The 2024 autumn budget introduced significant changes to inheritance tax (IHT) regulations, marking the most substantial tax adjustments since 1993.
These reforms necessitate a thorough review of estate planning strategies for individuals potentially affected by IHT.
Here are the key elements to consider:
Defined contribution pensions subject to IHT.
From April 2027 unused funds in defined contribution (DC) pensions will be included in the deceased’s estate for IHT purposes.
Reforms to business and agricultural reliefs.
Business relief (BR) and agricultural relief (AR) will be capped from April 2026. The first £1m of qualifying assets will be eligible for 100 per cent relief, with amounts exceeding this receiving 50 per cent relief, resulting in an effective IHT rate of 20 per cent on the excess.
Changes to AIM shares exemption.
Previously, Alternative Investment Market (AIM) shares held for at least two years were fully exempt from IHT. Under the new rules, AIM shares will be subject to a 20 per cent IHT rate without benefiting from the £1m tax-free threshold applicable to BPR and APR.
Extension of IHT threshold freeze.
The nil-rate band (£325,000) and residence nil-rate band (£175,000) will remain frozen until April 2030, extending the previous freeze set until 2028.
This prolonged freeze may result in more estates becoming liable for IHT due to asset appreciation over time. Given the changes, people are advised to consult with advisors to reassess and adjust their estate planning strategies accordingly.
We have a team of STEP qualified experts who can help you and your family avoid any unnecessary financial deductions from a loved one’s estate.
Enjoyed this? Read more from Farida Isaji, legal director, Napthens