Rachel Reeves has announced a number of changes to the Inheritance Tax system during her first Budget as Chancellor.

Announcing Labour's first Budget for 14 years, Ms Reeves, the country's first female Chancellor, confirmed changes to inheritance tax, including bringing pension pots into inheritance tax from April 2027.

Ms Reeves said: “Only 6% of estates will pay inheritance tax this year. I understand the strongly held desire to pass down savings to children and grandchildren, so I am taking a balanced approach in my package today.

“First, the previous government froze inheritance tax thresholds until 2028. I will extend that freeze for a further two years, until 2030.

“That means the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants, and £1 million when a tax-free allowance is passed to a surviving spouse or civil partner.”

On inheritance taxes applied to farms, the Chancellor said: “We will reform agricultural property relief and business property relief. From April 2026, the first £1 million of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1 million, inheritance tax will apply with 50% relief, at an effective rate of 20%.”

Opening the Budget this afternoon, Ms Reeves said: “On July 4, the country voted for change. This government was given a mandate. To restore stability to our country and to begin a decade of national renewal.

“To fix the foundations and deliver change through responsible leadership in the national interest. That is our task. And I know we can achieve it.”

She said her “belief in Britain burns brighter than ever” but “the only way to drive economic growth is to invest, invest, invest”.

“There are no shortcuts. And to deliver that investment we must restore economic stability and turn the page on the last 14 years.”

What is Inheritance Tax? Everything you need to know

According to the UK Government website, Inheritance Tax is a tax paid on the estate (property, money and possessions) of someone who has passed away.

However, most people do not pay this tax. Only those with estates valued at £325,000 and over will have to contribute.

This tax also applies to those who leave everything above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club.

If you're giving your home to your child, (including adopted, foster and/or stepchildren) or grandchildren, your threshold can increase to £500,000.

What are the rates for Inheritance Tax in the UK?

The standard inheritance tax rate is 40% with this only being charged on the part of the estate above the aforementioned threshold.

According to the government, the estate can pay inheritance tax at a "reduced rate of 36% on some assets" if the relevant party leaves 10% or more of the ‘net value’ to charity in their will (the net value is the estate’s total value minus any debts.)

 

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How many people pay Inheritance Tax in the UK?

Fewer than one in 20 estates (around 4%) are required to pay the tax, affecting about 27,800 estates every year.

However, a high number of Brits believe they are liable to pay the tax with a YouGov poll finding that a third of people think they will need to contribute upon their death.