Key changes to inheritance tax legislation you should know

Inheritance tax freeze

In the Autumn Budget, the Chancellor announced a continued freeze of the nil rate band at £325,000 and the residence nil rate band at £175,000 until the end of the 2029-2030 tax year.

Inherited pensions

Starting in April 2027, inherited pensions will be included in the IHT calculation, which previously did not count them.

Business Property Relief (BPR)

From April 2026, changes to BPR mean that tax will apply to inherited business assets valued over one million pounds.

These significant changes, or lack thereof in the nil rate band freeze, will greatly impact estate planning and should be considered in end-of-life arrangements.

Impact on pensions and estates

The frozen nil rate band, combined with rising property values, means more estates will fall under the IHT threshold.

The new inclusion of pensions in IHT calculations will further increase tax liability for many estates.

Previously, pension funds could be passed on tax-free after death. Post-April 2027, if the deceased was under 75, recipients will pay income tax on any lump sum received.

Personal financial impact

A Quilter analysis shows that a single homeowner in England with an average-priced home (£308,782) and moderate retirement savings (£459,000) will face a £107,000 IHT bill from 2027.

Those with significant pension savings, expecting them to be exempt from IHT, will now face changes. Individuals dying early in retirement will also have less to leave to beneficiaries.

For detailed tax legislation guidance and optimising your savings, contact our advisors.

Business assets and IHT

Currently, BPR provides 100% IHT relief on qualifying business assets without a cap. New government rulings will cap this relief.

Estates will receive 100% IHT relief on the first £1 million of business assets, but amounts exceeding this will be taxed at 20%, payable over ten years interest-free.

Full exemptions for transfers between spouses and civil partners will remain. Additional nil rate bands include a £175,000 allowance per person for residences and a £325,000 general tax-free allowance for various assets.

Combining these allowances means individuals can potentially pass on £1.5 million tax-free, while couples can pass on £3 million. Property transferred at least seven years before death remains tax-free, necessitating advanced planning, especially for farmers.

Maximising pension for IHT

To mitigate IHT bills:

Proactively managing your estate ensures maximum benefit to your beneficiaries. Our private client team can guide you through transferring wealth effectively.

It’s vital to take extra steps to protect bequeathed assets and pass on intergenerational wealth. Reach out to our team for expert advice.

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