Autumn Budget 2025: Careful planning for private clients

Looking back, the October 2024 Budget significantly impacted succession planning for many of our clients. But has the November 2025 Budget helped?  

Inheritance tax

Restricting inheritance tax relief to 100% on transfers of eligible business and agricultural property up to £1 million within a seven-year window has altered existing planning strategies for businesses and farms. However, there are still effective methods to ensure continuity and safeguard crucial family assets over time, with careful planning. 

We weren’t expecting a u-turn on this key change in the law, but the government has conceded that the £1 million allowance should be transferable between spouses and civil partners, aligning with existing nil rate band and residence nil rate band transferability. Though careful planning would have resolved the issue of the £1 million allowance being non-transferable, this change will make will structures simpler for certain clients. It also helps those who might not seek professional advice - a step we obviously recommend for many different reasons - by preventing them from missing out on a valuable allowance that could otherwise disadvantage their families.

Pensions

Another significant change, introduced in the October 2024 Budget, impacting succession planning strategy is the proposed inclusion of pension death benefits within the scope of inheritance tax from April 2027. Again, the government hasn’t reversed this decision, but it has acknowledged concerns within the market regarding the practicalities of administering the increased inheritance tax liability. Initially, it was suggested that pension administrators would be responsible for payment of the tax; however, this approach proved unworkable. The draft legislation subsequently shifted this responsibility to the personal representatives (PRs) of the estate. Many stakeholders argued that imposing such an obligation on PRs would cause significant issues in estate administration.

In response, the November 2025 Budget statement has confirmed that PRs will have the authority to instruct administrators to withhold 50% of taxable benefits for a period of 15 months to satisfy the inheritance tax liability. Furthermore, PRs’ exposure to risk will be mitigated by a provision relieving them of responsibility for pension-related tax liabilities associated with funds identified only after HMRC has issued estate clearance. This will be welcomed, although some PRs may remain unwilling to take on the extra responsibility associated with the inclusion of pensions in the inheritance tax net and it remains to be seen how the changes will work in practice.

The "mansion tax"

Turning now to new measures affecting wealthier families, one of the most headline grabbing is the new ‘mansion tax’. This will be a council tax surcharge, applied from 6 April 2028 with four different bands affecting owners of properties valued over £2 million. The annual payment will range from £2,500 to £7,500. Compared to some of the ideas for taxing the ‘wealthy’ discussed pre-Budget, this might seem slightly less alarming, but the market warns of a disproportionate effect on London and the South-East and dangers of ‘behavioural’ responses affecting higher-end sales. It will certainly put local authorities under pressure as they face the mammoth task of valuing properties before the introduction of the surcharge.

Business owners

One highly significant and much debated announcement is the stealthy effect of a continued freeze in tax thresholds and exemptions, which will continue to increase the scope and practical effect of income tax, national insurance contributions, capital gains tax and inheritance tax. The ‘freeze’ (not a new concept by any means) has been extended to April 2031 and continues to increase the tax burden for many.

This combines with changes to income tax for certain types of income. From 6 April 2026, ordinary and upper income tax rates on dividends will rise by 2%, with the additional rate unchanged. From 6 April 2027, all savings income tax rates will increase by 2%. Also starting 6 April 2027, property income will be taxed separately at 22% (basic), 42% (higher), and 47% (additional) – a 2% increase on the ‘standard’ rates of tax.  Although individual taxpayers with these assets are affected, holding shares or property in suitable corporate structures still offers advantages for long-term succession planning. Family investment companies benefit from the maintained 25% corporation tax rate, and most dividends received by UK companies are exempt from corporation tax. However, business owners will undoubtedly face higher costs when extracting profits through dividends. When combining these increases in income tax rates on dividends with the changes to business relief, families should carefully plan how to fund inheritance tax as part of their succession strategies. Funding through dividend payments is not the only option and the most efficient choice will depend on individual circumstances.

Other announcements affecting business owners are that capital gains tax relief for qualifying disposals to employee ownership trusts has been halved immediately. From 6 April 2029, employers must address a new pension salary sacrifice cap: employees can contribute up to £2,000 annually to their pensions without incurring employer or employee NICs.

International implications

Finally, our internationally linked clients have already seen a significant amount of change and upheaval in recent years. Professionals welcome the news that there are to be technical amendments to the residence-based tax regime but there are also some promised changes to the way that pre-30 October 2024 excluded property trusts are taxed to inheritance tax and to non-resident capital gains. Further government notes are promised on those topics, so the scope of these changes will become clearer in due course.