the Chancellor might revisit the gifting rules to address the growing public finance deficit. Currently, gifts made more than seven years before death are exempt from IHT, while gifts made between three to seven years before death are taxed progressively through “taper relief,” which decreases rates from 32% to 8%.
Potential reforms include the introduction of a lifetime cap restricting the total value of gifts eligible for tax relief and a review of taper relief rates. A Treasury insider explained to the Guardian: “With the bulk of wealth tied up in assets like property, which have significantly appreciated, we need better ways to capture inheritances from those able to contribute more. It’s crucial to close loopholes that undermine tax fairness while ensuring the system raises adequate revenue.”
The source added, “Even without policy changes, IHT revenues will increase as the threshold remains frozen, but we must examine all options to tax wealth effectively, especially if the government aims to minimize the tax burden on earnings from work.”