Are you prepared for the changes the Labour Party has already made — and may still make — to inheritance tax and your estate? Since the July 2024 election, the Labour Party has been in power, and the Autumn Budget 2024 confirmed several significant changes that directly affect estate planning. At MP Estate Planning UK, we understand how these changes could affect ordinary UK homeowners and families. Staying ahead of these developments isn’t optional — it’s essential.
Key Takeaways
- The inheritance tax nil rate band (£325,000) has been frozen since 2009 and is now confirmed frozen until at least April 2031 — a stealth tax increase that catches more ordinary families every year as property values rise.
- From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at 100% for the first £1 million of combined qualifying assets, with only 50% relief on the excess — a major blow to family farms and businesses.
- From April 2027, inherited pensions will become liable for IHT for the first time, potentially adding tens of thousands of pounds to a family’s tax bill.
- IHT receipts have been climbing year on year. HMRC collected over £7.5 billion in IHT in the 2023-24 tax year, and with frozen thresholds and rising property values, more families than ever are being caught.
.
Introduction to Labour’s Tax Proposals
The Labour Party came into power with a range of tax proposals designed to reshape UK fiscal policy — and the Autumn Budget 2024 delivered some of the most significant estate planning changes in a generation. Their stated aim is to close tax loopholes and increase HMRC’s enforcement capability, with additional investment in HMRC to improve tax collection.
Crucially, Labour pledged not to increase income tax, VAT, National Insurance on employees, or corporation tax. Instead, they have focused on what they see as lower-profile revenue sources — and inheritance tax, capital gains tax, and pension taxation have become key targets. The changes announced in the Autumn Budget were substantial, even if they weren’t framed as “raising IHT rates.”
The nil rate band freeze is the most impactful measure. At £325,000, this threshold hasn’t increased since April 2009 — and it’s now locked in place until at least April 2031. That’s over 20 years of fiscal drag, during which the average home in England has risen to around £290,000. A couple with a modest family home, some savings, and a pension can easily exceed the combined £1 million threshold (£650,000 NRB + £350,000 RNRB for a married couple passing their home to direct descendants).
The changes to inheritance tax planning reliefs, particularly BPR and APR from April 2026, and the inclusion of pensions in the IHT net from April 2027, represent a genuine shift. These aren’t minor tweaks — they fundamentally change the landscape for family farms, small businesses, and anyone who assumed their pension would pass tax-free to the next generation.
Income Tax and Fiscal Drag
One of the most significant — yet least visible — aspects of Labour’s tax approach is fiscal drag. Income tax thresholds have been frozen since 2021 and won’t rise until at least 2028. As wages increase with inflation, more people are dragged into higher tax brackets without any actual rate increase being announced.
The Office for Budget Responsibility estimated that several million additional taxpayers will be paying higher-rate tax by 2028-29 compared to when the freeze began. The personal allowance remains at £12,570, and the higher-rate threshold at £50,270 — thresholds that were set when wages and prices were considerably lower.
This matters for estate planning because fiscal drag doesn’t just reduce take-home pay — it reduces people’s ability to save, gift, and plan ahead. If more of your income is going to HMRC during your lifetime, you have less capacity to make regular gifts out of surplus income (which would otherwise be exempt from IHT under the normal expenditure out of income exemption).
The same principle of fiscal drag applies directly to inheritance tax. The nil rate band has been frozen at £325,000 since 2009, and the residence nil rate band at £175,000 since 2020. Both are now confirmed frozen until April 2031. Meanwhile, the average home in England is worth around £290,000 and rising. Every year the thresholds stay frozen while asset values climb, more ordinary families are pulled into the IHT net. This is a tax increase in all but name.
This illustrates how indirect tax measures can have a profound impact on family wealth — particularly when wages don’t keep pace with inflation and asset values continue to grow. The freeze effectively means the government collects more revenue each year without ever having to stand up in Parliament and announce a rate rise.
