The Budget announced on 26th November 2025 has made changes in relation to tax allowances and life planning considerations. We have provided an overview of the important changes below.
Inheritance Tax
During the Budget, the government have announced the freezing of the Nil Rate Band (“NRB”) and Residence Nil Rate Band (“RNRB”) thresholds until April 2031 – but what does this mean for you?
Upon your death, assuming you are domiciled in the UK, your worldwide assets will be liable to UK inheritance tax. To the extent that your estate exceeds the available nil rate band at the date of your death, inheritance tax will be charged at a flat rate of 40%.
Basic Nil Rate Band (“NRB”)
For each person, assets up to the value of the NRB will suffer no change to tax because the tax rate on that band is 0%. The NRB is currently £325,000 and will be frozen at that rate until April 2031. This means that the NRB would have been frozen at this rate for over two decades.
Residence Nil Rate Band
This is an additional NRB available affecting deaths on or after 6 April 2017, when a residence is passed on death to a direct descendent. This will be a 0% interest tax charge on £175,000 and again, this is frozen at that rate until April 2031.
Income Tax
Changes to Dividend Income
There will be an increase to the ordinary rate of income tax payable on dividends received. This will also impact in estates where the deceased has held shareholdings and the estate continues to receive income from those shareholdings during the administration. The increase is from 8.75% to 10.75% and is to take effect from 6 April 2026.
Changes to Savings Income
Ordinary savings income basic rate will also increase, this again will affect any bank interest received in estates during the period of administration. The rate is to increase from 20% to 22%. This is to take effect from 6 April 2027.
Tax on Property Income
We often have estates where there is a rental property included in the deceased’s assets. The government is proposing to create separate tax rates for property income from April 2027, the property basic rate will be 22%, the same as the basic savings rate with a higher rate of 42% and a property additional rate of 47%.
What should you do?
It would be good to obtain tax planning advice given the further freezing of the IHT allowances. If you would like tax planning advice, please contact our friendly Life Planning team on 01904 624903.
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