Key changes were introduced by the autumn budget that will affect estates above the inheritance tax threshold.
- Pensions – Inheritance Tax
Private pensions had fallen outside of a person’s estate and were free from inheritance tax. However this was a fundamental change addressed in the budget. From April 2027 inherited pensions will now form part of a deceased’s estate and will become liable to inheritance tax above the nil rate band threshold at the rate of 40%.
- Nil rate band
It had been hoped that the nil rate band, i.e. the amount above which inheritance tax applies, would increase as this has remained at the same amount of £325,000 since 2009. Instead, it was stated in the budget that the threshold would remain at this level until 2030. Had this allowance risen in line with inflation, it should already be around £500,000. The residence nil rate band where the home is passed onto direct descendants has also not been increased and this remains at £175,000. These thresholds may be increased up to twice the amount for a surviving spouse if the first spouse to die had left all their estate to the other spouse.
- Business and Agricultural Relief
The current position was that business property and agricultural assets did not attract inheritance tax. The recent budget has changed this position so that from April 2026 inheritance tax will apply to such assets valued at over £1million (or £2million for a married couple). This will be at a lower rate of inheritance tax of 20%.
- Alternative Investment Market shares (AIM)
Following the autumn budget, AIM shares in smaller companies will no longer be exempt from inheritance tax. These will become taxed at an inheritance tax rate of 20% from April 2026.
All of these changes will have the effect of bringing more and more estates into the inheritance tax pool. As time goes on, estates that were previously considered to be relatively modest will have to pay inheritance tax particularly due to the freeze on the tax allowance bands.
It is therefore essential to look at estate planning as early as possible.
We are able to offer advice and guidance on Wills and estate planning. For further information please email jcowdrey@anthonyking.co.uk or call to speak to one of our team who will be happy to assist you.