Inheritance Tax standard allowances remain the same

The standard £325,000 per person allowance (nil rate band) is frozen at the current rate until the 2030 tax year, alongside up to £175,000 residence nil rate band. The residence nil rate band is available where a property is inherited by direct descendants. This residence relief is tapered where an estate value exceeds £2m which remains the same.

These allowances are able to be transferred between spouses meaning that married couples may still have up to £1m in standard allowances before inheritance tax becomes payable and subject to certain criteria.

The Treasury anticipate that by freezing the current rates, this will generate over £355 million in tax by the 2029/2030 tax year.

Agricultural and Business Relief

Historically, to prevent the risk that farms or businesses would need to be sold to meet inheritance tax bills, Agricultural Property Relief (APR) and Business Property Relief (BPR) have often provided 100% relief for inheritance tax on the value of qualifying businesses on death, subject to certain criteria being met.

From 6^th April 2026 farms and business that qualify for APR or BPR will only now benefit from the first £1m at 100% relief with half any excess value being subject to inheritance tax, giving an effective tax rate of 20% on the value of farms and businesses over £1m.

The allowance covers the following transfers:

• property in the estate at death
• lifetime transfers to individuals in the 7 years before death (“failed potentially exempt transfers”)
• chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust

Where the rate of relief for the agricultural property or business property is at 50%, for example quoted shares in a company giving the transferor control, the rate of relief will not be affected by the new allowance.

This will have a significant impact on farming businesses especially, where values often exceed £1m and where capital is tied up in land, machinery and stock and is not always readily accessible. Farms may need to dispose of land to meet liabilities which will have a direct impact on the next generation and future production yields.

As part of succession planning, farms and business assets are often held in trusts and the alteration to the reliefs will also have an impact on the ongoing taxation and viability of these structures, often put in place to secure the future succession of a farm. The government will publish a technical consultation in early 2025 on the detailed application of the policy to charges on property within trust.

The new rules will apply for lifetime transfers gifts on or after 30 October 2024 if the donor dies on or after 6 April 2026. For example, a lifetime gift of unquoted shares of £2 million made on or after 30 October 2024 will be a failed potentially exempt transfer if the donor dies within 7 years. 100% relief would apply to the first £1 million and 50% to the next £1 million under the new rules if the recipient owned the shares until the donor’s death.

The Treasury anticipate that this will generate over £230 million during its first year of operation (2026/2027) rising to over £520m by the 2029/2030 tax year alongside the impact of the AIM alterations below.

AIM Market Investments – Business Property Relief

Financial products that invest in AIM market attracted Business Property Relief after a 2-year period of ownership. From 6^th April 2026, these will be taxed at a 20% rate.

Pensions

Currently, any unused pension funds of a deceased pass outside of an estate for inheritance tax purposes. This has provided a significant benefit of pension saving and estate planning opportunity for families with pension funds often valued in £100,000s.

From 6^th April 2027, pensions will form part of the IHT calculation, and we understand that the pension provider will be responsible for reporting and paying any inheritance tax due. The matter is subject to further consultation and the details are yet to be finalised.

Including pension values in the inheritance tax structure will see more estates subject to inheritance tax.

The Treasury estimates that this will generate over £640 million  during its first year of operation (2027/2028) rising to over £1,460m by the 2029/2030 tax year being the single biggest driver of increased inheritance tax receipts forecast by the Treasury.

Capital Gains tax

Capital Gains Tax (CGT) will see the standard rates of tax increase from 30^th October 2024. Lower rate taxpayers will see their CGT rate rise form 10% to 18% and the standard rate will increase from 20% to 24% to bring this rate in line with the current property disposal rate of 24%

The annual exempt amount remains at £3,000.

Executors of estates will have to remain vigilant if disposing of residential property during estate administrations and consider appropriating property to beneficiaries to mitigate CGT on a sale.

The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate will also increase to 14% from 6 April 2025 and 18% from 6 April 2026.

Interest on late payments will increase

The rate charged by HMRC on late tax payments will increase to 4% above the Bank of England base rate.

Summary

As always, taking professional advice regarding your own personal circumstances is essential and our specialist estate planning solicitors, including members of STEP (Society of Trust and Estate Practitioners – a global professional body, comprising lawyers, accountants, trustees and other practitioners that help families plan for their futures) are available to assist you with inheritance tax and estate planning. Please contact your local Clark Willis Solicitors office, in Darlington or Northallerton (01325 281111 or 01609 765765) or email enquiries@clarkwillis.co.uk.

(Projections taken from HM Treasury Autumn Budget 2024 Policy Costings.)