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Autumn 2024 Budget: Key IHT Changes and Protection Planning Implications
The Autumn 2024 Budget introduces significant changes to Inheritance Tax (IHT), affecting business relief, agricultural relief, and bringing pensions into scope from 2027. Advisers should review clients’ estate plans and consider protection solutions to address increased IHT liabilities.
Major IHT Changes Announced in Autumn 2024 Budget
The Autumn 2024 Budget has set out substantial reforms to the Inheritance Tax (IHT) regime, with implications for business owners, farmers, and pension savers. According to the Office of Budget Responsibility, these changes are projected to result in around 10% of estates paying IHT by 2030.
Timeline and Key Changes
- April 2026: Adjustments to agricultural property relief and business relief will take effect. A £2.5 million allowance will apply for the 100% rate of relief, with a 50% rate available thereafter. Married couples and civil partners can pass on their allowance, in addition to their Nil Rate Band (NRB).
- April 2027: Pensions are expected to come into scope for IHT, which may significantly increase the number of estates affected.
- NRBs Frozen: Nil Rate Bands are frozen until 2031, increasing the impact of fiscal drag and drawing more estates into IHT liability.
Implications for Estate Planning
Clients who have previously used pension schemes as a tax-efficient way to transfer wealth will need to revisit their plans. The short window before the changes take effect means traditional estate planning strategies may not be practical for all clients.
Protection policies, particularly those written in trust, may offer a solution for clients unable to restructure their assets or make gifts due to age or asset illiquidity. Where clients access pension funds earlier, they may face income tax at their marginal rate.
Protection Solutions
- Gifting: Remains a primary IHT planning tool, but the seven-year rule may limit its effectiveness for some clients.
- Term Assurance: Gift-inter-vivos plans may suit clients making gifts now.
- Whole of Life Protection: For those unable or unwilling to gift, whole of life policies can help cover lifetime IHT liabilities.
Adviser Considerations
The advice process, including underwriting, can take time—especially for older clients. Advisers are encouraged to act promptly to secure cover for clients’ current and anticipated IHT liabilities, including those related to business, agricultural, and pension assets.
Legal & General note that their team can support advisers throughout the process, including pre-application underwriting guidance.
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Source: Legal & General, Office of Budget Responsibility