The Labour government delivered its first budget on 30th October 2024, and with it comes a number of changes that may affect how much your estate pays in tax.

The main changes are a reduction in inheritance tax relief for business and agricultural assets and changes to the taxation of private pensions.

The reforms will impact a large proportion of estates in England & Wales and will undoubtedly prompt people to reconsider their tax and estate planning. If you own a farm or a business (including shares in a trading company) with assets exceeding £1 million and/or you have a private pension, it will be important for you to review your estate planning as soon as possible.

Below is an overview of the current tax rates and exemptions that apply to an estate on death until the reforms take effect:

1. The Nil Rate Band (NRB): the first £325,000 of a person’s estate is exempt from inheritance tax (this amount may be reduced by the value of certain gifts given within the 7 years prior to death).
2. The Residence Nil Rate Band (RNRB): if a person leaves their interest in their main residence to their direct descendants (most often children or grandchildren, including stepchildren), then an additional exemption of £175,000 can be claimed. This relief is clawed back for an estate over £2 million at a rate of £1 for each £2 above £2 million.
3. Spouse exemption: anything that passes to a spouse under a Will or by the rules of intestacy does so free of inheritance tax.
4. Transferable Nil Rate Band / Residence Nil Rate Band: in circumstances where one spouse leaves their estate to the surviving spouse or does not use the whole of their nil rate bands, anything unused will transfer to their surviving spouse and be added to the surviving spouse’s NRB/RNRB. For example, if a husband leaves his entire estate to his wife, then on second death the wife might have a tax-free sum of £1 million to leave to their children.
5. Charity exemption: anything passing to a charity passes free of inheritance tax. If 10% or more of the net value of an estate passes to charity, the rate of any inheritance tax payable in relation to the rest of the estate can be reduced from 40% to 36%.
6. Business Property Relief (BPR): subject to strict criteria, any business shares and/or assets may qualify for 50% or 100% relief from inheritance tax.
7. Agricultural Property Relief (APR): subject to strict criteria, any agricultural land and/or assets may qualify for 50% or 100% relief from inheritance tax.
8. Capital Gains Tax (CGT): Currently all gains accrued by a person in their lifetime are wiped out, tax-free, upon the owner’s death. When the asset is later sold by an estate or will trust, CGT is paid upon the difference between the sale proceeds and the value it had at the date of death. The current rates are 10% to 20% depending upon whether you are a lower or higher rate taxpayer.

Any assets passing under an estate that are not subject to any of the above reliefs or exemptions will be subject to an inheritance tax charge of 40%.

In the Budget, the Government has announced the following changes:

1. The Nil Rate Band & the Residence Nil Rate Band: these thresholds are frozen at £325,000 and £175,000 respectively per person until 2030. This means that over the next 6 years, it is likely that more and more estates will be liable to pay inheritance tax as property prices increase.
2. Business Property Relief: this relief has been significantly reduced from 100% or 50% relief on the whole value of the qualifying business assets to 100% relief on the first £1 million of qualifying assets and 50% relief on the balance of the value of the business asset (an effective tax rate of 20%). This comes into force for deaths on or after the 6th April 2026.
3. Agricultural Property Relief: as with business property relief, this has been significantly reduced to 100% relief of the first £1 million of qualifying assets and 50% relief of the balance of the value of the assets. This comes into force for deaths on or after 6th April 2026.
4. Capital Gains Tax: implemented immediately on 30th October 2024 was an increase in CGT rates from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers.

Changes have also been made to inheritance tax on private pensions, which will be the subject of a further article once we have received full details from the government regarding the implementation and scope of those changes.

We would urge anyone who believes they may be affected by these changes or is unsure if they are affected or not, to get in touch so that we can review your tax and estate planning to ensure that you are taking advantage of all of the exemptions and reliefs which may be available.

If you would like to speak to us, please contact Anne Taylor and Andrew Jones in our private client team.

Geldards offers clients a full-service private client team, which includes specialists who deal with disputes that can arise regarding wills, probate and trusts.

In addition to concerns regarding tax planning, if you have any concerns regarding disputes that may arise after your death, particularly if you plan to leave out of your will someone who may be expecting to inherit (such as a child), we offer advice to clients at the estate planning stage regarding steps which may help prevent a dispute after your death.

If you would like to speak to us about a current or potential dispute, please contact Laura Alliss or Ella Harmer in our contentious probate team.