IHT nil rate band

Currently, IHT is payable on gifts made by a person up to seven years before their death. IHT is charged where the value exceeds their available nil rate band (£325,000) at the date of the gift.  The amount of the nil rate band has been £325,000 since 6 April 2009, but has been supplemented by the residence nil rate band since 6 April 2017. 

At the Autumn Budget, the government announced that the following will be fixed until 5 April 2030:

• the nil-rate band at £325,000;
• the residence nil-rate band at £175,000; and
• the residence nil-rate band taper, starting at £2m.

Changes to APR and BPR

APR currently allows a person to pass on the agricultural value of some property in the UK free of IHT. This includes land or pasture used to grow crops or rear animals and farm buildings where all of the conditions are met. 

Assets that may qualify for BPR include: a business or an interest in a business; land, buildings or machinery used in a business; and shares in an unlisted company. Where BPR is available, the value of an asset can be reduced by 50% or 100% when working out the IHT due. 

However, at the Budget, it was announced that the government will reform APR and BPR from 6 April 2026. The 100% rate of relief will continue for the first £1m of combined agricultural and business property, falling to 50% thereafter. The rate of BPR will also fall to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.

Assets that currently only qualify for 50% BPR will not use up the £1m allowance.

The £1m allowance will also apply to trusts. In addition, the new rules will apply to lifetime transfers on or after 30 October 2024 where the donor dies on or after 6 April 2026. 

Responding to the Budget announcement about changes to inheritance tax reliefs, Frank Haskew, Head of Taxation Strategy, said: “Ahead of the Budget, ICAEW had called on the government to ensure that capital taxes support long-term business investment. We said that while any alteration of the IHT regime is a political decision for the government, it should be mindful of ensuring that changes do not adversely impact investment in, or the development of, SMEs. IHT also affects succession of family businesses, an important segment of the UK economy and of communities across the country.  

“These changes will affect a number of family businesses with valuable property. Furthermore, the decision to restrict the rate of BPR on AIM shares is likely to have an impact on the AIM market and restrict the availability of finance for smaller, growth-oriented companies.”

Exemption for pensions

The government further announced that, with effect from April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. This removes an exemption that could have saved IHT of up to 40% of the value of the pension fund.  

HMRC has also launched a technical consultation on the processes required to implement these changes for UK-registered pension schemes.

Non-domiciled individuals

ICAEW has set out the changes affecting non-UK domiciled individuals in a separate article: Budget updates on manifesto commitments. 

Digitalisation

The government announced investment of £52m to digitalise the inheritance tax service from 2027/28. This will be welcomed by many as there is no existing digital service.

ICAEW’s Budget webinar

To learn more about the measures discussed above, and other changes announced at the Budget, join members of the Tax Faculty at the Budget webinar on Friday, 1 November 2024. Attending the webinar could contribute up to 1.5 hours of verifiable Continuing Professional Development (CPD), providing you can demonstrate that the content is relevant to your role.

Further information

• Inheritance tax nil-rate band and residence nil-rate bands from 6 April 2028
• Agricultural property relief and business property relief reforms
• Inheritance tax on pensions: liability, reporting and payment