The 2024 Autumn Statement brought a host of key changes to the UK’s tax, borrowing and spending commitments. The headline measures included an increase in Employer National Insurance (NI) by 1.2%, from 13.8% to 15%, and an increase in capital gains tax (CGT).
However, how about inheritance tax (IHT)? Whilst the Autumn Statement made no change to the 40% headline rate, there were some important announcements which will have important knock-on effects for IHT planning – e.g. pensions and reliefs for business owners.
Below, our Teesside financial planners explain how the Chancellor’s changes could bear upon your estate plan in 2025. We hope these insights are useful. To discuss your financial plan, please contact us to arrange a free, no-commitment consultation with a member of our team.
IHT & Pensions
For many years, pension pots (defined contribution pensions) have mostly been exempt from IHT upon the owner’s death.
Beneficiaries could inherit unused funds without tax – only with a possible income tax obligation if the original owner died after age 75. Naturally, this made pensions a valuable tool for both retirement planning and estate planning.
However, the Autumn Statement has changed this. It was announced that from April 2027, unused pension funds will be counted as part of the individual’s estate for IHT purposes.
This will, sadly, require many clients to redefine their estate plans. If the policy is introduced as announced, funds that were previously earmarked for loved ones or good causes may now be headed for the tax man.
Some in the media have advanced the idea of moving abroad to “escape” IHT on pensions. However, this will only be an option for a few people.
Moreover, there could still be tax implications for relocating – e.g. a 25% Overseas Transfer Charge (OTC) if you move your pension to another scheme abroad.
Details about how IHT will precisely apply to pensions in practice are still forthcoming. The government is completing a consultation on 22 January 2025, which should reveal more. With the policy remaining at a consultation stage, there is the potential that amendments will be made.
In the meantime, please seek financial advice to discuss how this change may affect you. Avoid making drastic changes to your financial plan without expert guidance.
Agricultural Property Relief & Business Property Relief
The UK tax system has long tried to recognise the unique positions of farmers and business owners when handing down their assets to the next generation.
For instance, most UK farms are family-owned. To account for this and help ensure a smooth inter-generational handover, the IHT system used to provide Agricultural Property Relief (APR) at 100% or 50% to an unlimited amount.
The Autumn Statement has announced an upcoming change to this system. As of April 2026, 100% IHT relief will only be available to agricultural assets up to a £1m cap.
Above that threshold, a 50% relief will apply. In effect, this will levy a 20% IHT rate on these assets. These rules will also apply to trusts holding assets which qualify for APR.
A similar move is happening for Business Property Relief (BPR). In previous years, the IHTA 1984 legislation allowed certain assets – e.g. unlisted shares – to be passed down by business owners with 100% or 50% IHT relief upon death.
Like the APR changes, however, full BPR will only be available for business assets up to a £1m threshold. After that, the 20% effective rate of IHT will apply. This remains a 50% reduction from the normal 40% IHT rate.
Navigating the IHT Changes
The IHT changes from the Autumn Statement are still being digested, and future changes (e.g. possibly arising from the pension consultation finishing on 22 January 2025) could shift various calculations.
However, many individuals will need to seek professional advice to ensure their compliance with new rules and optimisation. Trustees, for instance, would do well to check how they may be affected by the trust IHT 10-year charge. There may also be ramifications for IHT charges in respect of trust capital distributions.
Individuals may wish to explore a wider range of IHT planning options with a financial adviser due to the tightening rules about pensions.
For instance, gifts – e.g. Potentially Exempt Transfers (PETs) – may play a greater role in many clients’ estate plans. However, these options can carry their own risks and limitations (e.g. the giver dying within 7 years of making the gift, which results in a “failed PET”).
Chargeable Lifetime Transfers (CLTs) may become a more attractive option for many clients seeking to mitigate IHT. In certain cases, assets given to a trust are exempted from the giver’s estate upon death. However, this requires the giver to survive the gift date by 7 years.
Seek financial advice for more clarity about these options and other ideas about how to deal with IHT. Avoid making big decisions about your estate plan, pensions or wider finances without seeking professional advice.
We hope this content gave you more clarity. To discuss your own financial plan, please get in touch to arrange a free, no-commitment consultation with an adviser here in Cumbria.
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.