Expect further inheritance tax changes to be announced in the Autumn Budget

Looking ahead to the Autumn Budget in November, further changes to inheritance tax (IHT) seem increasingly likely as the government is widely predicted to look to this as a means of helping bridge the gap between tax revenue and spending.

For individuals considering lifetime gifts, it is important to understand the current position and how it could soon change.

At present, the most common type of gift for inheritance tax purposes is a potentially exempt transfer (PET). These are typically gifts or transfers of value from one individual to another. PETs can be made on a limitless basis, without any immediate inheritance tax charge.

A PET becomes fully exempt if the donor survives seven years from the date of the gift, provided that anti-avoidance rules (such as the “gift with reservation of benefit” rules) do not apply.

If the donor dies within seven years of making the gift, the PET becomes chargeable. In these cases, taper relief can apply, reducing the inheritance tax liability on a sliding scale if death occurs between three and seven years after the gift.

Possible reforms in the Autumn Budget

It is feasible that the Government will look to restrict this generosity. One possibility is the introduction of a lifetime limit for PETs made on or after Budget Day on November 26^th.

PETs in excess of such a limit could become immediately chargeable, similar to the treatment of chargeable lifetime transfers, such as gifts into trust where the value transferred exceeds the nil rate band.

Another potential reform could affect taper relief. Currently, taper relief provides an effective annual reduction of about 8% in IHT liability for surviving at least 3 but less than 7 years. Any reform may reduce or even remove this benefit, increasing the potential tax exposure for families.

A further possibility is that the Chancellor may decide to increase the time period for a PET to become an exempt transfer. At present, the rule is seven years, but this could be extended to say 10 years or more, which would make lifetime planning more complex and potentially less effective.

The Labour Government have no doubt realised that the consequence of their £1m BPR / APR allowance from 6 April 2026 is that many individuals and business owners have been prompted to implement lifetime gifts now.

So future policy could be designed to prevent such planning opportunities, however any policies we see in the Autumn Budget may have an element of “closing the stable door after the horse has bolted” about them.

What Should You Do?

If you are considering making lifetime gifts to family members, it may be wise to act before the Autumn Budget to ensure you benefit from the current rules. But every individual’s circumstances are different, so it is essential to seek tailored advice, not just from a tax perspective, but also from legal and financial planning professionals.

At Westcotts, our team can help you understand the inheritance tax landscape and make informed decisions about gifting, estate planning and safeguarding family wealth. Get in touch with your local office here.