Is it time to review your estate planning?
Amendments to inheritance tax (IHT) rules, announced in the Autumn 2024 Budget, are about to start biting.
Source: HMRC, OBR 1
“Inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.”
This quote by former Labour Chancellor Roy Jenkins reflected on taxpayers’ attitudes back in 1986. Forty years on, IHT is still with us, although the Inland Revenue has expanded to become HM Revenue & Customs. The nature of the tax has also changed over that period, as successive chancellors have taken various actions to increase IHT revenue. You can see this in the graph above. Between 2014/15 and 2024/25 IHT receipts rose by over 115%, and in the next six years the Office for Budget Responsibility (OBR) projects there will be another 75% rise.1
One reason for these inflation-busting increases is that the IHT nil rate band has been frozen at £325,000 since April 2009 and is not due to see any change until at least April 2031. The residence nil rate band, £175,000 since April 2020, will also remain fixed until the same date. Such protracted freezes allow inflation to drag more estates into paying IHT and raise more from estates already exposed to the tax.2
The Autumn 2024 Budget helped IHT further along its upward course by introducing two important reforms:
- Business and agricultural reliefs Currently (2025/26) these reliefs are at a rate of 50% or 100%, with no limit. From 2026/27, the 100% relief will be capped (for agricultural and business relief combined) at £2.5 million per individual, with any unused amount transferable to a surviving spouse or civil partner. Eligible AIM-listed shares will qualify for 50% relief from 2026/27 rather than today’s 100%.
- Pension death benefits At present, death benefits from pensions are excluded from your estate for IHT purposes, provided that any payment is made at the discretion of the pension scheme’s trustees or administrator. From 6 April 2027 most pension death benefits, other than some death-in-service benefits, are due to fall within the scope of IHT.
Of these two changes, the reduction in agricultural relief has attracted by far the most attention, prompting the Chancellor into a U-turn on the 100% ceiling two days before Christmas.4 However, in practice the changes to reliefs will be much less significant than the inclusion of pensions in the IHT net. Even before the yuletide climb down, the relief reforms were projected to raise little more than a third of the revenue of the pension change.5 In addition, including pension values into estates will, for some homeowners, mean that their residence nil rate band is reduced or completely extinguished due to the effect of tapering.
The cumulative effect of the extended nil rate band freezes and Autumn 2024 Budget reforms means that any estate planning should now be reviewed. If you have no estate planning at present, the pension change could be a reason to start. Estate planning requires expert advice, as in some instances it may be necessary to restructure other aspects of your financial planning alongside, such as retirement provision.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
Sources
2 UK Government | Inheritance Tax thresholds and interest rates
3 UK Government | Budget 2025 — Overview of tax legislation and rates (OOTLAR)
4 UK Government | Inheritance tax reliefs threshold to rise to £2.5m for farmers and businesses
5 UK Government |Autumn Budget 2024 Policy Decisions
May Bulletin 2026
This insight is part of our May Bulletin 2026. Explore all the articles:
