The Chancellor, Rachel Reeves, will be making her autumn statement on 26 November 2025. It is widely anticipated that significant changes will be made to the UK's taxation regime, but what might those changes be?
It is extremely difficult to predict with any certainty what might be in a Chancellor's statement, but it has become common in recent years for the government to "trial" possible changes in the national media to gauge potential responses. So, from this and other general considerations, some idea of changes which may occur can be gleaned.
Inheritance Tax (IHT)
Sweeping changes, of course, were introduced in the Chancellor's autumn statement last year, including:
- A restriction on the availability of business property relief (BPR) and agricultural property relief (APR) taking effect from April 2026.
- Making the unused value of pension funds fall within a person's estate for IHT purposes, coming into effect from April 2027.
What other changes might occur?
Although it is not a definitive guide, it is often helpful to look back at tax legislation of the past as this is sometimes reintroduced or echoed in future tax changes. An example of this was the changes made to BPR and APR in the 2024 autumn statement, which reverted to (more or less) the treatment of such property pre-1992 when at that time John Major's government increased the allowances on most business and agricultural property to 100%, the allowance having formerly been 50%.
There is discussion of changes being made to the IHT regime relating to lifetime gifts. Here it is worth remembering the taxation regime relating to lifetime gifts between 1975 (when the predecessor to IHT, capital transfer tax, was introduced) and the introduction of IHT in 1986. During this period, all gifts were subject to capital transfer tax if they were above the individual's then capital transfer tax threshold, effectively capping tax free lifetime giving to that allowance. Second, any gifts made during the lifetime of an individual would be brought into account in calculating capital transfer tax on their estate on death if they had occurred within 10 years of the individual's death. That period was reduced to seven years under IHT and it would seem possible, therefore, that the Chancellor may have in mind reverting to the 10-year accumulation period which formerly applied and, in addition, the possibility of applying a cap (again in principle echoing the situation between 1975 and 1986) could be implemented. What that cap might be, if implemented at all, cannot be known. It may, for example, be the same as the IHT threshold itself, i.e. £325,000.
Perhaps the most significant impact on IHT receipts over recent years has been the effect of freezing IHT allowances, thus (by the effect of fiscal drag) bringing more estates (and lifetime gifts) into the IHT net. The IHT allowance per individual of £325,000 has not been increased since 2009. If it had kept pace with inflation, of course, it would now be much higher. More strikingly, the annual exempt allowance for gifts has been fixed at £3,000 since 1981. At that time, the capital transfer tax threshold (the figure above which capital transfer tax became payable on a person's death) was £50,000. Accordingly, £3,000 then represented 6% of the estate allowance on death. Even taking into account the fact that the IHT allowance has been frozen at £325,000 since 2009, if the exempt gift allowance had kept pace at 6% of the estate allowance, it would now be worth £19,500. Given the stealth effect of not increasing allowances, we must expect to see this continuing in future Budgets.
A perennial issue when Budgets are in the news is the question of whether Deeds of Variation may be outlawed. This is a concept enabling the beneficiaries of a person's estate to vary the terms of the Will within two years of the Testator's death (for example, to pass on assets to other family members) and for those changes to be “written back” into the Will of the deceased person so that no IHT is payable by the beneficiaries who are rearranging the estate.
This beneficial treatment was introduced in 1975 when estate duty was abolished and replaced by capital transfer tax. The concept was felt to be required because the two taxes were very different and the estates of individuals who may have drafted a Will taking into account estate duty rules and who died before they had an opportunity to update those Wills could be disadvantaged. Thus the Deed of Variation concept enabled the beneficiaries to vary the terms of a will (provided this was done within 2 years of the death) with no capital taxation consequences. In 1975 it was anticipated that this would be a transitional provision and probably last for two years. 50 years later Deeds of Variation are still available. Whether this legislation may be reversed, therefore, is something which is still very much a possibility.
Pensions
In addition to the changes announced in the last autumn statement which are intended to bring unused pensions into the estate of a deceased person from April 2027, there has been much discussion of either or both of the 25% tax-free cash lump sum (currently capped at £268,275) being reduced or reducing the tax relief available on pension contributions.
It is generally hoped that the former of these may be at the lower end of the probability spectrum, as to reduce the tax-free lump sum could significantly impact individuals close to retirement who may have made complex financial plans for their retirement based on the availability of the cash-free lump sum. It is hoped that it is more likely is that such changes to the cash free lump sum might be introduced for implementation at a future date (i.e. affecting individuals who are currently further away from retirement). For individuals still paying into pensions, the potential for tax relief being reduced is a real threat.
Capital Gains Tax (CGT)
There has been much discussion of the possibility of increasing capital gains tax rates to be more in line with income tax rates, the rationale being that it seems unfair that individuals should pay a lower rate of tax on capital gains than other persons might pay on income.
This is, however, not the whole story. Historically, the intention of CGT has been to impose a tax on gains generated by individuals other than those which are purely inflationary. When CGT was first introduced, indexation relief was available, which reduced an individual's capital gain to exclude any purely inflationary increase. This made the tax very complicated, and in the early 2000's the then Labour government introduced a taper relief which operated in a similar but simpler way. Taper relief was abolished in 2008, but as a quid pro quo, CGT rates were imposed at rates lower than income tax. Again, the thinking being that this would simplify the tax, but maintain the original concept of excluding inflationary gains by imposing a lower rate of tax.
Accordingly, to step away from this and introduce higher rates of CGT (perhaps to mirror income tax rates) would appear to go against the principles which it is believed underpin CGT and impose on taxpayers a tax liability on the sale of an asset when its value has done no more than kept pace with inflation. Be that as it may, however, it certainly appears possible that capital gains tax increases are likely.
Summary
Of course, the views put forward in this article are speculative and should not be regarded as definitive predictions! But in light of some of the changes which may occur, there are always areas where we are able to provide advice and assistance to those who are concerned that they may be affected by changes which could be introduced in the very near future.
At Clifton Ingram, we understand the complexity of these changes and are here to guide you through updating your estate plan. Our team of experienced solicitors is ready to help you navigate these new rules and ensure your family’s future is protected.
Speak to one of our legal Inheritance Tax solicitors today by calling 0118 978 0099 or using our contact form and we will respond quickly.
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Peter McGeown is Joint Head of our Wills and Inheritance team and has nearly 40 years’ experience advising on tax, wills and estate planning. As an Officer at the Inheritance tax Office of HMRC before qualifying as a solicitor, he has a unique perspective on estate planning for our clients.