The Autumn Budget 2024: Key Changes to Inheritance Tax and What It Means for You
In Wednesday’s Autumn Budget, Chancellor of the Exchequer Rachel Reeves announced significant changes to inheritance tax that could affect how families plan and manage their estates. From pensions now being subject to inheritance tax to reforms impacting agricultural and business assets, these updates may impact your financial plans and the legacy you leave behind.
In this blog post, we’ll break down the key changes and explain what they mean for you.
Key Changes to Inheritance Tax, Agricultural Relief, and Capital Gains Tax
Rachel Reeves’ Autumn Budget brings a range of inheritance tax updates, including a freeze on the IHT threshold, new taxation on inherited pensions, reformed agricultural and business reliefs, and an adjustment to capital gains tax.
Here’s a quick overview of the key updates and their impact:
1. Inheritance Tax Threshold Freeze
The personal allowance threshold for inheritance tax will remain at its current level until 2030. This means no increases in the threshold, so as house prices rise, more estates will become liable for inheritance tax, increasing the Government’s revenue.
2. Inherited Pensions to be Included in IHT Calculations
Previously exempt, pensions inherited by beneficiaries will be subject to inheritance tax from April 2027. This change could affect a significant number of estates, as the inclusion of pensions in IHT calculations will result in higher estate values.
3. Reform of Agricultural and Business Relief
Starting in April 2026, changes to reliefs on agricultural and business assets will take effect. These reliefs, which previously allowed eligible assets to pass to beneficiaries with reduced IHT, will be limited to £1m. Agricultural assets above this threshold will be taxed at a reduced rate of 20%.
4. Changes to Capital Gains Tax on Sales
The chancellor announced an immediate rise in capital gains tax on profits from most assets, increasing from 10% to 18%, with the higher rates increasing from 20% to 24%.
What Were the Previous Rules?
Prior to the new Budget, the following inheritance tax rules were in effect:
Personal Allowance Threshold
The IHT nil-rate band of £325k and the residence nil-rate band of £175k had been frozen until 2028. The latest Budget confirmed that these thresholds will not increase and extended them for a an additional 2 years, up to 2030.
Pensions
Previously, inherited pensions were excluded from the IHT calculation, making them a useful tool for estate planning.
Agricultural and Business Reliefs
Qualifying agricultural and business assets could be passed to beneficiaries with substantial relief from IHT, effectively reducing the taxable value of those assets.
Gift Exemptions and the Seven-Year Rule
The current IHT system allowed tax-free gifting, provided the gift was made at least seven years prior to death, with taper relief for gifts given between three and seven years prior.
Speculation around extending the gift-free period to ten years did not materialise in Wednesday’s Budget, but future changes to the taper relief remain a possibility.
How Will These Changes Affect You?
The announced changes may have significant implications for individuals and families managing their estates and planning for the future:
Frozen Thresholds and Increased IHT Exposure
Increased inheritance tax exposure presents the primary risk for most families. With the IHT threshold frozen until 2030, inflation and rising property values could push more estates above the taxable limit. Those with property or high-value assets should review their estate plans, as more may be subject to IHT without proactive planning.
Pensions Subject to IHT
Including inherited pensions in the IHT calculation means beneficiaries could face higher tax bills. An average pension pot of £85,000, for instance, could now incur an IHT liability of up to £34,000 if it exceeds current thresholds, affecting beneficiaries’ financial standing.
Business and Agricultural Asset Planning
Businesses and farms, traditionally able to use reliefs to avoid IHT, will need to reassess strategies for passing down assets from April 2026. It may be necessary to review the potential tax implications and consider succession planning to prepare for the forthcoming reforms.
Changes to Capital Gains Tax on Sales
The change in capital gains tax (CGT) will impact individuals planning for their financial future, particularly those relying on investments in shares as part of their long-term wealth strategy. With CGT on profits increasing from a maximum of 20% to up to 24%, investors may need to reassess the cost-effectiveness of selling taxable assets or consider alternative strategies to manage these higher taxes.
What Steps Should You Take Now?
1. Review Your Will and Estate Plan
With these changes, now is an opportune time to review your estate plan to see if it aligns with the new tax landscape. Evaluating asset distribution and considering the implications of the new IHT rules will help you make informed decisions.
2. Reassess Gifting Strategies
Although the gift-free period remains at seven years, for now, it’s worth reassessing your gifting strategy to manage IHT liabilities effectively.
3. Consider Pension Planning Options
With pensions now being subject to IHT, exploring potential ways to minimise tax implications, such as nominating beneficiaries strategically, can help preserve your estate’s value.
4. Prepare for Agricultural and Business Relief Reforms
If you own agricultural assets, it’s vital to get ahead of the changes set for 2026 by exploring tax-efficient structures and planning for succession early.
5. Review Investment Portfolio
If you have investments in shares, consider reviewing your portfolio and exploring strategies to manage the increased CGT rate.
How ELM Legal Services Can Help
At ELM Legal Services, we understand that these changes may be confusing, but we can help you navigate the new landscape effectively. We’ve assisted over 30,000 clients across England and Wales in managing their estates, protecting assets and minimising tax liabilities.
Conclusion
Rachel Reeves’ Autumn Budget includes several updates to inheritance tax; however, the IHT threshold freeze is the change likely to affect the largest number of people.
With property values steadily increasing, an increasing number of families will be impacted by the inheritance tax (IHT) threshold. We hope the government will take this into consideration and review the threshold, making necessary adjustments which reflect the housing market and provide relief for people affected by these changes.
Get in touch
For more information on Wills, Probate, or Estate Planning, contact us today on 0117 952 0698 or submit an enquiry.
