Insight
Pareto Matters – Autumn Budget Inheritance Tax Changes
- Written by Martin Collins
- Published on: 02/12/2024
Significant reforms to inheritance tax (IHT) were revealed in the Autumn Budget, marking the most substantial changes in over 18 years. The last major update on 22 March 2006, focused on IHT rules for trusts. The most recent measures, however, have a broader impact.
Pension Funds
Starting 6 April 2027, most unused pension funds and death benefits will be subject to Inheritance Tax (IHT). Currently, pensions can typically be passed on free of IHT, though an income tax charge may apply depending on whether a lump sum is paid and the deceased’s age.
A 12-week consultation on this change is scheduled from 30 October 2024 to 22 January 2025.
Given that many pension holders have structured their estate plans around the existing rules—often using trusts and expressions of wishes—it is highly advisable to review these arrangements in light of the proposed changes.
Business Property Relief (BPR) and Agricultural Property Relief (APR)
From 6 April 2026, reforms will cap the value of combined assets eligible for 100% relief under BPR and APR at £1,000,000. Beyond this threshold, only 50% relief will apply, resulting in an effective IHT rate of 20%.
- Trusts holding assets qualifying for BPR and/or APR will also be subject to this cap.
- Trusts established pre-budget will still receive 100% relief on assets up to £1,000,000.
- For trusts set up on or after 30 October 2024, a shared allowance rule will apply, requiring individuals to divide the £1,000,000 cap among all trusts they establish.
These changes are expected to encourage more families to engage in lifetime succession planning, particularly since the capital gains tax (CGT) uplift on death often discouraged taking such steps.
Alternative Investment Market (AIM) Shares
As of 6 April 2026, AIM shares, which currently qualify for 100% BPR (exempting them from IHT after two years of ownership), will see their relief reduced to 50%, translating to an effective IHT rate of 20%.
These changes represent a substantial shift in the landscape of estate planning. Early review and strategic adjustments should be considered to help navigate the evolving tax environment effectively.
In Case of Emergency
To help assist with planning of your estate, please see our In Case of Emergency document that can help the executors get your affairs in order at a time when most required.
To discuss any issues raised in this article, please contact your Pareto Financial Planning adviser or call the office on 0161 819 1311.
