How the Autumn 2024 Budget could impact your Inheritance Tax Planning

The Autumn 2024 UK Budget has introduced several significant changes to inheritance tax (IHT), with implications for pensions, business and agricultural properties. Below is a summary of these key changes:

Extended inheritance tax threshold freeze

The current nil-rate IHT band of £325,000 and the residence nil-rate band of £175,000 will remain frozen until 2030, continuing a freeze first announced in prior budgets. While estates below these thresholds will remain exempt, rising inflation effectively decreases the value of the threshold in real terms, meaning that larger estates may become more vulnerable to IHT over time. This gradual shift could bring more estates into the taxable bracket as asset values increase.

Inclusion of pensions in IHT calculations

Starting from April 2027, the unused balance of pension funds will now count toward an individual’s estate for IHT purposes. This change affects those who may have used pensions to pass on wealth without incurring additional IHT. Consequently, individuals with larger pension pots may want to reconsider the timing and strategy of drawing from their pensions, as withdrawing earlier or exploring alternative estate planning options may reduce the future tax burden.

Changes to agricultural and business property reliefs

The 100% relief on agricultural and business property will now be capped at £1 million, with relief above this threshold reduced to 50%. This change, effective from April 2026, will notably impact high-value estates with substantial farming or business assets. Additionally, business property relief will reduce to 50% for unlisted companies, impacting family businesses that are transferred through inheritance. Although these reforms primarily affect a smaller percentage of large estates, they represent a considerable shift for high-net-worth individuals in agriculture and business sectors.

Other notable adjustments to IHT policy

Beyond these main points, other adjustments in the 2024 Budget include stricter reporting requirements on certain trust structures and enhanced scrutiny on the use of offshore assets for tax planning. These steps signal the government’s intent to tighten IHT compliance, especially for wealthier estates that rely on complex structures to minimise tax.

These updates reflect the government’s focus on increasing revenue from higher-value estates while making IHT more progressive. However, they also introduce additional complexities, making it essential for those impacted to stay informed and reassess their inheritance planning.

For personalised guidance on how these changes might affect you, contact the expert team at JW Hinks, who can provide tailored advice on IHT planning and compliance.