As part of the 2024 Budget, Rachel Reaves announced some significant changes to the treatment of assets for Inheritance Tax.
The announcements included changes to the current Inheritance Tax rules that could have a significant effect on business owners and pension holders.
Changes to Inheritance Tax in the 2024 Budget.
It was confirmed that the current IHT thresholds will continue to be frozen until 5th April 2030. This means that more estates will be captured by Inheritance Tax as estate values continue to rise. The Nil Rate Band will continue at £325,000 and the Residence Nil Rate Band will remain in place at £175,000. There is no change to the taper rate for the Residence Nil Rate Band, which applies when an estate is valued over £2 million.
How are businesses and farmers affected by the inheritance tax changes?
The biggest change will see business owners and agricultural property owners pay more Inheritance Tax on their death as the current generous unlimited 100% relief was reduced. This will now only apply to the first £1 million of assets, with everything over this subject to 50% relief only. This means an effective IHT rate of 20%. These new rates of relief will apply from 6th April 2026 to allow time for a technical consultation in early 2025.
If you have a pension, you could be affected too.
Another change which will see HMRC increase revenue is the removal of the exemption for pension pots from 6th April 2027. This will bring any unused funds or death benefits into a person’s estate from that date. As part of these changes, pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on those funds.
How to alleviate the 2024 Inheritance Tax changes.
With more assets now being subject to Inheritance Tax it is more important than ever to ensure your Estate Planning is up to date. If you believe you will be affected, contact your Will provider to discuss the changes to Inheritance Tax. Where appropriate new documents may be required.
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