Significant changes announced to Inheritance Tax and its reliefs

Inheritance Tax (IHT):

The IHT nil rate band has been fixed at £325,000 since 6 April 2009. The Chancellor extended the freeze on this figure for two further years until the end of 2029/30. Holding the threshold at the same amount for 21 years from 2009 to 2030 will bring far more people into the scope of IHT.

The £175,000 ‘residential nil rate band’ is still available and can be used where property is left to direct descendants.

A married couple may be able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent), but the rules are complicated, and the prospect of the nil rate band being fixed for another 5 years increases the importance of proper IHT planning.

Action point: speak to the Wealth Preservation team at Greenwoods to discuss your IHT planning and to review your current Will. The changes to IHT announced in the Budget will increase many clients’ exposure to IHT and reduce the value of their estate. Timely and professional advice is key.

IHT Reliefs:

It was widely anticipated the Chancellor would reform some of the generous reliefs that can be used to protect the value of an estate from IHT. She announced two significant changes.

Agricultural Property Relief (APR) and Business Property Relief (BPR) can, at present, provide a 100% deduction from the value of qualifying assets. From 6 April 2026, this will only apply to the first £1 million combined value of agricultural and business property in an estate. Above that value, the relief will be restricted to 50%. The £1 million allowance will not be transferable between spouses.

In a positive move, the rules relating to APR will be applied to land managed under an environmental agreement from 6 April 2025.

Shares not listed on the markets of a recognised stock exchange, such as AIM, have been eligible for 100% relief once they have been owned for two years (provided the company is a qualifying trading business). This relief will be restricted to 50% for any such shares, regardless of total value, from 6 April 2026.

Transitional provisions are already in place which restrict lifetime gifting of APR and BPR assets.

Action point: If you hold agricultural or business assets either outright or in trust, speak to the Wealth Preservation team at Greenwoods. Your Wills may need to be updated and any assets held in trust will need to be reviewed, especially before the next 10-year charge.

If you are considering gifting APR and/or BPR assets, ensure you seek advice well in advance of making such gifts.

Pension savings:

It was also widely predicted that the Chancellor would end the ability to leave a pension fund free of IHT on death. She has announced that this change will take effect from 6 April 2027.  The distinction between discretionary and non-discretionary schemes will be removed and unused pension funds and death benefits payable from a pension into a person’s estate will become chargeable, restoring the position before the 2015 pension reforms. The finer details are currently under consultation, with draft legislation expected next year.

Action point: speak to your financial adviser (or if you do not have a financial adviser, we are happy to make an introduction) to review your current pension and linked death benefits to understand and discuss your options.

Please contact the Wealth Preservation team to discuss how the changes announced in the Budget may impact you and what we can do to assist.