Budget 2024: Key Changes to Inheritance Tax Explained

London, Nov’24: The 2024 Budget has introduced several significant changes to the inheritance tax (IHT) regime, which will impact estate planning and wealth transfer strategies. One of the most notable changes is the inclusion of unused pension funds in a person's estate for IHT purposes, effective from April 2027. Previously, pension funds could be passed on tax-free if the individual died before the age of 75 and at the beneficiary's marginal income tax rate if the individual died after 75. Under the new rules, these funds will now be subject to IHT, potentially increasing the tax burden on beneficiaries.

Another major change is the reform of Business Relief (BR) and Agricultural Property Relief (APR). These reliefs previously allowed certain business and agricultural assets to be passed on free of IHT. Starting from April 2026, the first £1 million of combined business and agricultural assets will continue to attract no IHT, but assets exceeding this threshold will be subject to a 50% relief, effectively taxing them at a 20% rate. This change aims to ensure that small family farms and businesses remain protected while increasing the tax contribution from larger estates.

The Budget also extends the freeze on the IHT nil-rate band until 2030. The nil-rate band, which is the threshold below which no IHT is payable, remains at £325,000. This freeze, initially set to expire in 2028, means that more estates will likely fall within the IHT net over time due to inflation and rising property values. Consequently, individuals may need to reassess their estate planning strategies to mitigate potential tax liabilities.

In addition to these changes, the Budget addresses various loopholes that have historically allowed wealthier individuals to reduce their IHT liabilities. For example, the tax relief available on inherited AIM shares has been set at 50% in all circumstances, closing a gap that previously enabled significant tax savings. These measures are part of a broader effort to create a more equitable tax system and increase revenue from IHT.

The inclusion of pension funds in the IHT calculation and the reforms to BR and APR represent a fundamental shift in how wealth is transferred across generations. These changes will likely prompt individuals to explore alternative tax-efficient investments, such as Individual Savings Accounts (ISAs), which grow free from Income Tax and Capital Gains Tax and can be withdrawn tax-free. Estate planners and financial advisors will need to adapt their strategies to navigate the new landscape effectively.

The 2024 Budget's changes to inheritance tax are poised to have a significant impact on estate planning. By including pension funds in the IHT calculation, reforming BR and APR, and extending the nil-rate band freeze, the government aims to increase tax revenues while protecting smaller estates. Individuals and advisors must stay informed about these changes and consider their implications to ensure effective wealth transfer and tax planning strategies.

About Allenby Accountants:

Allenby Accountants is a leading accounting firm based in London that specialises in providing comprehensive financial solutions to businesses and individuals. Focusing on delivering personalised services, they offer expertise in various areas, including accounting, tax planning, corporate finance, and property portfolio incorporation. Their team of qualified professionals is committed to assisting clients in achieving their financial goals and maximising their wealth.

Company Address:

Address: Brook House 54a, Cowley Mill Road Uxbridge UB8 2FX

Phone No.: 0208 914 8887

E-mail: info@allenbyaccountants.co.uk

Website: https://www.allenbyaccountants.co.uk/