Author: Ian Parsons, managing partner at Parsons, Chartered Accountants.
Chancellor Rachel Reeves presented her Budget on Wednesday, 30 October 2024, promising significant investments to stimulate growth and restore economic stability. Below are the changes to Inheritance Tax, and what these could mean for individuals:
Frozen Inheritance Tax Nil Rate Bands
The nil rate band, which has been set at £325,000 since 2009, will remain frozen until 5 April 2030. This means that individuals will continue to benefit from the same threshold for Inheritance Tax purposes, but the value of this threshold may be eroded by inflation over time. Additionally, the ‘residence nil rate band’, currently at £175,000, will also remain frozen until 2030. This could impact individuals who plan to pass on their homes or other assets, as their estates may be more likely to exceed these frozen thresholds, leading to a potential tax liability.
Unused Pension Funds and Death Benefits
From 6 April 2027, any unused pension funds or death benefits paid from pensions will be included in a person’s estate for Inheritance Tax purposes. This could affect individuals with substantial pension savings, especially if they were relying on passing those funds on to loved ones outside the scope of Inheritance Tax. Planning for these changes will be important to minimize any unexpected tax burdens on your estate.
Changes to Agricultural Property Relief (APR) & Business Property Relief (BPR)
From 6 April 2026, there will be changes to how Agricultural Property Relief and Business Property Relief are applied. If you own agricultural property or certain business assets, the current 100% relief may be reduced to 50% for properties exceeding £1 million. For individuals with significant agricultural holdings or business assets, this could mean a higher tax liability upon passing these on, especially if your estate exceeds the new thresholds.
Who is Affected?
Currently, just over 4% of estates pay Inheritance Tax, but predictions suggest that this figure could rise to 7% by 2032-33. With the new changes, this percentage may increase further, particularly as many individuals’ estates become more likely to exceed the current nil rate bands due to inflation. Understanding these changes and how they affect you personally can help ensure you make informed decisions about your estate planning.
If you’re concerned about how these changes might impact your estate, we’re here to help. Contact us at 01924 669 500 for a consultation to navigate the new landscape of Inheritance Tax.
