Autumn Budget 2024: Implications for Inheritance Tax and Estate Planning

In the recent Autumn Budget, Chancellor Rachel Reeves announced significant changes regarding Inheritance Tax (IHT), extending the freeze on the IHT thresholds to 2030. As a law firm specialising in estate planning, we are here to help you navigate these changes and their implications.

Extended Freeze on IHT Threshold: What It Means for Estates

The IHT threshold, commonly referred to as the Nil Rate Band, has been frozen at £325,000 since 2009. In the latest Budget, the Chancellor confirmed that this freeze will extend until 2030. There is an additional Residence Relief of £175,000 if an individual leaves their home to their lineal descendants. This relief is subject to certain conditions, which must be met to claim the relief. If the relief can be claimed, then an individual can potentially leave up to £500,000 free of IHT on their death. Married couples can combine their allowances and may be able to pass (subject to certain conditions) a total of £1 million free of Inheritance Tax on their joint deaths.

The implications of this extended freeze are significant. As property values continue to rise, more estates that would have previously been considered modest are now likely to fall into the IHT net. This could result in families facing unexpected tax bills as average net estate values increase, particularly in regions where property prices have surged.

With the average net estate value recorded at £334,173 in 2019/20, many estates are now surpassing the threshold, creating a higher likelihood of IHT liabilities. Families may find themselves unexpectedly burdened by tax obligations at a time when they should be focusing on preserving their financial legacy.

Pensions to be Included in IHT from 2027

Another significant announcement was that pensions will be subject to IHT starting April 2027. This change could have far-reaching consequences for those who have planned their retirements with the understanding that pensions would remain outside the IHT net. Clients will need to reassess their estate planning strategies to ensure they are prepared for this new tax landscape, considering how their pensions will factor into their overall estate value.

Exemptions for Business and Agricultural Assets

The Chancellor confirmed that there will be no IHT on the first £1 million of certain business and agricultural assets, which is a change to the previous exemption, which meant that many business and farm owners could leave certain assets free from IHT. Therefore, it's crucial for clients to review their estates to ensure they are aware of how any IHT that now will become payable under the new regime is affordable in their estates.

Implications for Estate Planning and Financial Security

The overall impact of these changes is expected to create a more complex landscape for estate planning. Families who rely on inheritance to maintain financial stability - whether to pay off mortgages, fund education, continue with businesses, or farming, or supplement retirement - may see their financial legacy diminished due to the increased tax burdens. Many individuals will need to rethink their retirement plans and how they manage income withdrawals in light of these changes.

Navigating these Changes

At Warner Goodman LLP, our dedicated private client team is well-equipped to assist clients in adapting their estate planning strategies in light of these new IHT regulations. Whether you are concerned about the implications of the IHT threshold freeze or the inclusion of pensions in the IHT net, our experienced solicitors can provide tailored advice to help you preserve your estate for future generations.

If you have questions about how these changes may affect your estate planning or if you would like to review your current arrangements, please do not hesitate to contact us on 01329 288121 or email enquiries@warnergoodman.co.uk. We are committed to helping you navigate these complexities and ensure your financial legacy remains secure.