Research carried out by the independent thinktank, the Tax Policy Associates, confirms something many have long suspected: Inheritance Tax (IHT) is the most disliked tax of all. So it’s little surprise that IHT featured heavily in media speculation about what might be announced in October’s Autumn Budget.
This included reports that the Chancellor, Rachel Reeves, could scrap the residence nil-rate band (RNRB), which provides a £175,000 IHT-free allowance to property owners who leave their home to their children.
Another suspicion was that Reeves would extend the number of years you need to live for after making a Potentially Exempt Transfer (PET). A PET allows you to gift any amount of money to as many people as you want in order to mitigate your IHT liability.
Currently, if you live for seven years after making the gift, it will not be counted as being part of your estate when calculating your IHT liability. While there were fears that this would be extended to 10 years, it didn’t materialise on the day.
On the day though, neither of these announcements came to pass, although the Chancellor did reveal changes that could increase your wealth’s exposure to IHT in the future. Because the tax is usually charged at 40%, a greater exposure to IHT could substantially reduce the amount of wealth you can leave to loved ones.
Read on to discover three announcements that were made by the Chancellor that could increase, or create for the first time, an IHT liability, and how our latest webinar could help you reduce it.
1 - Unused pension pots will become liable to IHT
One of the most unexpected, and significant, announcements made by Reeves was her decision to include unused pension pots in a deceased’s estate after April 2027. When you consider that pensions can often be one of the most valuable assets a household owns, exposing them to the tax could result in a much greater IHT tax charge.
Furthermore, it could mean millions of estates face an IHT tax charge for the very first time. In 2024/25, pensions are usually treated as being outside of your estate for IHT purposes, which means you should be able to pass them to your beneficiaries without a liability to the tax.
According to the Treasury, bringing unspent pots into the scope of inheritance tax from April 2027 will affect around 8% of estates each year. That said, the actual figure may turn out to be higher.
2 - IHT will be charged on AIM shares
In 2024/25, shares in a company that’s quoted on the Alternative Investment Market (AIM) can normally be passed to beneficiaries IHT-free as long as certain stipulations are met and you have owned them for at least two years.
This is because they may benefit from Business Relief (BR), which allows a 100% discount on these assets when calculating IHT. During the budget the Chancellor announced that as from April 2026, this type of company share will only qualify for a 50% discount, providing an effective IHT tax rate of 20%.
3 - The nil-rate band and residence nil-rate band freeze has been extended
The nil-rate band (NRB) is the amount you’re allowed to have in your estate on death before it becomes liable to IHT. In 2024/25, the allowance stands at £325,000 for individuals or £650,000 for those who are married or in a civil partnership.
If you pass your home to a direct descendent, which includes stepchildren, adopted and foster children, you may be eligible to the residence nil-rate band (RNRB) of £175,000. This could boost your total allowance to £500,000 if you’re single or £1 million if you’re married or in a civil partnership.
While the NRB threshold had already been frozen from 2009 to April 2028 by the previous Government, the Chancellor announced that she would be extending the freeze until 2030. This means the threshold will remain static for longer while the value of your assets may continue to increase in value. As a result, your estate may face a higher IHT tax charge.
Discover your options at our latest webinar
If you believe your estate could now be liable to IHT for the first time, or face a greater tax charge, there is some good news. On Thursday 5 December, we will be holding the next of our popular Wealth Webinar series, in which we will be demystifying the Chancellor’s announcements and what they might mean for you.
The webinar, which takes place at 6pm, will see former BBC presenter Mark Foster, AFH’s trusts and estates expert, Malcolm Noblett, and Chief Advice Officer Austin Broad unlock ways you might be able to mitigate, or even negate, an exposure to IHT.
To register for the easy to understand and informative ‘Autumn Budget tax hikes – safeguarding your wealth using trusts and financial advice’ webinar, just complete the form at the top of this page.
Get in touch
If you would like to discuss how the announcements made in the Autumn Budget might affect your finances, please arrange a no-obligation meeting with one of our advisers, or call us on 0333 010 0008, as we’d be happy to help.