Major Reforms To Inheritance Tax Will Impact Your Estate Planning
Effectively navigating IHT will become critical ...
Posted by Roger Eddowes on 11/11/2024 @ 8:00AM
The Chancellor's first Budget has established a new landscape for Inheritance Tax, leaving individuals and businesses alike to navigate the implications of these significant changes ...
Navigating the complexities of Inheritance Tax will become increasingly critical for families and businesses across the UK!
The government has set the nil rate band at £325,000 and the residence nil rate band at £175,000, maintaining these figures until the 5th of April 2030. This stability contrasts with the evolving nature of IHT, reflecting a cautious approach to fiscal policy amid broader economic challenges.
"The most notable announcements is the reform affecting Agricultural Property Relief (APR) and Business Property Relief (BPR)!"
Currently, APR allows for the transfer of agricultural assets free from IHT, creating a vital lifeline for many farming families. Likewise, BPR offers substantial exemptions, allowing businesses to pass on their value without the heavy burden of taxation. However, the reforms suggest a departure from this full relief model.
From the 6th of April 2026, the 100% relief on the first £1 million of relevant assets will taper to 50%, fundamentally reshaping estate planning for landowners and business owners. Shares deemed 'not listed' on recognised exchanges, such as AIM, will also experience a reduction in BPR to 50%, directly impacting growth-oriented companies reliant on such investments.
"The government has also announced an end to the pension exemption effective from April 2027!"
Under the previous rules, unused pension funds and death benefits remained exempt from IHT, but the new legislation will integrate these assets into a deceased person's estate. This removes a critical shield against tax liabilities and is expected to spur unease among individuals who have diligently planned their retirement savings with the assumption of IHT exemption.
I'm deeply concerned about the potential reduction of investment in small and medium enterprises and the viability of succession planning for family-owned businesses. With many families relying on the business value as a financial foundation, these changes could complicate or entirely disrupt their journey of inheritance.
Furthermore, these reforms will extend to lifetime transfers, marking a shift in tax planning from merely considering deathbed transfers to assessing the potential tax implications of gifts made during one's lifetime.
"In conjunction with these substantial reforms, the government is investing £52 million to digitalise the IHT service!"
They are aiming to streamline processes that have long remained paper-heavy and cumbersome. I do welcome this move as people (and professionals like me) are accustomed to navigating the bureaucratic labyrinth surrounding Inheritance Tax.
The Autumn Budget has ushered in a new era for IHT, prompting many to reassess their financial strategies. The fixed nil rate band, alongside the reformed reliefs and the revoking of pension exemptions, will necessitate comprehensive estate planning to mitigate potential tax burdens.
As these changes come into effect, navigating the complexities of Inheritance Tax will become increasingly critical for families and businesses across the UK.
Your Business Godparent is always here to help.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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