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What do Inheritance Tax changes mean for my estate?

Inheritance Tax (IHT) can have a significant effect on estate planning, particularly for those with large estates or substantial assets.

The Autumn 2024 Budget brought with it a number of changes to IHT legislation which may impact your plans to pass on assets to your loved ones.

Pensions

For many people, your pension will form a significant part of your estate and may hold significant value by the time you finish paying into it.

Pensions can be passed on to loved ones as inheritance, including spouses, children or grandchildren, if it is unspent in your lifetime, whether due to:

Being supported by someone else, such as a working spouse
Having a larger pot than you need
Choosing to minimise spending to pass money to your beneficiaries
Early death.

However, for the first time, unspent pension pots will be brought into the scope of IHT from April 2027.

This will have a significant impact on your ability to pass down wealth to your loved ones tax-efficiently – making it more important than ever to plan proactively.

For example, you may consider utilising your lump sum drawdown (which is tax-free) to gift to loved ones, provided you live for another seven or more years after giving it.

Passing on the family farm

The Government is also scaling back key reliefs, limiting the full 100 per cent benefit of Agricultural and Business Property Relief to the first £1 million of combined assets, with relief dropping to 50 per cent beyond that.

While many family businesses will not be impacted by this, plenty will be as the value of agricultural land and property increases.

With this in mind, you should be looking at planning ahead to minimise the IHT due on your estate if you own a farm or agricultural business.

For example, you might consider selling certain assets before April 2025, when Business Asset Disposal Relief (BADR) on Capital Gains Tax (CGT) rises to 14 per cent.

To plan your estate and pass on as much as possible to your loved ones, contact our team to discuss your needs.

Rachel Blackburn

Head of Wills, Probate and Older Client Services

I joined Mander Hadley’s Wills, Probate and Older Client Services Team in 2018.I specialise in the preparation of Wills, Probate and estate administration, trusts and trust administration and Lasting Powers of Attorney. I also have experience of care fee planning and appeals of Continuing Health Care decisions.

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