Autumn Budget 2024: A surprise swipe at IHT

In her first Budget Chancellor of the Exchequer Rachel Reeves has today taken a swipe at Inheritance Tax Planning with a number of measures:

In her first Budget Chancellor of the Exchequer Rachel Reeves has today taken a swipe at Inheritance Tax Planning with a number of measures:

• Pension pots passed to family will be brought into the charge to IHT from April 2027. Standard advice to clients has been to use cash and other liquid assets to live on in later life and to preserve the pension pot and not draw that out as pension during your lifetime. This meant that the pot was accumulating income gross free of tax and then on the death of the pensioner the whole pot could be passed over to children with no IHT payable. This planning technique will be stopped from April 2027 when the pot will be charged to the full IHT death rate of 40%. It may therefore be better to give an income to the family if that might be taxed at a lower income tax rate. Those with large untouched pension pots will need to consider if any action can be taken before April 2027.
• The IHT Nil rate bands of £325k per person (plus £125k per person if there is a family home passed to children) are left intact. These rates have not increased with inflation for many years so the value of the relief continues to fall.
• The relief for business assets and farmland is to be capped at a total of £1m to be passed with no IHT. Then additional values above that amount will be taxed on death estates at 20%. That is the same rate as the current lifetime gifts IHT rate. Therefore worth considering gifting the business and / or farms during lifetime so any increase in value falls out of account on the death of the donor. The changes take effect from April 2026 so there is a window before then to review all sizeable business and farm assets and take early actions before the current levels of 100% relief are abolished in April 2026. However there are many arguments with HMRC about just what qualifies for this relief so early advise is needed.

Related content

• PERSONAL TAX
• IHT & ESTATE PLANNING
• PRIVATE CLIENT ADVISORY
• HIGH NET WORTH INDIVIDUALS
• ARTICLES