Chancellor Rachel Reeves is reportedly eyeing changes to inheritance tax (IHT) exemptions in next week’s Budget, sparking widespread concern over the potential impact on property owners and family businesses.

Speculation suggests Reeves is considering reducing or even eliminating several key IHT exemptions, a move that could drastically reshape the tax landscape. Among the largest exemptions is the spousal and civil partner transfer, which allowed £15.5 billion to be passed tax-free in the 2020/21 fiscal year.

According to Sarah Coles, a business consultant at Hargreaves Lansdown, this exemption is crucial for many families. “Currently, the surviving partner can pass on up to £1 million free of inheritance tax, but this could be halved to £500,000 under proposed changes. Given that the average London home is now valued at £531,212, many homeowners could face unexpected tax burdens.”

Coles warns that reducing this exemption could force some families to sell their homes to cover IHT bills. “This is an essential relief. Any drastic cuts could cause significant hardship,” she added.

Business property relief, another key exemption, is also in the spotlight. This relief, which saved £2.9 billion in 2021 and benefited 4,170 estates, shields assets within family businesses from inheritance tax. Agricultural property relief, claimed by 1,730 estates and valued at £1.6 billion in the same period, offers similar protections to family farms.

Combined, these two exemptions total £4.4 billion in tax savings, and there is growing concern that the government may seek to limit them. Hargreaves Lansdown notes there have been discussions around tightening the criteria for business property relief, potentially by increasing the minimum holding period from two to five years or capping the value of eligible assets.

The agricultural relief could also be restricted, with fewer assets qualifying and tighter conditions for eligibility. However, experts caution that any changes to these exemptions should be made carefully to avoid devastating consequences for family-run businesses and farms.

Finally, the IHT treatment of pensions, which are currently exempt, may also be revised. If pensions are subjected to IHT in line with other savings and investments, such as ISAs, this could further increase tax liabilities for retirees and their heirs.

As the Budget looms, families and business owners are anxiously awaiting confirmation on whether these exemptions will be cut, and how such changes might affect their financial futures.