The Autumn 2024 budget has introduced a series of significant changes to inheritance tax (IHT), which will have a profound impact on estates, pensions and family businesses across the country.
These revisions come at a time when many individuals and families in the UK are looking to understand the financial implications of their estates and how best to plan for the future.
Jonathan Jacobs, a Partner in our Private Client team, provides an overview of current IHT thresholds and outlines how these upcoming changes may affect individuals, couples and families with diverse assets.
1. Frozen nil rate bands until 2030
Inheritance tax nil rate band and residence nil rate band thresholds are to remain frozen until April 2030.
This means there would have been no changes to the nil rate band threshold for 21 years, since April 2009, and no changes in the residence nil rate band thresholds for 10 years, since April 2020.
Below is an overview of how inheritance tax is currently charged:
- For single people with no descendants*, inheritance tax is charged at 40% if their estate exceeds £325,000.
- For single people with descendants* who leave a home to descendants worth at least £175,000, inheritance tax is charged at 40% above £500,000.
- For couples who are married or in a civil partnership with no descendants*, on the second death, inheritance tax could be charged at 40% above £650,000**.
- For married couples or those in a civil partnership with descendants who, on the second death, leave a home worth at least £350,000 to descendants, inheritance tax is charged at 40% above £1,000,000**.
- The residence nil rate band starts to be reduced if you are worth more than £2,000,000.
*Descendants includes more than just your blood descendants and can include stepchildren, foster children, those under a guardianship order and widows or widowers of descendants.
**These higher ‘allowances’ are dependent on the correct claims being made within a 2 year strict time limit from the date of death of the surviving spouse/civil partner.
Please note other exemptions and reliefs can apply, so please contact Morr & Co for advice.
2. Inheritance tax on unused pension funds
As from April 2027, unused pension funds and lump sum death benefits payable from registered pension schemes will be potentially liable to inheritance tax.
The Government are consulting on the process of how this will be calculated who is to pay the inheritance tax.
It is likely that the pension trustees or scheme administrators will be responsible for paying the inheritance tax.
Nevertheless, we expect this will mean extra work, cost and delay.
Further detail will be released, after the consultation ends in January 2025.
3. Changes to agricultural relief and business property relief
Agricultural relief and business property relief will change as from April 2026. Currently, if a claim for agriculture relief and business property relief is successful 100% of the value is not subject to inheritance tax.
As from April 2026 only the first £1,000,000 will receive this 100% relief and the rest of the will be limited to 50% relief from inheritance tax.
This could cause significant problems for family businesses and farms.
4. Reduced relief on AIM and unlisted shares
Claims for business property relief claims on shares invested in companies not listed on a recognised Stock Exchange, including Alternative Investment Market (AIM) shares.
The relief from inheritance tax on the value of the shares will be reduced from 100% to 50% as from April 2026.
This might affect those who have invested directly or through a portfolio.
5. Revised definition of residence for IHT purposes
From April 2025, the definition of domicile, which is important for inheritance tax (IHT) will change to a definition of ‘residence’.
This is likely to affect the use of offshore trusts to shelter assets from inheritance tax and may also affect lifetime transfers and gifts in wills between spouses and civil partners.
6. Digitalised IHT submissions and payments
In three to four years time, submission of inheritance tax forms and the payment of inheritance tax will be digitalised (provided the proposed £52 million the Government intends to invest in this process is sufficient).
How can Morr & Co help?
If you’d like to discuss your estate and how the Autumn budget may affect you, or you would like any further information on the content of this article, please do not hesitate to contact our Private Client team, by emailing [email protected] or calling us on 01737 854 500.