The UK government’s Autumn Budget 2024 introduced significant changes to the Inheritance Tax (IHT) that will impact estate planning for high-net-worth individuals. Understanding these changes and their implications is crucial for effective wealth management and ensuring your legacy is preserved for future generations. In this guest blog post, Independent Financial Advice firm Moneyweb Limited, explains this matter further.
Another blog with Moneyweb explains how the new IHT changes impact farmers, read it here.
Key Changes in the Autumn Budget 2024
- Frozen Nil-Rate Bands. The IHT nil-rate band remains fixed at £325,000 until April 2030, with the residence nil-rate band also frozen at £175,000. This freeze, amidst rising asset values, means more estates will fall into the taxable bracket over time. As property prices and other asset values increase, the real value of these thresholds diminishes, potentially leading to higher IHT liabilities for many estates.
- Reforms to Agricultural and Business Property Reliefs. From April 2026, the 100% relief for Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1 million. Any value above this threshold will only attract 50% relief. This change necessitates a review of estate plans, especially for those with significant agricultural or business assets. High-net-worth individuals with substantial holdings in these areas will need to reassess their strategies to mitigate the impact of these changes.
- Inclusion of Pension Wealth. Starting April 2027, unused pension wealth will be included in the taxable estate, subjecting it to IHT. This change could significantly impact the effectiveness of the residence nil-rate band (RNRB) relief, leading to higher tax liabilities. Previously, pensions were often used as a tax-efficient way to pass on wealth, but this change will require a re-evaluation of how pensions fit into overall estate planning.
Implications for High-Net-Worth Clients
These changes underscore the importance of proactive and flexible estate planning. Here are some strategies to consider:
- Regular Estate Reviews – With the nil-rate bands frozen, it’s essential to regularly review your estate plan to ensure it remains tax-efficient. Rising property values and asset appreciation could push more of your estate into the taxable bracket. Regular reviews with your financial adviser can help you stay ahead of these changes and adjust your plans accordingly.
- Utilising Trusts and Gifts – Establishing trusts and making lifetime gifts can be effective strategies to mitigate IHT. Trusts can help manage and protect assets, while gifts made more than seven years before death are generally exempt from IHT. Consider setting up family trusts and/or making use of annual gift allowances to reduce the value of your estate over time.
- Consider making investments that quality for Business Property Relief – Business Property Relief (BPR) is a valuable tool for high-net-worth individuals looking to mitigate IHT on their estates. BPR can provide up to 100% relief on qualifying investments, making it an attractive option for those clients who are looking to retain ultimate access to their capital whilst mitigating the impact of IHT.
- Charitable Donations – Charitable donations can reduce the taxable value of your estate. Gifts to registered charities are exempt from IHT and can also provide relief if they constitute at least 10% of the net estate. This not only helps reduce your tax liability but also supports causes that are important to you.
- The use of Life Insurance – Life insurance policies can be used to cover potential IHT liabilities, ensuring that your heirs are not burdened with a large tax bill. Policies written in trust can be particularly effective, as the payout is not considered part of your estate for IHT purposes.
- Professional Advice – Given the complexity of the recent changes, seeking professional advice is crucial. Estate planners can provide tailored strategies to optimise your estate and ensure compliance with the new regulations. They can help you navigate the intricacies of the new rules and develop a plan that aligns with your financial goals.
Case Study: Adapting to the New IHT Landscape
Consider the case of Mr and Mrs Smith, a high-net-worth couple with a substantial estate made up of property, cash holdings, existing investments and significant pension wealth. Under the new IHT rules, their estate would face a considerable tax liability. By working with their independent financial adviser, they implemented several strategies:
- Trusts and Gifts: They established a family trust. Assets placed into trust are generally not considered part of their estate for IHT purposes, provided they survive for seven years after making the transfer. This can significantly reduce the IHT liability on the estate. They also made use of annual gift allowances to gradually reduce the value of their estate.
- Business Property Relief Qualifying Investments: As both Mr and Mrs Smith hold no other business assets, they each placed significant cash into a qualifying BPR scheme. The exempt allowance applies to an individual, so married couples or civil partners can each have a £1 million allowance. After two continuous years of holding the investment and assuming this is still held at the point of death, the entire value of the investment (capped at £1 million per individual) would be wholly exempt from IHT.
- Charitable Donations: The Smiths decided to leave a portion of their estate to charity, reducing their overall IHT liability while supporting causes they care about.
- Life Insurance: They took out two different life insurance policies, both written in trust. The first policy protects the potential IHT liability for the next seven years on the capital placed into trust. The second covers any residual IHT liability after acceptance of the overall recommendations, ensuring their heirs would not be burdened with a large tax bill.
Conclusion
The recent IHT changes present both challenges and opportunities for high-net-worth individuals. By staying informed and proactive, you can navigate these changes effectively and protect your legacy.
About us
Moneyweb have been providing friendly and straight-talking independent financial advice to corporate, personal and trustee clients for three decades. Based in East Ayton, Scarborough, today we look after over £300m of client monies, but we haven’t forgotten our core principles. We pride ourselves on providing an excellent standard of service to all our clients, making sure we take the time to understand their needs, goals, and preferences before we make any recommendations.
We specialise in high-net-worth tax planning and estate structuring. Contact us today for a bespoke consultation on your estate planning needs. You can contact us via email at enquiries@moneyweb-ifa.com or by phone on 01723 378234. Visit our website at www.moneyweb-ifa.com
Disclaimer
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Blog updated: April 2025