Inheritance Tax Reforms
Labour’s Autumn Budget 2024 confirmed several significant inheritance tax reforms. Beyond the continued freeze on the nil rate band and residence nil rate band, two major changes stand out: the reform of Business Property Relief and Agricultural Property Relief from April 2026, and the inclusion of inherited pensions within the IHT net from April 2027. Labour also moved to end the non-dom tax status, replacing it with a new residence-based system — a change that affects how offshore wealth is taxed on death.
The BPR/APR reform means that from April 2026, 100% relief will only apply to the first £1 million of combined qualifying business and agricultural property. Any value above that threshold will receive only 50% relief — meaning the excess is effectively taxed at 20% (half of the 40% IHT rate). For family farms and businesses worth significantly more than £1 million, this represents a substantial new tax liability that could force asset sales.
Offshore Trusts and IHT
Labour has specifically targeted offshore trusts as part of their IHT reforms. Under the previous non-dom regime, assets held in offshore trusts by non-domiciled individuals could be sheltered from UK IHT. The new residence-based system closes much of this planning opportunity. For UK-domiciled individuals, offshore trusts have always been caught by IHT — there is no escape simply by placing assets overseas if you are domiciled in the UK. England invented trust law over 800 years ago, and HMRC is well versed in how trusts work — proper onshore planning using well-established UK trust structures is the legitimate route, not offshore arrangements designed to hide assets.
Possible Changes to IHT Reliefs
The confirmed changes to BPR and APR are the most concrete reform. From April 2026, the £1 million combined cap fundamentally changes succession planning for family businesses and agricultural estates. Farmers’ groups have warned this could make many family farms unviable to pass on, as the IHT bill on land and buildings above £1 million could force sales to pay the tax.
The inclusion of pensions in the IHT estate from April 2027 is equally significant. Previously, most defined contribution pensions (including SIPPs) could be passed on entirely outside the IHT net. From April 2027, the value of unused pension funds will count as part of the deceased’s estate for IHT purposes. For someone with a £500,000 pension pot and an estate already above their available nil rate bands, this could create an additional IHT liability of £200,000. With HMRC collecting over £7.5 billion in IHT in 2023-24 and the number of estates caught rising every year, the pressure on families to plan ahead has never been greater.
Will Labour increase TAXES on your estate?
The short answer is: they already have — just not by raising the headline rate. The IHT rate remains at 40%, but the combination of frozen thresholds, reformed reliefs, and pension inclusion means that more families will pay more inheritance tax than ever before.
Consider the numbers. The nil rate band has been stuck at £325,000 since 2009. Back then, the average house price in England was around £150,000. Today it’s approximately £290,000. A couple who own a family home, have modest savings, and hold pensions can easily find their combined estate exceeding £1 million — the maximum available relief for a married couple passing their home to children (£650,000 combined NRB + £350,000 combined RNRB).
Labour also replaced the non-dom status with a new residence-based regime. Previously, around 68,800 individuals claimed non-dom status, which could shelter overseas assets from UK IHT. The new system closes much of this planning opportunity, potentially bringing significant additional wealth into the UK tax net.
Capital Gains Tax rates have also been adjusted. From the Autumn Budget 2024, CGT on share disposals rose from 10%/20% to 18%/24% (aligning lower and higher rates with the residential property rates). While CGT is not directly an inheritance tax, it affects business owners planning succession and anyone considering gifting assets during their lifetime. When you transfer assets into certain trusts, holdover relief may be available — meaning no immediate CGT charge — but this needs to be properly structured with specialist advice.
The freeze on income tax thresholds until at least 2028 compounds the pressure. With more of people’s income taken in tax during their lifetime, there is less available for lifetime gifting — which remains one of the most effective ways to reduce an estate’s IHT exposure through potentially exempt transfers (PETs) and the 7-year rule. Remember, though, that PETs only apply to outright gifts to individuals — transfers into a discretionary trust are chargeable lifetime transfers (CLTs), which are treated differently. A CLT within the available nil rate band incurs no immediate charge, making it a viable route for most families transferring a home worth less than £325,000.
Even though the 40% IHT rate hasn’t changed, the practical effect of Labour’s policies is a significant increase in the amount of tax families will pay on death. At MP Estate Planning, we help families understand these changes and take practical steps — such as placing assets into a properly structured lifetime trust, making use of lifetime gift exemptions, and ensuring wills are drafted to maximise available reliefs including the residence nil rate band. As Mike Pugh says: “Plan, don’t panic.” The key is to act now, while planning options are still available, rather than waiting for further changes.
