Autumn Budget 2024 – Inheritance Tax

It was announced that the Inheritance Tax nil rate band will remain frozen at £325,000 until 5 April 2030. The residence nil rate band will also remain at £175,000 as well as the threshold of £2 million at which it starts to be lost.

Frozen allowances mean a greater proportion of estates will be subject to IHT over time as asset values increase. If the nil rate band had increased by inflation since 2011 when it was last increased, it would currently be over £480,000. An effective stealth tax for some of £62,000.

Under current rules, assets that qualify for 100% business property relief (BPR) or agricultural property relief (APR) have an unlimited amount of benefit. The original intention of these reliefs was to avoid the breakup of a family business on the death of an owner if their beneficiaries had to sell assets to pay the IHT due. It is a valuable relief and the IHT saving on large estates can run into £millions at present.

In the budget, it was announced from 6 April 2026, there will be a new £1 million allowance introduced. This will be a combined benefit between agricultural and business property with any excess above this limit qualifying for relief at the lower level of 50%, a tax rate of 20%.

For example, if an individual owns £1 million of assets that currently qualify for 100% APR and £1 million of assets that qualify for 100% BPR, on death after 5 April 2026 those assets will be combined so £1 million would get 100% relief from tax and the remaining £1 million would only get 50% relief. The result is an increase in IHT from zero to £200,000.

This reduction in the allowance could have significant and wide-ranging implications on some estates and will require some careful planning to try and mitigate the impact. The new allowance is still at an early stage with a technical consultation due to be published in early 2025 to provides additional details and draft legislation. Once we have this, we will be in a better position to consider what planning will be possible.

As the changes will only affect deaths occurring after 5 April 2026, there is still time to plan and make transfers of assets. This is a complicated area and we would urge you to take professional advice before taking any action. Anti-forestalling was included alongside the budget so if you transfer agricultural or business property on or after budget day and die on or after 6 April 2026 and within 7 years of transfer, the new £1 million allowance will still apply.

It is also important to consider the Capital Gains Tax (CGT) consequences of transfers. The transfer of assets is typically a disposal for CGT purposes so transferring will cause any gain on the assets to become chargeable and consequently there could be a significant CGT liability to consider.

Widely predicted before the budget was a change to the 100% business property relief available for quoted shares designated as ‘not listed’ on recognised stock exchanges. This will apply in particular to shares on the Alternative Investment Market (AIM).

On transfers or death after 5 April 2026, relief will be given at the 50% rate with no £1 million allowance as for other BPR, APR qualifying assets. Anyone who holds AIM shares should review their individual situation as this will mean a 20% tax charge on death from 2026.

The new APR / BPR limit of £1 million has been widely criticised as being too low.

While there is still 50% relief above the £1 million limit, it could still have a destabilising impact on businesses above this level. We will certainly see business groups lobbying the Government to raise the limit before legislation is finalised.

At Old Mill our advisers can help you work through how to maximise reliefs and adapt your long-term plans as a result of the changes announced.

If you have any questions, or want to discuss your individual circumstances with an Old Mill financial expert, please do get in touch by clicking here…