Why householders will take a hit in the Autumn Budget

This has been a summer of speculation about the content of the forthcoming Budget in the Autumn. The recess had barely begun when rumours about which taxes would rise, and how Chancellor Rachel Reeves would fill the reported £50bn spending gap, started.

Sadly, it looks like homeowners, private pension holders, and savers are once again going to be asked to foot the bill. Our old friend inheritance tax (IHT) is in the spotlight with heavily rumoured changes to this most reviled form of revenue raising.

The Chancellor has already confirmed that from April 2027 the government intends to target £1 trillion of retirement savings held in private pension pots.

The latest official data showed an increase of £0.8bn in IHT revenues between April 2024 and March 2025 with the annual total now £8.2bn. The Institute for Fiscal Studies said that by 2032-33 IHT annual revenues will rise to £15 billion.

At the moment, IHT is not levied on assets worth up to £325,000. On top of this basic nil-rate band, there is a £175,000 residence nil-rate band, which is applied if someone leaves their home to their direct descendants. Therefore, an individual leaving their house to their children wouldn’t currently pay IHT on their assets worth up to £500,000, and for a couple this is doubled to £1m.

The Chancellor is considering scrapping the £175,000 residence nil-rate band which would mean that rather than a £1m estate being IHT free, this would fall to £650,000 for a couple. This is forecast to bring around 30,000 additional families a year into the IHT threshold with the Treasury raising about £2bn.

Inheritance tax has had its threshold frozen at £325,000 since 2009 and is currently set to remain at that level until 2030 at the earliest. Had it risen by inflation in the intervening years it would be at £519,695 by now.

However, the wealthiest in society in society won’t be impacted by these changes to IHT. Ordinary people who have benefitted from rising house prices over the last two decades will be hit hardest while the richest in society have accountants and advisers able to reduce their tax liability.

Simply owning a property for many years will have put many people beyond the £325,000 IHT threshold and liable for quite punitive rates of tax. This will only get worse. For example, of the 1200 properties currently listed for sale in Edinburgh 481 are priced above the IHT threshold which means many more people will be impacted in the future.

It can’t be right that a homeowner who wishes to pass on something to their family should be punished for simply buying a home and investing wisely. Taxing thrift, savings, and aspiration should never be government policy. But homeowners are seen as an easy target as they cannot hide their main asset, which is their property, so governments see this as an easy way to raise revenue. But there is little doubt that inheritance tax – which is already regarded as the most unfair tax – is likely to become even more unpopular as the government raises more money from people who thought they were doing the right thing by simply buying a home and saving.