Changes to Inheritance Tax revealed in the Autumn budget

The recent Autumn budget was anticipated with trepidation by all private client practitioners due to the rumours circulating regarding potential changes to Inheritance Tax (IHT). As practitioners have now had some time to review and understand the proposed changes, I will draw attention to some of the major changes to IHT, which may affect you.

The first point is not actually a change, but rather a hold at current levels for the nil-rate band and residence nil-rate band. The nil-rate band is currently £325,000 and will remain at this level until 5 April 2030. This is mirrored for the residence nil-rate band, which will remain at £175,000 and also continue to start tapering off at the £2million mark. Please see my previous blog for further information about the nil-rate bands.

One of the major changes is that unused pension funds and death benefits will, from 6 April 2027, be included within a deceased’s estate for IHT purposes. The current position is that if a pension scheme is set up as a discretionary scheme (the trustees of the pension scheme have discretion in deciding who will receive the benefit, but will usually follow the letter of wishes provided by the member), it will fall outside the scope of IHT. The new position is that when a pension member dies with unused funds, or without having accessed all of their pension entitlements, then those funds and any death benefits will be included as part of the deceased’s estate for IHT purposes if their overall estate is not within the available exemptions.

Another major change is that from 6 April 2026, the existing 100% rates of relief for Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1million. Previously, if assets qualified for 100% relief from APR, or BPR, then no matter their value, they would be excluded for the purposes of IHT. Now, any APR, or BPR assets above £1million will only have a 50% rate of relief giving an effective IHT rate of 20% on anything above that £1million threshold.

This new threshold for BPR also applies to any Alternative Investment Market (AIM) shares held by the deceased. At the moment AIM shares receive a 100% rate of relief as they generally qualify for BPR and they also become exempt after two years of qualifying ownership, which is much faster than making a gift and hoping you survive the seven year period, so have been seen as a useful IHT planning option. However, as stated above the new changes to BPR will also apply to any AIM shares held and only benefit from the £1million allowance.

As these are quite major changes to IHT, it may be worthwhile having a complete review of your current financial situation. If you believe that these changes may affect you, then please do contact us for tailored advice to meet your needs.