Chancellor Rachel Reeves used the Autumn Budget 2024 to introduce the most significant reforms to UK inheritance tax in years. Some of the changes are already in force. Others come into effect in 2026 and 2027. Here is what actually changed, what did not, and what it means for estates being administered now.
What Changed And When: A Quick Summary
The confirmed changes are as follows.
- The nil-rate band, currently £325,000, is frozen at that level until at least 2030. So is the residence nil-rate band, fixed at £175,000. Both were already frozen, but the freeze has now been extended further.
- From 6 April 2026, Agricultural Property Relief and Business Property Relief are capped. The first £2.5 million of combined qualifying farm and business assets still attracts full relief. Anything above that is taxed at an effective rate of 20%.
- From 6 April 2027, unused pension funds will be brought into the scope of inheritance tax for the first time. Currently, defined-contribution pension pots pass outside the estate entirely.
- From 6 April 2025, the longstanding non-domicile exemption has been abolished. Anyone who has been UK resident for ten or more of the past twenty years is now liable to inheritance tax on their worldwide assets.
What Was Actually Announced (And What Was Not)
In the months before the Autumn Budget 2024, there was widespread reporting that Rachel Reeves was considering scrapping the seven-year rule on gifts, introducing a lifetime cap on tax-free gifting, and making other sweeping changes to how inherited wealth is taxed. Those proposals generated a significant amount of anxiety among people with estates to plan or administer.
None of those changes were introduced.
The seven-year rule remains in place. You can still make gifts during your lifetime, and provided you survive seven years from the date of the gift, those transfers fall outside your estate for inheritance tax purposes. The annual gifting exemptions are also unchanged.
What Reeves did announce was a more targeted set of reforms. The nil-rate band freeze was extended. Pension pots were brought into scope. Relief on high-value farms and business assets was capped. And the non-domicile exemption was abolished.
These are real and in some cases significant changes, particularly for estates involving pensions or agricultural property. But for the majority of people searching for information about what Rachel Reeves changed, the answer is reassuring: the core gifting rules are intact.
The Nil-Rate Band Freeze
The nil-rate band is the threshold below which no inheritance tax is due. It currently stands at £325,000 and has been frozen at that level since 2009. The residence nil-rate band, an additional allowance of £175,000 that applies when a home is left to direct descendants, has been frozen since 2017.
Both were originally due to remain frozen until 2028. Rachel Reeves extended that freeze to 2030.
On the surface, an unchanged threshold sounds neutral. In practice, it is a tax increase. As property values and the general cost of assets rise over time, more estates cross the threshold without any change to the rate or the rules. This effect is known as fiscal drag.
To put some numbers on it, the Office for Budget Responsibility projects that around 9.5% of estates will pay inheritance tax by 2030, up from roughly 6% today. In 2009, when the nil-rate band was last set, the average UK house price was around £160,000. It is now more than double that in many parts of the country.
A couple who own a home together can currently shelter up to £1 million from inheritance tax by combining their nil-rate bands and residence nil-rate bands. That remains the case. But the longer thresholds stay frozen while asset values rise, the smaller the protective effect of those allowances becomes in real terms.
No action is required as a result of this change. But it is worth understanding why more estates are quietly coming into scope each year.
Pensions And Inheritance Tax From April 2027
This is arguably the most significant single change in the package, and the one most likely to affect a wide range of estates.
Under current rules, defined-contribution pension pots sit outside your estate for inheritance tax purposes. If you die with money remaining in a personal or workplace pension, it passes to your nominated beneficiaries free of inheritance tax, regardless of how large the pot is. That exemption disappears from 6 April 2027.
From that date, any unused defined-contribution pension funds will be aggregated with the rest of your estate and taxed in the normal way. The 40% rate applies to everything above the available nil-rate band allowances. Pension scheme administrators, rather than executors, will be responsible for calculating and paying the tax due on the pension portion before distributing the remainder to beneficiaries.
Who is still exempt
Pensions passed to a surviving spouse or civil partner remain exempt, in line with the broader spouse exemption. Death-in-service lump sums paid by employers are also exempt, as are dependent’s pensions and most joint-life annuities.
A worked example
Suppose someone dies in 2027 leaving an estate worth £600,000, including a home, and a defined-contribution pension pot of £300,000. They have no surviving spouse.
Their combined nil-rate band and residence nil-rate band covers £500,000 of the estate. The remaining £100,000 of the estate is taxed at 40%, producing a bill of £40,000.
The pension pot of £300,000 is then added. That entire amount sits above the available allowances, which have already been used against the main estate. It is taxed at 40%, producing a further bill of £120,000.
Total inheritance tax: £160,000. Under the current rules, the bill would have been £40,000.
The change does not take effect until April 2027, which gives pension holders time to review nominations and take advice. But it represents a substantial shift for anyone who has been treating their pension as an inheritance tax-efficient vehicle for passing wealth to the next generation.
Agricultural And Business Property Relief
For decades, Agricultural Property Relief and Business Property Relief have allowed qualifying farms and privately owned businesses to pass between generations free of inheritance tax, regardless of their value. That unlimited relief is now capped.
From 6 April 2026, the first £2.5 million of combined qualifying agricultural and business assets attracts 100% relief, meaning no inheritance tax is due on that portion. Anything above £2.5 million receives 50% relief rather than 100%. Because inheritance tax is charged at 40% on the exposed portion, the effective rate on assets above the cap works out at 20%.
It is worth noting that the cap was originally announced at £1 million in the Autumn Budget 2024. Following significant backlash from farming communities and the National Farmers Union, the government raised the threshold to £2.5 million ahead of the Budget 2025. That uplift offers meaningful protection to a larger number of family farms than the original proposal would have done.