Conclusion
Labour’s tax changes are not theoretical — they are already law or confirmed for implementation in 2026 and 2027. The nil rate band freeze until 2031, the BPR/APR cap from April 2026, and pension inclusion from April 2027 together represent the most significant tightening of the inheritance tax system in decades. The IHT rate hasn’t changed, but the amount of tax HMRC collects is rising sharply — and that’s the point.
For ordinary homeowners, this isn’t about politics — it’s about protecting your family’s wealth. Trusts are not just for the rich — they’re for the smart. A properly structured lifetime trust, such as a Family Home Protection Trust, can help protect your home from care fees, bypass probate delays, and preserve inheritance tax reliefs including the residence nil rate band. Assets held in trust don’t freeze when someone dies — trustees can act immediately, without waiting months for a Grant of Probate. The cost of setting up a trust — typically from £850 — is equivalent to less than one week’s care home fees. When you compare that to the potential costs of a 40% IHT bill or care fees of £1,200-£1,500 per week that can erode an estate down to the £23,250 capital threshold, it’s one of the most cost-effective forms of protection available.
At MP Estate Planning, we keep a close eye on every legislative change to help our clients stay ahead. Whether you need to review your will, consider a lifetime trust, or simply understand how these changes affect your family, we’re here to help. Not losing the family money provides the greatest peace of mind above all else — and the time to act is before the next set of changes, not after.
FAQ
Q: Will The Labour Party increase TAXES on your estate?
A: In practical terms, they already have. While the IHT rate remains at 40%, the nil rate band has been frozen at £325,000 since 2009 and is now confirmed frozen until April 2031. The residence nil rate band (£175,000) is also frozen. From April 2026, Business Property Relief and Agricultural Property Relief will be capped at 100% on the first £1 million of combined qualifying assets, with only 50% relief on the excess. From April 2027, inherited pensions will be brought into the IHT net. The combined effect is that significantly more families will pay inheritance tax — even without a rate increase.
Q: What are the potential changes to Inheritance Tax reliefs?
A: The major confirmed change is to BPR and APR from April 2026. Currently, qualifying business and agricultural property can receive 100% relief from IHT with no cap. From April 2026, 100% relief will only apply to the first £1 million of combined qualifying assets. Any excess will receive only 50% relief, meaning it is effectively taxed at 20%. This could have a devastating impact on family farms and small businesses worth more than £1 million. Additionally, from April 2027, unused pension funds will be included in the estate for IHT purposes — a change that could add tens of thousands of pounds to a family’s tax bill.
Q: Are further inheritance tax increases likely under the Labour Party?
A: Further rate increases haven’t been announced, but the continued freeze on thresholds is itself a stealth increase. With the average home in England worth around £290,000 and rising, more estates are caught every year. There remains ongoing speculation about potential CGT-on-death reforms and further changes to reliefs and exemptions. The safest approach is to plan based on the current rules while building flexibility into your estate plan for future changes. As Mike Pugh says: “Plan, don’t panic” — but do plan, because every year you delay is another year of rising property values against frozen thresholds.
Q: What strategies should estate holders adopt in light of Labour’s tax proposals?
A: The most effective steps include: reviewing and updating your will to maximise available nil rate bands and RNRB; considering a lifetime trust (such as a Family Home Protection Trust or Gifted Property Trust) to protect your home and other assets; making use of annual gift exemptions (£3,000 per year with one year carry-forward, plus £250 small gifts per recipient); starting regular gifts from surplus income (which are immediately exempt from IHT if properly documented under the normal expenditure out of income exemption); and reviewing pension arrangements in light of the April 2027 changes. At MP Estate Planning, we use our Estate Pro AI system to run a comprehensive 13-point threat analysis on your estate, identifying exactly where you’re exposed and what steps will make the biggest difference. The earlier you plan, the more options you have — and the cost of a trust from £850 is a fraction of what a single year’s care fees or a 40% IHT bill could cost your family.