Navigate the proposed IHT changes with our expert advice

The UK’s Autumn Budget 2024 introduced significant changes to inheritance tax (IHT), affecting estate planning for many individuals, particularly those involved with a family business or agricultural partnership. Here’s a brief overview of the updates and their potential implications:

Key Changes

1. IHT Threshold Freeze: The IHT nil-rate band (£325,000) and residence nil-rate band (£175,000) are frozen until 2030. With rising property and asset values, more estates are likely to become taxable under IHT, increasing tax liabilities over time.
2. Business and Agricultural Relief Caps: Starting April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at £1 million per estate. Assets above this threshold will receive a reduced relief rate of 50%, resulting in a 20% tax rate on the excess. These changes could particularly impact family businesses and farms, which often relied on these reliefs to pass on assets tax-free to the next generation.
3. Inheritance Tax on Pensions: From April 2027, inherited pensions (sometimes also referred to as “unspent pensions”) will no longer be exempt from IHT. This change could significantly increase tax liabilities, especially for estates with large pension pots and will also increase the number of estates expected to go through the torturous Probate application process.
4. Capital Gains Tax Increase: The rates for capital gains tax (CGT) on profits from assets other than residential property are to be increased significantly;  basic rates increased to 18%, and higher rates to 24%. This adjustment adds complexity to financial planning, especially for those holding substantial investment portfolios and these charges are immediately effective.

Implications

• Frozen Thresholds: More families will face IHT as asset values rise, increasing the importance of proactive estate planning.
• Business and Farm Owners: These groups may need to explore alternative strategies, such as restructuring ownership or succession planning, to minimize future IHT exposure.
• Pension Planning: Including pensions in IHT calculations necessitates a review of beneficiary nominations and tax-efficient withdrawal strategies.
• Investors: With CGT increases, reviewing and optimizing investment portfolios will be crucial. Also,CGT reliefs do exist to help you “defer” any immediate CGT charges on the re-structuring of a family business.

Planning Recommendations

• Review Your Estate Plan: Ensure it reflects the new IHT rules and consider strategies like lifetime gifting to manage future liabilities.
• Update Business Succession Plans: Start preparing for the capped reliefs on agricultural and business assets.
• Reassess Pension Strategies: Evaluate options to minimize IHT impacts on pensions.
• Seek Expert Advice: With some of the changes already in place and others taking effect in the next 2 years, now is the time to consult tax and financial professionals to safeguard your wealth effectively.

These changes underscore the need for careful, personalized estate planning to navigate the evolving IHT landscape effectively, if you would like to speak to Nigel Shaw our IHT expert then please contact us today at info@langricks.com