Following the budget in October 2024, a number of changes were made, which will affect many people in relation to Inheritance Tax.
The Government have frozen the Inheritance Tax Nil Rate Band at £325,000 and the Residence nil Rate Band at £175,000, meaning that as the value of assets increase many more families will face an unexpected inheritance tax liability.
A big change which may affect many estates is that from April 2027 unused pension pots and death benefits will now form part of a person’s IHT estate. This is likely to push many estates over the thresholds for paying inheritance tax.
Additionally, farmers and small businesses will also be hit by the changes.
Agricultural Property Relief, provides up to 100% tax relief for agricultural property which qualifies. Currently this means that for most working farms, the farm can be passed on to the next generation without paying IHT on its value. From April 2026 the value of the assets will be capped at £1m for 100% relief.
Small and Medium sized Business owners will also see a change to the Business Property Relief. Again, currently business property which qualifies will receive up to 100% relief on the whole value. Similarly, this will now be capped at £1m and in a further blow, a combination of agricultural and property assets will have a total cap of £1m.
Once the cap is reached, relief is then reduced to 50%, meaning that IHT on the remaining agricultural or business assets will be taxed at an effective rate of 20%.
Finally, those with investments in AIM (Alternative Investment Market) and unlisted shares, previously attracted Business Property Relief on those shares at 100% after they had been held for 2 years. As from April 2026, the relief will be restricted to 50% on the total portfolio. As most people invest in these types of investments to reduce their potential IHT bill, this will come as a disappointment to many, increasing the overall IHT on estates where these investments would otherwise have attracted full tax relief.
It is advised to review your Wills and estate as it is not too late to consider how to protect your hard earned assets. Speak to your IFA, accountant and to Dawson Hart to ensure you have considered how these changes will affect your estate and if there is anything you can do to plan ahead. For more information, please contact Jo Claxton by telephone on 01825747118, or email her at jsc@dawson-hart.co.uk.