After much speculation, and following the Autumn Budget announced today, we can now confirm the changes that the Labour Government will be making to the rules around Inheritance Tax.
At present, the rules around Inheritance Tax are as follows:
Inheritance Tax: Inheritance Tax is currently levied at a rate of 40% on the value of estates above the £325,000 threshold unless any reliefs or exemptions apply.
Transfers between spouses and civil partners do not attract a charge to Inheritance Tax and any Inheritance Tax threshold unused on the death of a first spouse can be transferred for use by a surviving spouse or civil partner. An additional allowance is available in certain circumstances to home-owners passing their home to their descendants on death.
Although it generates approximately £7 billion annually for the government, only around 4% of estates face this tax due to a series of reliefs and exemptions. These include:
Business Property Relief for Inheritance Tax: At present this provides relief from Inheritance Tax on certain business assets, such as land or buildings used for business purposes or on certain unlisted shares. At the moment, this can provide either 50% or 100% relief on relevant assets, which can then be passed on while the owner is still alive or as part of the will. This meant that businesses could pass on death without a charge to Inheritance Tax
Agricultural Property Relief: Applies to farmland and pasture used for growing crops or rearing animals, exempting them from tax. This relief was available for those who owned and farmed land as well as for those who owned land which was farmed by others.
Today’s budget announcement outlined key changes as follows:
Inheritance Tax: Todays briefing did not outline any changes and the current inheritance tax thresholds will remain the same (as outlined above)
Business Property Relief and Agricultural Property Relief: Full Business Relief and Agricultural Relief from Inheritance Tax will be capped at £1,000,000 from April 2026. For businesses and farms worth more than £1,000,000, Inheritance Tax will be charged at half the standard rate so that an effective rate of 20% Inheritance Tax will apply.
Alternative Investment Market: Investments in the Alternative Investment Market, and similar investments, will be subject to 50% relief from Inheritance Tax. This is a reduction from the full relief from Inheritance Tax currently available.
Pensions: Inherited pensions will also be brought into account for Inheritance Tax purposes from April 2027.
Non-dom tax regime: Rules relating to domicile for Inheritance Tax and other taxes will be brought in line with residency rules and will come into effect from April 2025
The Expertise of Tozers’ Wealth Management Team
Our Wealth Management team is recognised as a leading provider of expert advice on Inheritance Tax planning. The team is ranked by Legal 500 for its experience across the full spectrum of succession planning and tax mitigation matters, assisting a broad range of clients including individuals, business owners, and farmers.
Our team, led by Gráinne Staunton, has been praised for their expertise, with clients noting that we “take the time to get to know and understand you and to ensure that you understand your options” and that we “carefully guide clients through difficult decisions.” Gráinne Staunton, in particular, has been commended for her “exceptional communication skills, integrity, and expertise.”
Our tailored approach means we recognise that every client’s situation is unique. Whether it’s Business Relief, Agricultural Relief, or strategies around lifetime gifting, our specialists provide clear, practical advice that puts your priorities at the forefront.
Preparing for the Future: How Tozers Can Help
With Inheritance Tax changes on the horizon, now is the time to review your estate planning strategy. Our nationally recognised team is here to provide expert guidance on how to protect your assets and reduce potential Inheritance Tax liabilities. Whether you’re a business owner, farmer, or individual, we are dedicated to helping you navigate the complexities of tax planning.
Our services include:
- Inheritance Tax planning for individuals, business owners, and farmers
- Maximising available Inheritance Tax reliefs and exemptions
- Lifetime Inheritance Tax planning and gifting strategies
- Post-death Inheritance Tax arrangements, including deeds of variation
We will be working through the changes and will provide more detailed updates in the near future. In the meantime, if you have any specific queries, please get in touch with our specialists who will guide you through the changes so that you can make the most of your available options and stay one step ahead.
