8 December 2024
Understanding the Autumn Budget
The Labour 2024 Autumn Budget has presented significant changes to Inheritance Tax (IHT) which has caused quite a stir. The changes are anticipated to impact the IHT position of the majority of the people in the UK as they come into play over the next 2-3 years. The changes which can specifically affect your estate, we have set out below:
1. Pensions
Previously, any pension funds and death benefits generally did not fall into your estate for IHT purposes. The new Budget drastically changes this, stating from April 2027, any unused pension pots will form part of your estate for IHT purposes and pension scheme administrators will be responsible for paying the due IHT. This subsequently will make the value of many individuals estates significantly larger resulting in those individuals having to pay potentially way more inheritance tax upon their death.
Currently, if you are over your inheritance tax nil rate band threshold, any surplus wealth is taxed at 40%. It has been estimated that this change will impact 8% of estates in the UK which could accumulate a staggering estimated sum of £1.5bn IHT receipts by 2029-30.
2. Agricultural Property relief and Business Property Relief
The Budget has also set a limit on the 100% relief for Agricultural Property Relief (APR) and Business Property Relief (BPR) to the first £1m of such assets from 6th April 2026. Any wealth over £1m will only have 50% relief thereafter. This will impact many family businesses and generational farms who want to pass down their business and business assets to their descendants.
Agricultural Property Relief currently allows some agricultural property to be passed on free of inheritance tax which includes land used to grow crops, rear animals and any farm buildings.
Another noticeable change is that investments that aren’t listed on the recognised stock exchange market, such as Alternative Investment Market (AIM) shares will only benefit from 50% relief as opposed to the current 100% relief.
3. Freeze on nil-rate bands
On a more positive note, the chancellor has confirmed that the IHT thresholds will be frozen up to 2030. At present, each individual has an IHT threshold of £325,000 meaning that no IHT will be due on the first £325,000 of your estate when you die. Married couples and civil partners can transfer any unused IHT nil-rate band to their surviving partner, creating a joint nil-rate band of £650,000.
Since April 2017, there has been an additional IHT allowance known as the residence nil-rate band, this allowance can only be claimed if you are leaving your principal residence, or the sale of such, to your children or grandchildren (including stepchildren or legally adopted children). This relief can be up to the value of £175,000 depending on the value of your property, meaning your overall IHT allowance could increase to £500,000 for an individual or for a couple to £1million. As confirmed by the Chancellor, this is set to continue until 2030.
How we can help
At JWP we have a specialist team that can advise on estate planning, asset protection and inheritance tax. We provide tailored advice specific to you and your personal circumstances. Contact us on 01924 387171 to speak to a member of our team today.
