The October budget made no changes to nil-rate and residence nil-rate inheritance tax bands, which are now frozen at current levels until 5 April 2030.

However, certain other changes were made to IHT in the budget that may affect our clients, and we set them out below.

Pensions

Currently, no IHT is payable on an unused pension pot left by someone who dies before the age of 75, although income tax is paid by the beneficiary at their marginal rate.  From 6 April 2027, pension pots and death benefits inherited by those other than spouses or civil partners will become subject to IHT.

Agricultural and business property relief

Agriculture property relief (APR) currently allows 100% relief from IHT when farmland and assets are passed down to the next generation. Business property relief (BPR) is currently available at 50% – 100% when a business is passed down.  From April 2026, it is proposed that APR and BPR will only be available on a combined allowance of 100% of the first £1 million.  After that the allowance rate will halve to 50%, so IHT will be due at 20% on any value over £1 million. Any of the £1 million allowance that is unused after death cannot be transferred to a surviving spouse or civil partner. However, nil-rate and residence nil-rate bands for inheritance tax will be retained on top of the £1m APR and BPR allowances where applicable.

The change will affect some trusts where asset transfers benefit from APR and BPR.  If someone has set up multiple trusts before 31 October 2024, each trust benefits from its own £1 million relief.  However, if such trusts are set up after that date, they will share the relief.

Gifts

There are changes to IHT payable on gifts.  In general, the seven-year rule has not changed – that is, IHT is not payable on gifts made at least seven years before death, subject to certain conditions. However, from 30 October 2024, gifts made into trusts or outright gifts will fall under the new £1 million cap for APR and BPR reliefs.

AIM shares & overseas transfers

From April 2026, the relief rate for qualifying shares in the alternative investment market (AIM) will be cut to 50%, giving an effective IHT rate of 20%.  This relief does not benefit from the £1 million tax free allowance.

The overseas transfer charge exclusion for transfers to qualifying recognised overseas pension schemes in the European Economic Area (EEA) or Gibraltar has been removed with immediate effect.

Non-domicile status

Non-domicile status will be abolished from 6th April 2025 and replaced with a residence-based regime, which will also end the use of offshore trusts to shelter assets from IHT.  Individuals who opt-in will not pay UK tax on foreign income and gains for the first four years of tax residence.

These changes may be concerning and confusing, but they do not mean that you cannot make plans to secure the future for your family.  Contact our private client experts now.  We will be happy to discuss your individual needs and provide guidance and advice.

Author: Laura Cowan, head of Graysons’ private client team.