Major inheritance tax change could be announced in November say experts

Major changes to inheritance tax could be on the cards in the Autumn Statement, experts say. Those planning their estate may want to factor in this hefty 40 percent tax, which is levied on any inherited assets above certain allowances. Several financial experts have warned there could be changes to the tax.

Aaron Peake, personal finance expert at free credit score service CredAbility, said: "Inheritance tax could see changes, including a possible lifetime cap on tax-free gifts and adjustments to taper relief. While this mainly affects wealthier households, anyone planning their estate should consider the potential impact."

A person can pass on up to £325,000 in total assets without their successor paying inheritance tax, plus an extra £175,000 when a family home is being passed on to a direct descendant. When a person dies, any of their unused allowances can be transferred to a spouse or civil partner, potentially doubling the allowances available for when the other person dies.

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Another expert warning there could be changes to the tax is Andrew Byres, financial security and pension planning expert at life admin tool SafeKeep. He said: "Inheritance tax remains one of the most politically sensitive, yet fiscally tempting, areas for reform.

"With thresholds frozen since 2009, more families have been drawn into inheritance tax thresholds as property values and pension pots have grown." He suggested that the lifetime gifting rules "could be made less generous, for example, by shortening exemptions or extending the seven-year window for larger gifts".

One way to reduce your liability is by giving away tax-exempt gifts, thus shrinking the size of your estate. There are annual limits to how much you can give away tax-free.

However, if you want to give away a larger amount, you can do so, but you have to live for another seven years for the sum to be exempt from tax. The tax rate you pay on the gift decreases gradually as you near the seven-year milestone.

Mr Byres pointed to some other inheritance tax policies that Labour might tweak: "The Government may look to tighten inheritance-based tax reliefs rather than overhaul the system outright.

"That could include reducing the £325,000 nil-rate band or the £175,000 residence nil-rate band, limiting business or agricultural property reliefs, or revisiting how pensions are treated within estates." Laura Ripley, chartered financial planner at BRI Wealth Management, also said the Government could cut back the gifting rules, in light of recent trends.

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She explained: "Since the news that pensions will fall under inheritance tax from 2027, more families have been rushing to pass on wealth early. That could prompt the Treasury to rein in gift allowances – possibly merging all the current exemptions into one capped annual limit, or extending the seven-year rule for tax-free gifts."

In the 2024 Autumn Statement, Labour announced an expansion of inheritance tax, with unused pension funds set to become liable for the tax from April 2027. Chancellor Rachel Reeves will present her Autumn Statement to Parliament on Wednesday, November 26.

The Treasury has been approached for comment. A spokesperson said: "We do not comment on speculation around future changes to tax policy."