Following the substantial changes made in last year’s budget, the 2025 Autumn Budget brings some further, albeit smaller measures affecting the future of legacy giving. With the main impacts beginning in the 2027 financial year, charities and individuals have just 16 months to plan for the coming changes.

Inheritance Tax

While the rate of inheritance tax (IHT) remains unchanged, the threshold at which estates begin to pay IHT (“nil-rate band”)[1] has been frozen for another year until at least April 2031. Through inflation and rising property values, more estates will be pushed into the taxable band—an effect known as ‘fiscal drag’. Since first being frozen in 2009, the number of estates liable for IHT has doubled: from less than 15,000 in 2009/10 to more than 31,000 in 2024/25.

On the other hand, relief for charitable gifts remains unchanged: gifts left to charities are to remain exempt from tax, and estates leaving at least 10% of their taxable value to charity continue to benefit from a reduced rate of tax on the remainder. The tax-efficient nature of leaving a gift is increasingly pertinent given the expected increasing number of estates reaching the IHT threshold following these policy changes.

Pensions

Last year’s budget removed the tax-free treatment of pensions upon death, and this has remained broadly unchanged in the Autumn 2025 announcement: from April 2027, unused pension funds that are transferrable at death will count as part of an individual’s estate for IHT purposes.

New estimates from the Office for Budget Responsibility (OBR) indicate that more than 50,000 estates will incur IHT in the first year of this change (2027/28) – an increase of 40% over the previous year.[2] While part of this increase is due to the frozen nil-rate threshold, the largest component of this increase is due to changes to the tax-free treatment of pensions, with an estimated 12,000 more estates subject to IHT in 2027/28 than otherwise would have been.

Notably, at this stage, only a minority of deaths hold a taxable pension pot: prior to 2015 almost all defined contribution (DC) pension pots (up to 90%)[3] were used to purchase an annuity—which generally expire upon death. After reforms made in 2015, pensions are now much more likely to be held as a drawdown (over 90%)[4] of which any residual pot will contribute to the estate value. Given that people who retired after 2015 are, on average, now just reaching their mid-70s, the full direct effect of this policy will not likely be felt until the 2030s.

Uncertainty and delays

For both individuals and charities, a shared concern is the uncertainty that these policies bring. While the changes to pensions and IHT will raise the profile of making charitable gifts for their tax-efficient benefits to more people, other potential legators are placed in a position where they are considering if a charitable gift is possible given the higher tax burden on their estate.

Alterations to the probate and inheritance tax system also have the potential to cause administrative delays and backlogs. Historically, changes to the residence nil-rate band in 2017 and, more substantially, the HMCTS digital probate rollout caused slowdowns and unpredictability for charities in receiving legacy gifts, from 2019 until they were able to clear the backlog more recently.

Delays are likely to see lost legacy income for charities in the short term, while a return to ‘normal’ may take several years to stabilise. Planning and effective legacy administration during this period will be needed to manage the burden on charities and executors in dealing with new rules.

Summary

While less directly impactful than the 2024 Autumn Budget, the extension of frozen IHT thresholds and confirmation of changes to treatment of pensions means this Budget again raises the threat of further delays in estate administration, but also the opportunity for charities to engage and support potential legators on their plans for leaving a gift.

[1] The ‘nil-rate band’ remains at £325,000. Estates above this threshold are subject to inheritance tax, with this threshold rising by £175,000 for the ‘residence nil-rate band’ to £500,000 for primary residences and up to £1 million when this allowance has been passed to a surviving spouse.

[2] Office for Budget Responsibility Economic and fiscal outlook – November 2025 https://obr.uk/efo/economic-and-fiscal-outlook-november-2025/

[3] Financial Conduct Authority, Retirement Outcomes Review 2017, https://www.fca.org.uk/publication/market-studies/retirement-outcomes-review-interim-report.pdf

[4] Financial Conduct Authority, Retirement income market data 2023/24, https://www.fca.org.uk/data/retirement-income-market-data-2023-24