On Wednesday 30 October 2024, the first Labour Budget in 14 years was delivered after weeks of intense rumours and speculation surrounding its contents. Tax rises worth approximately £40 billion were announced and, amongst those, the Inheritance Tax (IHT) rules were affected. This article focuses on the announcements regarding the Nil Rate Band (NRB) thresholds, Alternative Investment Market (AIM) shares and unused pension funds.
Please see our article on the announcements regarding the changes to Agricultural Property Relief and Business Property Relief and the implications for Landed Estates.
It was announced that the current NRB of £325,000 and Residence Nil Rate Band of £175,000 will remain frozen for a further two years until 5 April 2030.
AIM shares relate to a more specialised unit of the stock market which consists of smaller, more speculative companies.
AIM shares currently benefit from 100% Business Property Relief (BPR), exempting their full value from IHT, if held for at least two years. There had been much speculation that this relief would be abolished, but it was announced that AIM shares will benefit from BPR at a reduced rate of 50%, meaning that IHT will be payable at an effective rate of 20% (rather than 40%), as from 6 April 2026.
Pension funds are currently not within the scope of IHT. However, from 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes, and pension scheme administrators will become liable for reporting and paying any IHT due on pensions to HMRC.
The government’s rationale for making pension funds and death benefits subject to IHT is that pensions should be used for their intended purpose of funding retirement, rather than as a tax planning tool to transfer wealth free of IHT.
The government has launched a formal consultation on the processes required to implement the changes for UK-registered pension schemes.
As many pension holders have put planning in place around the current rules, we would strongly recommend that a review of your estate planning is undertaken as soon as practicably possible and once we have more details regarding the changes to the rules.
It is worth noting that despite the speculation, no changes were announced to the seven year rule for lifetime gifts made to individuals.
There is still plenty to digest as we work through all the changes and the technicalities of the new legislation. We will continue to provide updates on Budget related tax changes over the course of the month. Please contact a member of our Tax, Trusts and Succession team for more information and formal advice.
