Autumn Budget 2024 Commentary

What the 2024 Budget means for Estate Planning:

After much speculation and rumour (and some leaking) The 2024 budget by the UK’s first female Chancellor, Rachel Reeves, put things into place which have implications for Estate Planning for both individuals and business owners/operators. What do you need to review? 

The major ones which may affect Estate and Will Planning are as follows:

Inheritance Tax (IHT)

There was much speculation of changes however, there are 4 major points in respect of IHT. These are:

Freezing the nil-rate band (NRB) of £325,000 until April 2030:

• Impact: the effect of this ‘Fiscal Drag’ means that as the band remains constant more and more estates will be liable for Inheritance Tax as their asset and capital values increase in the coming years.
• This makes the case for considering how to control/reduce the level of a person’s estate which might be exposed to Inheritance Tax.

Bringing Unused Pensions into the IHT net from April 2027:

• Impact: Currently, many Pension arrangements are used for IHT planning because on death (before age 75) most pension can be passed to beneficiaries without IHT liability. However, major changes are afoot. For deaths that occur after April 2027, the value of any pension funds that are undrawn/unused will be counted as part of the deceased’s estate of for IHT purposes. The tax liability will fall on both the Executors (or Personal Representatives) of the deceased’s estate and the Pension scheme administrators.  This will affect many people, particularly where the value of property, savings and Pensions combined is more than the available nil-rate bands. It places additional obligations of Executors/Personal Representatives to be able to find out all about the deceased’s pensions, and to communicate with Pension Administrators.  Much of the mechanics of this in principle has been decided, although some is the subject of ‘consultation’ before it full comes into being.
• This makes the case for considering how to control/reduce the level of a person’s estate which will be exposed to Inheritance Tax, and whom they would like to benefit from their unused pension funds. This is especially relevant in 2 situations:
• Persons who are not married or in a civil partnership and are co-habiting, as they are unable to use the ‘spousal exemption’ where pension funds can go, on death after April 2027, to a spouse/civil partner without an immediate Inheritance Tax liability.
• Persons who are single with net estates ( e.g. all their assets, savings etc plus their pension funds minus debts and liabilities) over the nil-rate band of £325,000 or £500,000 where they have an eligible property to pass on to lineal descendants using the ‘Main Residence Nil-Rate Band’

Reforming the Agricultural and Business Property reliefs, allowing 100% relief on the first £1 million,  with 50% available on amounts above the £1m. This starts in April 2026:

• Impact: Currently Agricultural Relief (APR) can be granted (without limit) at 100% on land used for Agricultural purposes. Business Relief (BPR) can be granted on the value of business assets and interests (without limit) at 100% or 50% depending what the interest is and whether or not it is an actual business asset or a personal asset used by the person’s business.  The effect of these reliefs is to provide continuity of businesses trading (and their tax-generating) position when a person dies. Changing this to a maximum of £1m will have an effect on how businesses continue trading and their ownership changes when a person dies, not to mention the continuity of funds flowing to the Treasury.

Reducing Inheritance Tax relief on AIM shares from 100% down to an effective rate of 20% from April  2026:

• Impact: Currently holdings in AIM shares held for more than 2 years before death qualify for 100% Business Relief. Reducing the rates to below 100% will affect the level of AIM shared held and how they are used for IHT planning. 

What can you do?

The IPW recommend you arrange for a consultation with an IPW member to provide you with the opportunity to consider your options and actions.

As these changes take effect, it’s essential to seek professional support and advice regarding Estate Planning. Reviewing ones Estate, values, composition and options available for effective planning becomes ever-more vital. The provision of Wills, Lasting Powers of Attorney and understanding the implications could be critical.