Key Inheritance Tax (IHT) Changes in the Autumn Budget 2024
The Autumn Budget 2024 brings critical updates to Inheritance Tax (IHT), affecting thresholds, reliefs, and the treatment of certain assets. These changes, aimed at increasing the scope of IHT, emphasize the need for comprehensive estate planning to manage liabilities effectively. Here’s an overview of the updates and what they mean for estate planning.
Extended Freeze on the IHT Nil Rate Band
The IHT nil rate band, which exempts the first £325,000 of an estate from IHT, has been frozen since 2009. This threshold will remain fixed until the end of the 2029/30 tax year, effectively holding it unchanged for 21 years.
Implications for Estates: With the fixed threshold and rising property values, more estates are expected to fall within the taxable range, increasing the likelihood of IHT obligations.
Residential Nil Rate Band (RNRB): The additional £175,000 RNRB can help reduce the tax burden on qualifying death transfers involving a family home. For married couples, this allows up to £1 million to be left to direct descendants free of IHT, but the rules are complex, and planning remains essential to fully utilize these allowances.
Changes to IHT Reliefs for Agricultural and Business Property
From April 6, 2026, two significant IHT reliefs will see restrictions:
- Agricultural Property Relief (APR) and Business Property Relief (BPR) currently provide 100% relief for qualifying assets. Starting in 2026, the 100% relief will apply only to the first £1 million in value of agricultural or business property, with any excess value receiving only a 50% deduction.
- Quoted Shares: Shares listed on specific markets, such as the AIM market, have previously qualified for 100% relief if held for two years in a qualifying trading business. From April 2026, the relief will be reduced to 50%, irrespective of the share value.
Environmental Land Agreements: From April 6, 2025, APR will extend to land managed under approved environmental agreements, providing tax relief for landowners supporting conservation efforts.
Pension Savings and IHT Implications
A significant change will affect pension savings from April 6, 2027. Currently, unused pension funds and death benefits can be left to beneficiaries free of IHT. However, under the new rules, these funds will be subject to IHT, reinstating the pre-2015 tax position.
Planning Note: For those relying on pensions as a tax-efficient inheritance tool, early planning is essential to explore alternative strategies, such as trusts or lifetime giving, to mitigate the IHT impact on pension funds.
Practical Tips for Estate Planning
The freeze on the nil rate band and changes to reliefs will bring more estates into the IHT net. To make the most of available reliefs, consider the following strategies:
- Review Relief Limits: If your estate includes agricultural or business property, consider structuring ownership to maximize the £1 million threshold for 100% relief before 2026.
- Utilize Annual Gifting: Lifetime giving can help reduce the taxable estate over time. Especially as tax-free pension transfers are set to end in 2027.
- Consider Trusts: Using trusts may help control asset distribution and potentially reduce IHT on large estates.
Take Control of Your Estate Planning with Merranti Accounting
These IHT changes underscore the importance of proactive estate planning. At Merranti Accounting, we offer expert guidance on navigating IHT rules and preserving family wealth across generations.
Contact us today for personalized advice on maximizing your IHT allowances and protecting your assets under the new tax framework.
Find more about the budget here
