Preparing for Inheritance Tax Changes

Budget 2024 Tax Reforms: Essential Steps to Prepare for Inheritance Tax Changes

Since the new budget announcements many of us are concerned as to how the changes may apply to our estates and when they will come into force. In particular, the updates to Inheritance tax are the most noteworthy in over a decade. Although many of the proposed changes are still being debated and fine-tuned, here is a guide to some of the new government’s plans.

Pensions

From April 2027 most pensions will be included in Inheritance Tax calculations. A consultation is currently being run for 12 weeks between 30 October 2024 and 22 January 2025.

Any part of pension going to spouse or civil partner will still qualify for spouse exemption.

Agricultural Relief & Business Relief

This is by the far the most radical changes for agricultural and business families. From April 2026, 100% rate of relief will only continue for the first £1 million of combined agricultural and business assets and then the rate of 50% rate of relief will apply to combined agricultural and business assets above £1 million.

The tax will be payable in instalments over 10 years, interest free.

Full exemptions for transfers between spouses and civil partners will continue to apply, however the £1 million allowance on agricultural and business assets is not inheritable and so this is another area where Wills should be reviewed to “capture” each person’s allowance.

The changes are still being debated and, due to the high opposition the government is facing from the public, it remains to be seen whether they will be pushed through as planned. The government does however have a strong mandate to implement change. 

In the meantime, we would recommend consulting a regulated independent financial adviser to discuss the purchase of life cover or an insurance policy to help with the payment of Inheritance Tax and making sure your Will is flexible enough to deal with the upcoming changes.

AIM Shares

From April 2026 Alternative Investment Market (AIM) shares will be taxed at 20%. Unlike completely unlisted shares in trading companies, AIM shares will not benefit from the newly introduced £1 million Business Relief /Agricultural Relief tax free allowance at all.

Therefore if you have invested in AIM shares to benefit from the tax relief, now may be a good time to speak to your advisor to discuss your ongoing investment strategy.

Next steps

Watch this space for updates but steps worth considering are:

• There is now greater incentive for cohabitees to formalise their relationship through marriage or civil partnership (and also considering a pre-nuptial agreement);
• Contacting a regulated independent financial advisor to discuss the consolidation of pension funds and making the most of any tax-free cash available before the changes;
• Updating any existing Will to account for the change in regime;
• Lifetime gifts with the benefit of tax advice and considering affordability.

This is only a summary of some of the Inheritance Tax changes that the government intends to bring in. Please consult a regulated independent financial adviser or specialist tax adviser for advice tailored to your circumstances. We would recommend this is done in conjunction with estate planning advice from your solicitor.

To make an appointment please contact Carole Haestier or one of her colleagues in the Wills and Estate Planning department.