In the run up to the 2025 Budget there was significant anxiety around potential changes to the taxation of lifetime gifts, such as a lifetime cap and extending the seven year run off period. This stemmed from the changes to Inheritance Tax (IHT) reliefs announced in the Budget 2024, which are set to be implemented on 6 April 2026 and include restrictions to Agricultural Property Relief (APR) and Business Property Relief (BPR), broadly limiting these to a £1 million allowance at 100% and 50% relief thereafter.

Many had hoped for an increase to the £1m allowance or a complete U-turn. The Chancellor, instead, chose to press on with the changes with the only alterations being that the £1m allowance will be frozen until 2031 (previously frozen to 2030) and will be transferable between spouses and civil partners. 

It is reassuring that for now there is still potential to pass on assets to the next generation utilising valuable reliefs for gifts. Holdover Relief for Capital Gains Tax purposes continues to be available and so it is still possible to pass on qualifying assets in lifetime with the seven year run off period for such gifts remaining intact. 

IHT relief transferable £1m allowance

The measures introduced in the 2025 Budget provide for any unused £1m allowance to be transferable between spouses and civil partners from 6 April 2026, including if the first death was before 6 April 2026. 

Spouse or civil partner – died on or before 6 April 2026

A key point mentioned in guidance issued regarding the transferable allowance, is that there is no requirement for the first spouse to have actually owned qualifying assets on death, such as a farm or business. Where a spouse or civil partner has died before 6 April 2026, it will be assumed that they have the unused £1m allowance, which passes to their spouse or civil partner. This is a welcome move as it would perhaps be somewhat punitive if they were to place requirements on those where their spouse or civil partner passed away many years ago and records of previous ownership may no longer be available. It seems common sense prevailed and it will be assumed that, where a spouse or civil partner has passed away before 6 April 2026, that their £1m allowance will be available in its entirety for the surviving spouse or civil partner.

Lifetime gifts and the £1m allowance

Prior to the 2025 Budget, some families may have already taken steps to pass on assets to the next generation on the understanding that there was no facility to inherit the £1m allowance from an already deceased spouse or civil partner. 

The current rules are such that where you do not survive the seven year post gift period, the lifetime gift will form part of your estate on death. Whilst tapering can apply after three years for a lifetime gift, there can still be IHT exposure depending on the values. Gifts by the surviving spouse or civil partner will not be prejudiced and the late spouse’s or civil partner’s unused £1m allowance can be utilised against the lifetime gift made by the surviving spouse or civil partner in the same way as the surviving spouse’s or civil partner’s £1m allowance. 

Succession planning

We recommend families continue to have conversations around succession and make sure they understand the current ownership position. 

As regards lifetime gifts, there can be a consequential reduction in income following a gift of assets. It is helpful to note that an individual may no longer need to update their Will so that on first death certain assets passed to their children, rather than their surviving spouse or civil partner, in order to benefit from both £1m allowances. 

Life cover may be considered and can provide for the unwanted IHT costs of unexpected deaths. Whilst passing on to the next generation can seem the best solution, unfortunately, there could be scenarios where the older generation outlives their children and it is important that these untimely deaths are provided for, which can be through life cover.

Get in touch

If you would like to discuss your tax position in more detail, please get in touch with me at nicola.sargeant@jcca.co.uk, your usual JC contact, or another member of our Private Client Tax team.