How the 2025 Autumn Budget Affects Executors of Estates

The 2025 Autumn Budget introduced several reforms that directly impact executors and personal representatives administering estates. While the headlines focused on inheritance tax (IHT) and pensions, the increases to income-tax rates on estate income are just as significant. Here’s a clear summary of the key points executors need to know.

Inheritance Tax: Thresholds Frozen and Reliefs Reformed

The Government has extended the freeze on the nil-rate band (£325,000) and the residence nil-rate band (£175,000) until at least April 2030. As property values continue to rise, more estates will fall within IHT scope, meaning executors will increasingly need to complete full IHT returns.

From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) move to a new structure:

• Up to £1 million of qualifying assets receive 100% relief

• Any excess receives 50% relief

• Unused portions of the £1m allowance can now be transferred between spouses or civil partners

These changes mean more detailed valuations and more complex calculations for estates containing business or agricultural assets.

Pensions to Come into IHT (From 2027)

From April 2027, unused pension funds and certain death-benefit lump sums will fall within the deceased’s IHT estate. Importantly, the Budget clarifies that executors will not be personally liable for IHT on pension benefits discovered after estate clearance has been issued — providing helpful protection for personal representatives.

Income Tax on Estates: Higher Rates for Dividends, Rental & Savings Income

One of the most practical impacts for executors is the rise in taxation on income received during the administration period. Estates may generate “passive income” from investments, bank interest, or rental properties. The Budget increases the rates applied to this income:

Dividend Income (from April 2026)

• Basic rate: 10.75%

• Higher rate: 35.75%

• Additional rate: 39.35% (unchanged)

Savings & Rental Income (from April 2027)

• Basic rate: 22%

• Higher rate: 42%

• Additional rate: 47%

The £500 de minimis rule for low-income estates still applies — if the estate receives £500 or less of total income in a tax year, no estate income tax return is required. Above that threshold, all income becomes taxable, not just the excess.

With income-tax thresholds also frozen, fiscal drag will push more estates’ income into higher tax bands over time.

Practical Implications for Executors

Executors should now account for:

• Higher tax bills on estate income, particularly where the estate holds rental property or investment portfolios

• More complex reporting, as different rates apply before and after April 2026/2027

• The importance of timing, especially when deciding whether to sell or retain income-producing assets during administration

• Clear communication with beneficiaries, as increased tax may reduce the net value available for distribution

• Reviewing the structure of estates likely to generate sustained income, as quicker distribution may now be more tax-efficient

The 2025 Autumn Budget creates a more demanding tax environment for executors. With higher income-tax rates, frozen thresholds, and significant changes to reliefs and pensions, estate administration will require greater care, clearer documentation, and more proactive planning.

If you administer estates or are planning your affairs, now is an excellent time to review your arrangements and ensure they remain tax-efficient under the new rules.