Inheritance tax is set to be one of the biggest private client stories in this year’s Budget. Receipts have just hit another record, and the Chancellor has reportedly ruled out one of his other major options: raising capital gains tax.
HMRC’s latest figures show that £4.7bn of inheritance tax was collected in the three months to September 2026. That is 7% more than the £4.3bn collected in the same period last year. September alone brought in £936m, the highest monthly figure ever recorded. The OBR expects receipts to reach £9.5bn for the full 2026/27 financial year.
In the past week, reports in The Times and the Financial Times said John Healey has decided against raising capital gains tax. Increases to income tax, employee National Insurance and VAT rates are already ruled out by Labour’s manifesto commitments. That leaves the Chancellor with fewer obvious options for raising revenue on 28 October, and much of the speculation has shifted to inheritance tax and lifetime gifts.
This article sets out what is already law, which changes are being discussed and what they would mean in practice. It also explains what families, trustees and executors should, and should not, do ahead of the Budget.
Whatever happens on 28 October, more estates will face inheritance tax. The following changes are already law, and families should be planning around them now.
The inheritance tax nil-rate band has been £325,000 since 2009 and is frozen until 2031. The residence nil-rate band of £175,000 is also frozen and continues to taper away for estates worth more than £2m.
Property and investment values have risen significantly since 2009. As a result, more estates cross the inheritance tax threshold each year, even when asset values remain unchanged in a particular year.
For deaths from 6 April 2027, most unused pension funds and death benefits will count as part of the estate for inheritance tax purposes.
For many clients, pensions have been the assets deliberately left untouched to pass on tax-efficiently. This approach will need to be reconsidered for pensions inherited by children or other beneficiaries. Pensions passing to a spouse or civil partner will still benefit from the spouse exemption, a point that much of the coverage misses.
Executors will also need to deal with pension schemes as part of the inheritance tax process, making estate administration more involved.
Since April 2026, 100% Agricultural Property Relief and Business Property Relief have been limited to the first £2.5m of qualifying agricultural and business property combined. Qualifying property above that allowance generally receives 50% relief, giving an effective inheritance tax rate of 20% where the standard 40% rate applies.
Shares traded on the Alternative Investment Market (AIM) receive 50% relief. Farming families and owners of trading businesses who assumed their assets would be fully outside their estates need to revisit that assumption.
None of these changes depend on the Budget, so families should plan for them now.
Two proposals being discussed are an extension of the seven-year period to ten years, or a lifetime cap on the amount that can be given away tax-free. At present, an outright gift to an individual generally falls outside the donor’s estate for inheritance tax purposes if the donor survives seven years. Tax can taper on certain gifts made between three and seven years before death. There is currently no overall limit on the value of gifts that can fall outside the estate under this rule.
The practical question is whether gifts already made would be protected. If a new rule applied only to gifts made after the Budget, families would have time to adjust. If it applied to deaths after a certain date, gifts made eight or nine years ago could come back into charge.
There is also a trust angle that much of the commentary misses. Gifts into most discretionary trusts are already chargeable when made, with 20% inheritance tax generally due on the amount above the available nil-rate band where the trustees pay the tax. A gift into trust followed by an outright gift can already mean looking back over a period of up to 14 years. A longer window would extend that further, affecting anyone using a rolling programme of trust gifts.
For context, both a longer seven-year rule and a lifetime cap were predicted ahead of the October 2024 and November 2025 Budgets; neither was introduced.
Labour does have historical precedent here, however. In 1974 another Healey – Labour Chancellor Denis Healey – replaced estate duty with capital transfer tax, which taxed lifetime gifts as well as estates and added them together cumulatively. The seven-year rule only arrived in 1986, when inheritance tax replaced it. A lifetime cap would represent a move back towards that earlier system.
Regular gifts made from surplus income, provided they leave the donor's standard of living unchanged, are currently exempt from inheritance tax immediately and without an overall limit. This is one of the most valuable inheritance tax reliefs available, and a cap has been suggested as a possible Budget measure.
A cap would affect more people than the headlines suggest. Grandparents paying school fees, parents topping up children’s pensions, and anyone paying premiums on a life policy written in trust to cover a future inheritance tax bill often rely on this exemption.
Whatever happens, the relief depends on good records, so anyone using it should keep a clear record of their income, expenditure and gifts each year.
Today, when someone dies, their beneficiaries generally acquire inherited assets at their market value on the date of death. Capital gains accrued during the deceased’s lifetime are effectively wiped out for capital gains tax purposes.
Removing that uplift could raise significant sums for the Treasury, but it would also create a risk of double taxation. An estate could pay 40% inheritance tax on an asset’s full value, while the beneficiary could later pay capital gains tax on decades of growth when they sell it.
A middle way was proposed by the Office of Tax Simplification in 2019. Under that approach, the uplift would be lost only where an asset is already exempt from inheritance tax, such as assets passing to a spouse or qualifying for Business relief.
For trusts, the uplift also applies in some cases when a life tenant dies, and that would need careful attention if the rule changed.
The Prime Minister, Andy Burnham, proposed replacing inheritance tax with a 10% levy on all estates to fund social care when he was Health Secretary in 2009. The idea resurfaced when he took office, but the government has distanced itself from it. A change of that size would normally go through consultation first, so it seems unlikely to arrive fully formed ON 28 October.
Some commentators expect further restrictions to Agricultural Property Relief and Business Property Relief, which were already reduced in April 2026. Owners of family companies and farms should watch for any change to the £2.5m allowance or to the 50% relief above it.
A gift cannot simply be undone if it later turns out to have been unnecessary. Giving away shares or property can trigger a capital gains tax liability, so a rushed gift could create a tax bill now in an attempt to avoid an inheritance tax change that may never happen.
Gifts where you retain a benefit, such as giving away your home while continuing to live in it rent-free, generally do not achieve the intended inheritance tax result.
Changes often take effect from a future date, giving families time to plan once the details are known. However, some measures can take effect from Budget Day itself.
So, if you were already planning a gift, have thought it through (including any other tax considerations and whether you can afford it) and ideally taken advice, there may be sense in making it before 28 October
Most families can usefully do the following this week:
Trustees should note when each trust’s next ten-year anniversary falls, review trust valuations, and check whether any trust holds business or agricultural assets affected by the April 2026 changes.
Executors dealing with an estate now can usually relax.
Inheritance tax is charged under the rules in force at the date of death. A Budget change would normally apply only to later deaths, unless the legislation says otherwise. We will check the start date of every measure announced.
Jay Thurston will share his initial thoughts on the inheritance tax, trusts and estates announcements following the Budget on 28 October. mgr will provide further insight into the implications for individuals, families and businesses in due course, once the detail of any changes becomes clearer.
The full implications often emerge in the policy papers and draft legislation published after the Budget. We will review these developments and share further guidance as appropriate.
If you would like to discuss your estate, trusts or an estate you are administering, please get in touch with Jay Thurston
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