Key Changes to Inheritance Tax in the 2024 Autumn Statement
- Fixed Inheritance Tax Thresholds: The basic IHT threshold remains at £325,000, and for estates including a family home passed to descendants, the threshold can be increased to £500,000 per individual and potentially £1m for a couple. These thresholds are fixed until 2030.
- Changes to Business and Agricultural Property Relief (BR and APR): Starting from April 2026, the reliefs available to qualifying business and agricultural assets will be capped at a lifetime allowance of £1 million per individual (so potentially £2 million for married couples). Previously, these assets could be entirely exempt from IHT.
- Pensions: From April 2027, unspent pension pots will be included in the IHT calculation, bringing previously exempt pension assets into scope.
- AIM-Listed Shares: AIM-listed shares are treated like any other business, which may count towards the £1m above. The £1m is the total per individual. I.e. it is not £1m of APR and £1m of BR.
Strategies to Minimise Inheritance Tax Impact
While these changes may limit certain traditional IHT reliefs, there are still ways to manage the tax burden. The following steps can help you prepare:
Gifting Assets Early
Gifts to family members or trusts can potentially reduce the value of an estate for IHT purposes. However, if gifting directly isn’t feasible due to control concerns or other factors, gifts into trust are also possible.
Setting Up Trusts for Asset Protection
Trusts can be useful tools for safeguarding wealth across generations. While the upcoming changes reduce the advantages of trusts in some cases, establishing a trust before April 2026 may be advantageous over trusts created after his date. Careful consideration will need to be given to the anti-forestalling rules and also to whether capital gains can be held over.
Consider Life Insurance
A life insurance policy can cover the tax due upon death for those concerned about meeting potential IHT liabilities but unable to part with assets through gifting or trusts. Policies written “in trust” are not usually counted as part of the estate for IHT purposes, providing a way to ensure funds are available to meet any tax obligations without forcing the sale of assets.
Review Your Will and Charitable Giving
Given the new changes, reviewing your Will is likely to be very important. In particular, the £1m allowance is not transferable, so the drafting must deal with this. Charitable donations are IHT-free, so including a charity in your Will benefits important causes and reduces your IHT bill. Charitable giving can reduce the estate’s taxable amount, and donations exceeding 10% of an estate’s value can bring the tax rate on the remaining estate down from 40% to 36%.
Evaluate Business and Agricultural Assets
The cap on BR and APR means families with substantial agricultural or business property should revisit estate plans. Structuring business or agricultural assets to take advantage of the new rules and lifetime allowances can help reduce the estate’s value and consequent IHT liability.
Preparing for the Future
The changes to inheritance tax law highlight the need for proactive estate planning. From reviewing your Will and pension designations to using trusts and life insurance wisely, there are many ways to protect your estate against increased inheritance tax.
Whether considering direct gifts, establishing trusts, or just starting to explore estate planning, our experienced tax team will guide you through these changes and help protect your future. If you have any questions, please get in touch by calling 01792 410100 or emailing us at mail@bevanbuckland.co.uk
