Tax experts have issued a warning over the looming risk of new charges
People have been urged to look over their finances as they could face a new tax bill after November. Tax experts are warning there could be changes to inheritance tax in the Autumn Statement slashing some of the tax-free allowances. Chancellor Rachel Reeves will present her latest fiscal policies before Parliament next month, with many predicting there could be tax increases on the way.
Jessica Partridge, partner and head of tax and trusts at law firm Mayo Wynne Baxter, said one change the Government could make is to “abolish” tax-free gifts out of income for inheritance tax purposes. Giving away gifts is one way to reduce your inheritance tax liability, as it reduces the size of your estate that will ultimately be taxable when you die.
While there are limits to how much you can give each year tax-free, you can currently give away any amount out of your regular income and it will all be tax-free. This is as long as the gift comes out of your surplus income rather than out of your capital holdings.
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You can also make gifts above your annual allowances but you have to survive for seven years for this amount to be tax-free. Ms Partridge said: “The Government may introduce a cap on these gifts, known as Potentially Exempt Transfers or PETS, which means these gifts could become taxable or they might count towards your estate for IHT purposes unless you survive seven years.
“Alternatively, the amount which could be gifted this way could be kept within the nil rate band currently at £325,000, which would limit the amount that could be given away. Introducing this measure would remove a key planning tool for those who use surplus income to pass on wealth tax-free.”
Each individual can pass on total assets worth up to £325,000 when they die, with an additional £175,000 allowance if you are passing on your main home. You can pass on any unused allowances to your spouse or civil partner, meaning they could get a nil rate of up to £1million when they die.
Ms Partridge encouraged people to plan ahead given the potential changes. She said: “To prepare for these changes, anyone planning on making any gifts with IHT consequences, should complete this before the budget, as there may be more tax to pay after this time.”
There were changes to inheritance tax announced in last year’s Autumn Statement. Labour announced the tax would be expanded so unused pension funds would become liable, from April 2027.
The tax relief rates for agricultural property and business assets is also being cut. These changes will come in from April 2026.
Aaron Peake, personal finance expert at free credit score service CredAbility, also said there could be changes to inheritance tax in the Autumn Statement. He 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.” Chancellor Rachel Reeves will present her Autumn Statement on Wednesday, November 26.
In a statement about possible changes to inheritance tax in the Budget, the Treasury told the Guardian in August: “As set out in the plan for change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn.
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s budget we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance or VAT.”
