What The Recent Budget Means For The Private Client Sector – Wills, Trusts, Inheritance Tax etc

Now that the Government Budget for 2024 has been unveiled, we can start to take a look at the effect this will have on individuals, families and companies, when considering succession planning.

There are many factors to consider when deciding how you want to leave your Estate on death and Inheritance Tax always plays an important role. The budget changes are likely to have an impact on plans that have already been made and any thoughts you had about future succession planning.

Inheritance Tax (IHT) is paid on a deceased’s Estate when the personal assets, including property, cash and possessions, exceed a certain threshold, and the tax applicable can vary depending on who is due to inherit from your Estate and the assets that comprise your Estate.

Threshold adjustments.

A crucial topic is always the thresholds for tax-free allowances on death. There were rumours that these may change after 2028. However, the budget announced that these thresholds would be frozen for a further 2 years, meaning that the Nil Rate Band and the Residence Nil Rate Band will stay the same at £325,000 and £175,000 until 2030.

This does bring a level of certainty to IHT, protecting up to one million pounds in an estate under the right circumstances. But of course, the fact that this is now not due to rise for a further 6 years means the allowances aren’t rising with the rate of inflation, and ultimately, the value of assets will appreciate, meaning £1 million won’t be worth what it is today.

Exemptions and Reliefs.

A significant announcement from the budget was the changes to Business Property and Agricultural Property Relief. Under the current tax rules, businesses and agricultural property benefit from 100% relief from IHT, allowing the succession of family businesses and farming partnerships. However, from 6th April 2026, these rules will change so that the first £1 million of combined agricultural and business property will attract a 100% rate of relief, and it will be 50% thereafter.

Although, according to Rachel Reeves, she does not believe that three-quarters of farming families will be affected by these changes, it is important to consider the impact of these to you directly and how these may affect your succession plan. It may be worth considering whether you utilise lifetime gifts or adding shareholders to the family business at this stage to gain the most from these new allowances. It is also important to recognise that each of these options will come with their own considerations and tax consequences, so you should consider consulting with your financial advisors, solicitors and tax professionals about the various options that will best suit your needs.

From 6th April 2026, there will also be no 100% relief for shares designated as not being listed on the markets of recognised stock exchanges, such as AIM, and instead these will have a 50% relief in all circumstances.

Spousal exemption does still apply to assets of this nature and from our understanding, if you leave your business or agricultural property to a spouse, then you will benefit from full relief against the entire value.

Pensions.

There have been rumours surrounding the changes to the tax-free status of pensions on death and unfortunately, these have come to fruition. Currently unused pensions and death benefits can usually pass to beneficiaries’ tax free and not be considered as part of your taxable estate. This can significantly reduce the value of your Estate, as a large proportion of your net worth may be held in a pension. This used to be a tax efficient way of saving during your lifetime and then passing on wealth to the next generation, without adding to the value of your Estate for Inheritance Tax purposes.

The new budget announced that from 6th April 2027, this will no longer be the case and any unused pension and death benefits will now form part of your Estate. This could very well push estates that would have previously not paid IHT, into what would now be a taxable estate.

The budget hasn’t changed the amount that you can withdraw from your pension during your lifetime tax free, however, the new initiatives may change the way that people view their pension and drawing down on these.

CGT.

Gifting assets is always one of the most effective ways to lower the value of your Estate on death, subject to the 7-year gifting rules. However, it is important to consider that giving away assets can incur other types of tax such as Capital Gains Tax (CGT), even if the disposal is not for monetary value, such as gifting a property to a child.

The new rules for CGT are one of the few budget changes that have already come into force. The budget announcement confirmed that the rates of CGT have now increased to 18% for non and basic rate taxpayers and 24% for higher rate tax payers, with immediate effect. This means that any gain realised from the date of the budget announcement onwards, will incur the new rate of tax.

However, although there may be an immediate CGT charge, this still may be worth incurring now, as the rate of CGT, despite the new increases, is still a lower rate of tax than IHT, which is currently 40%. If the disposal is successful and gets the asset out of your estate, then you may have saved paying IHT on the asset.

Other Estate Planning Considerations.

If your Estate is going to be subject to an Inheritance Tax bill, there are ways of mitigating the tax liability. This can include leaving a proportion of your estate, equal to 10% or more, to charity. This will decrease the rate of inheritance tax applicable on your Estate from 40% to 36% and any money left to the charity will be tax free, as they are an exempt beneficiary.

Other considerations for dealing with an inheritance tax charge could be to take out insurance policies to cover the IHT liability. This may be particularly useful where your estate may include business or agricultural property, which may have previously benefited from full relief. Insurance that meets the liability, may potentially prevent you from needing to sell farmland or business assets to settle the tax liability and save you from having to break up the family business.

Some of the tax planning tools available have been mentioned above and include some of the following, amongst many others;

• PETS
• Lifetime gifts
• Trusts
• Gifts out of surplus income
• Insurance to cover the IHT bill

Individuals may need to reassess their estate planning strategies in light of the upcoming changes. As these initiatives unfold and whilst we are waiting for clarification on the new rules, it is important to talk to us, or your financial advisor/s, about the things you can do to start planning for your future.