Spousal transferability
The £2.5 million allowance can be transferred between spouses, in the same way as the nil-rate band. A farming couple can therefore shelter up to £5 million of combined qualifying assets before the 20% effective rate applies.
A worked example
Suppose a farmer dies leaving a qualifying farm worth £3.5 million, with no surviving spouse.
The first £2.5 million attracts 100% relief and passes free of inheritance tax. The remaining £1 million receives 50% relief, leaving £500,000 exposed to tax. At 40%, the inheritance tax bill on that portion is £200,000.
Under the previous rules, the entire £3.5 million would have passed free of tax.
For farms with a surviving spouse, the combined £5 million allowance would cover the full value in this example, resulting in no tax at all.
The government has also extended an option to pay any tax arising from these changes in equal instalments over ten years, interest free, recognising that farming estates are often asset rich but cash poor.
AIM Shares And Business Property Relief
Shares traded on the Alternative Investment Market (AIM) previously qualified for 100% Business Property Relief, making them a popular inheritance tax planning tool. From 6 April 2026, that relief drops to 50% across all values. Unlike qualifying farms and private businesses, AIM shares do not benefit from the £2.5 million allowance. The 50% relief applies from the first pound. At the standard 40% tax rate, the effective rate on AIM shareholdings is therefore 20%. This change affects investors who have used AIM portfolios specifically as an inheritance tax mitigation strategy.
Non-Domicile Changes And Residence-Based Inheritance Tax
From 6 April 2025, the longstanding non-domicile exemption for inheritance tax was abolished. Previously, individuals who were resident in the UK but considered domiciled elsewhere could hold foreign assets outside the scope of UK inheritance tax indefinitely.
Under the new residence-based rules, anyone who has been UK resident for ten or more of the past twenty years is liable to inheritance tax on their worldwide assets, not just those held in the UK.
For most people searching for information about the Reeves inheritance tax changes, this reform is unlikely to apply directly. It is primarily relevant to individuals with significant overseas assets or those who previously structured their affairs around non-domicile status.
What Has Not Changed
Given the volume of speculation that preceded the Autumn Budget 2024, it is worth being clear about what remains intact.
The spouse exemption is unchanged. Assets passed to a surviving spouse or civil partner on death are still entirely free of inheritance tax, regardless of value.
The seven-year rule on gifts is unchanged. You can still make outright gifts to individuals during your lifetime, and provided you survive seven years from the date of each gift, those transfers fall outside your estate completely. The taper relief that reduces the tax on gifts made between three and seven years before death also remains in place.
The annual gifting exemptions are unchanged. Every individual can still give away up to £3,000 per tax year free of inheritance tax, carry forward one unused year’s allowance, and make small gifts of up to £250 to any number of people.
The standard nil-rate band and residence nil-rate band remain at £325,000 and £175,000 respectively, and the ability for married couples and civil partners to combine those allowances is unaffected.
For the majority of estates, the fundamental structure of inheritance tax is the same as it was before the Autumn Budget 2024. The changes are real, but they are more targeted than many of the headlines suggested.
What This Means For Executors Dealing With An Estate Now
If you are currently administering an estate, the reforms outlined above have a direct bearing on how carefully valuations need to be carried out.
The nil-rate band freeze means that more estates are crossing into inheritance tax territory each year, often without the deceased or their family having anticipated it. An estate that would have sat comfortably below the threshold a few years ago may now have a liability, particularly where property values have risen. That makes accurate, HMRC-compliant valuations of every asset more important than they have ever been.
The starting point for any inheritance tax calculation is the open market value of the estate’s assets at the date of death. That figure is not what the family thinks something is worth, or what a quick online search suggests. It is the price a willing buyer would pay a willing seller on the open market at that specific date, as defined under Section 160 of the Inheritance Tax Act 1984.
Getting that figure wrong in either direction creates problems. Overvaluing assets means the estate pays more inheritance tax than it should. Undervaluing them risks HMRC challenge, potential penalties, and the need to revisit the entire estate account.
Vehicles are a commonly overlooked asset in this context. A car, van, or motorcycle owned by the deceased at the date of death forms part of the estate and must be valued accordingly. Many executors turn to online car buying sites for a quick figure, but those tools are designed for instant trade purchases, not probate. They do not produce HMRC-compliant reports, they do not reflect open market value at a specific historical date, and they will not satisfy the requirements of the IHT407 form that HMRC uses to assess vehicle assets within an estate.
Swift Values provides formal, HMRC-compliant vehicle valuations for probate purposes, reviewed by a qualified valuer and referenced to the date of death. The service costs £30 plus VAT per vehicle and can be completed remotely using the vehicle’s registration number and photographs, with no need for anyone to travel to inspect the car in person.
For executors managing estates that are close to or above the nil-rate band threshold, getting the vehicle valuation right is a straightforward step that can make a meaningful difference to the final inheritance tax calculation.
Key Dates At A Glance
6 April 2025: Residence-based inheritance tax introduced. Non-domicile exemption abolished. Anyone UK resident for ten or more of the past twenty years becomes liable to inheritance tax on worldwide assets.
6 April 2026: Agricultural Property Relief and Business Property Relief capped at £2.5 million combined (£5 million for married couples). AIM shares relief reduced from 100% to 50%. Effective tax rate on assets above these thresholds is 20%.
6 April 2027: Unused defined-contribution pension funds brought into the scope of inheritance tax for the first time.
2030: Nil-rate band freeze scheduled to end. Current thresholds are £325,000 (standard) and £175,000 (residence).