The UK government’s recent 2024 Budget has introduced significant changes to inheritance tax (IHT) rules, affecting both thresholds and asset types, particularly pensions. These updates will likely impact estate planning and inheritance strategies, so here’s what prospective clients should know.
Pensions Now Subject to Inheritance Tax
Starting in 2027, pensions previously exempt from IHT will now be brought under its purview. This change means that beneficiaries who inherit pension assets could face inheritance tax obligations, a marked shift from prior practice. The move is aimed at increasing tax revenue by including pension savings in the estates subject to IHT, which is expected to affect many families across the UK.
Extension of Inheritance Tax Threshold Freeze
The IHT nil-rate band—the threshold below which estates are not taxed—will remain frozen until 2030, maintaining the current limit of £325,000. Similarly, the residence nil-rate band will stay at £175,000. With rising property values and inflation, more estates are likely to exceed these thresholds, thus becoming liable for inheritance tax. This freeze has raised concerns about “fiscal drag,” where the tax burden increases even though the thresholds haven’t changed.
Changes to Agricultural and Business Property Reliefs
Further adjustments will be applied to agricultural and business property reliefs. For estates with assets valued over £1 million, these changes aim to target larger estates while attempting to maintain some relief for smaller family-owned farms and businesses. It’s anticipated that this will affect the tax efficiency of family wealth transfers in these sectors, particularly where asset values are high.
Implications for Estate Planning
These changes underscore the importance of proactive estate planning. With pensions now part of the inheritance tax net and thresholds unchanged for years to come, families may need to revisit their strategies to maximize tax efficiency. Clients are encouraged to seek professional advice to navigate these changes effectively and consider options such as trusts, lifetime gifts, and other tax-efficient planning strategies.
At Jackson Longe Solicitors, we specialise in guiding clients through complex inheritance tax landscapes, ensuring their legacy is preserved for future generations. If you have questions about how the 2024 Budget impacts your estate planning, please contact our team on 0208 332 2069