The Autumn 2024 budget.
It was controversial to say the least, especially with respect to inheritance tax (IHT). A broad suite of changes has been made, which are predicted to have a significant impact on estates, personal pensions and family businesses across the country.
Managing IHT already requires a substantial amount of forward planning. But with the introduction of these new rules, more people are likely to be facing inheritance tax liabilities and will need to take a closer look at their financial situation.
Will you be affected?
Here we discuss the details of the changes in further detail and explore how our wills and probate team may be able to help.
New rules for inheritance tax
Introduced as part of the Autumn 2024 budget.
1. Caps on agricultural and business property relief
This is, by far, the change that has received the most attention.
Currently, if a claim for agricultural and business property relief is successful, 100% of the value is exempt from IHT. But from April 2026, only the first £1,000,000 will receive this 100% relief. Anything above this threshold will then be limited to 50% relief from inheritance tax.
The impact of this alteration has been a matter of contention in the media.
Based on HMRC data, the government has forecast that out of 1800 estates per year claiming relief, around 500 (29%) will potentially pay more IHT – which is a relatively small number.
However, according to the National Farmers’ Union, this is an underestimation. Citing figures from the Department for Environment, Food and Rural Affairs, they argue that approximately two-thirds of farms are worth over £1,000,000 and will therefore face a higher IHT liability.
There could be several reasons for this discrepancy, without either being technically incorrect. What is certain, though, is that at least some farms and family businesses will be affected.
2. Frozen nil rate bands until 2030
The inheritance tax nil rate band and residence nil rate band were set to increase – in line with inflation – in 2028. However, as part of the latest budget, it was announced that these thresholds will remain frozen (at £325,000 and £175,000, respectively) until 2030.
As asset values continue to rise, unfortunately, this change is likely to cause ‘fiscal drag’ – bringing many more estates within the scope of inheritance tax.
3. Unused pension funds liable for IHT
Another controversial change to inheritance tax.
From April 2027, unused pension funds and lump sum death benefits that are payable from registered pension schemes – including both defined contribution schemes and some defined benefit schemes – will potentially be subjected to inheritance tax.
The government are consulting on the process of how this will be calculated, and further information is due to be released in January 2025. But whatever the specific details, this change will likely add a significant amount of IHT liability to many family estates.
4. Reduced relief on AIM and unlisted shares
Following this latest budget – starting from April 2026 – inheritance tax relief for Alternative Investment Market (AIM) shares will also be reduced from 100% to 50%. And unlike agricultural relief, AIM shares will not be eligible for the same £1 million tax-free threshold.., send an email to info@sthelenslaw.co.uk and we’ll respond as soon as possible.
