Budget 2025 - £1m IHT relief can be passed to spouse but nil-rate bands frozen for extra year

In her Budget today the Chancellor made the following changes to Inheritance Tax reliefs: 
 
•    Any unused £1million allowance for the 100% rate of agricultural property relief and business relief will be transferable between spouses and civil partners, including if the first death was before 6 April 2026. This will take effect from 6 April 2026.  
 
•    The inheritance tax nil-rate bands are already set at current levels until April 2030 and will stay fixed at these levels for a further year until April 2031. The forthcoming combined allowance for the 100% rate of agricultural property relief and business property relief will also be fixed at £1million for a further year until 5 April 2031  
 
Ian Dyall, Head of Estate Planning at wealth management firm Evelyn Partners, comments: 
 
‘The Chancellor has addressed one of the unfairest elements of the Inheritance Tax reforms announced at the 2024 Budget. 
 
‘The rule change meant that only the first £1million of agricultural or business assets would qualify for 100% relief, with the remainder getting only 50% relief, i.e., IHT at 20%. However, many farms and family businesses are not owned by both spouses, they are often in a single name, and under the original draft legislation the allowance was explicitly not transferrable between spouses, as are the IHT nil rate band and residence nil rate band. 

‘This worsened the potential impact of the cut to the reliefs for many businesses, and also meant that businesses of lower value would be affected.
  
‘For each spouse to benefit from the £1million allowance the ownership would need to be changed so that both spouses owned a share of the farm and their will would need to be redrafted to leave that share to someone other than their spouse on first death. Otherwise the IHT bill for many farms and other businesses could have been such that the business and/or land would have to be sold off. 
  
‘This has now been addressed in the Budget, allowing any unused £1million allowance at the first death to be transferred to the surviving spouse on death, making financial planning for such businesses a lot less complicated. As it applies if the first death was before 6 April 2026, this revision to the IHT rule will benefit those who were unaware of the need to amend their wills, or weren’t able to amend their plans in time.

‘As the freeze in other tax thresholds was only expected to be extended until 2029/30, matching the date for IHT reliefs, today’s update means another year when protection against IHT will shrink in real terms. As a result of this and the inclusion of unspent pension assets in IHT liabilities from April 2027, the OBR today forecast IHT receipts to raise £14.5 billion a year by 2030-31, compared to the expected out-turn of £9 billion for 2025-26.

‘That should act as a warning shot for all families that facing growing IHT liabilities, to take steps to lessen the burden – preferably with professional advice - so that their loved ones get to keep more of the family assets.’