04 Nov 2024

This past week has seen significant announcements by Rachel Reeves, the Chancellor of the Exchequer. What is clear is this gives cause for concern to many people planning for their retirement, and planning what will happen to their estates upon their deaths. It seems that more estates are at risk of having to pay Inheritance Tax as a result of these changes. Some significant changes are:

• The reduction of Agricultural Property Relief (APR) available. This will particularly affect farms and farmers;
• The reduction of Business Property Relief (BPR) on unlisted shares (such as the AIM stock market) meaning 50% relief (rather than 100%)
• The inclusion of unspent pension pots in the value of an estate (whereas they have been excluded until now).

Damian Lines TEP, Managing Partner and head of our Wills, Trusts and Probate team, commented:

“The changes announced amount to some of the biggest changes to Inheritance Tax (IHT) for many years. More people are now at risk of being dragged into paying IHT, and a number of prudent tax planning measures have now been reduced in their effectiveness. The Chancellor was at pains to make it clear that ‘working people’ would not suffer more tax, but the changes to IHT mean that more ‘working people’ are now in line to leave less to their families as a result. Care must be taken to review current arrangements and, where necessary, take steps to protect against these increases.

STEP, the Society of Trust and Estate Practitioners, of which Damian Lines TEP is a full member, has also responded to the budget:
“Emily Deane TEP, Technical Counsel and Head of Government Affairs at STEP, the global membership body for inheritance advisors responds to the Autumn 2024 Budget:

‘It is disappointing that the government has not seized the opportunity to increase the inheritance tax nil-rate-band. Subjecting pension pots to a 40% tax will also come as a shock to many and unfairly penalises pension savers.’

Pensions and inheritance tax (IHT)

The government has announced a shocking change that estates with lump sum pension payments will become subject to 40% tax. This could cause huge difficulty for families who rely on the payments after the death of a loved one to mitigate debts like mortgages, medical bills or funeral expenses. This is a substantial reform that unfairly penalises people who have spent years accumulating their pension pot and had planned for a particular level of income. We strongly recommend that individuals, families and their advisors re-visit their financial arrangements in light of the change.

No increase to the IHT nil rate band

It is disappointing that the government has not seized the opportunity to increase the nil-rate band, which has been frozen at £325,000 since 2009 and is completely unaligned with inflation. As property and assets prices increase, the threshold continues to stay the same and is looking to stay that way until at least 2030.

Agricultural and business property relief and IHT

We are concerned that the government has announced it will reform agricultural property relief and business property relief from 6 April 2026. Relief of up to 100% has always been available on qualifying business and agricultural assets in addition to existing nil-rate bands and exemptions. However, from 6 April 2025, the 100% rate of relief will only apply for the first £1 million of combined agricultural and business property and it will be 50% thereafter.

This will come as a huge shock to agricultural businesses that have limited cash flow and may result in financial strain on family businesses and farms being forced to sell. In reality, most farmhouses with barns and acres of land to farm on will be valued at £1 million plus and it is unrealistic to think that the average farmer will not be financially impacted by this reform. STEP is calling for the government to increase this ill-considered threshold if it is going to proceed with the changes.”

The changes being proposed mean that it is ever more important to take proper advice about Wills and estate planning. Leaving things to chance is a risk that could be costly.“

Call us today on 01633 867000 so we can help you make the right arrangements.