At the end of October, the Labour Party announced its new Government Budget for Autumn 2024. This could have a knock-on effect on several things around your assets and estate management.
Naturally, we were interested in what the new budget did to the taxes that affect a person’s estate after they die. Our Private Client team deals with estates on a daily basis, for both executors and administrators. Which means that we were keen to get a clear understanding of what this may mean for our practice, as well as for your estate planning.
Here is a snapshot of what we know so far. The Government will be rolling out more news as Bills are discussed in Parliament and Acts are passed to regulate the changes. It’s a mixture of the expected and unexpected. Maintaining some of the status quo, while at the same time throwing up some new surprises.
As ever, we would advise that managing your estate the most tax efficient way probably means talking to a solicitor, a financial adviser and an accountant. It’s important that you understand how the new Government budget affects your Wills, your investments and your income.
Income Tax (IT) and the New Government Budget
Thresholds are frozen until April 2028 so there will be no effect on estate income, like interest and dividends received post-death for now.
How the New Government Budget Affects Capital Gains Tax
Thresholds increase immediately from 10% to 18% (lower rate) and from 20% to 24% (higher rate) so there will be an effect on estate post-death asset disposal.
Additional CGT reforms will roll out in April 2026.
Inheritance Tax Will Also Be Affected
Business Relief (BR) and Agricultural Property Relief (APR)
BR and APR are restricted from April 2026.
Assets that qualified for BR or APR could obtain full relief from IHT at 100% with no upper limit. But from April 2026, this will be restricted so that only the first £1 million of combined agricultural and business property will qualify for relief at 100%. Anything above will only obtain relief at 50% (reducing the main IHT rate from 40% to 20%). This could have a significant impact on businesses, particularly family and farming businesses, with some having to sell business assets to fund a tax bill.
In addition, the rate of BR that applies to AIM/EIS* shares will be reduced from 100% to 50% from April 2026, without the £1 million full exemption.
*AIM = alternative market investment, EIS = enterprise investment scheme. If you owned these for 2 years, you wouldn’t pay IHT on them. They are high risk so only for investors with a riskier attitude. Due to this, they won’t be as attractive now. These are investments in startup businesses, so there will be a knock-on effect for small and new business investment.
Insurance to pay IHT will now be an option many business and farm owners may have to consider.
We also have to wait until 2025 to find out how this will affect trusts – will it be the same as for individuals?
Taxation of death benefits and unused pension funds
Pensions will now form part of the estate for IHT purposes from April 2027, meaning death benefits and unused funds will be taxable from then, whether paid on a discretionary or non-discretionary basis by the pension fund trustees to the nominated (or not) beneficiaries. Initial announcements also confirm that IHT and IT could be payable on unused pensions funds for deaths after the age of 75.
This will not apply only if paid to a charity or a dependant (such as your child).
At the moment, only 6% of estates are taxable for IHT (apparently). Bringing pension pots into them is likely to majorly increase this figure.
This also looks a lot like double taxation – IT and IHT being deductible from pensions.
Nil Rate Bands
The Nil Rate Band (NRB = the first £325,000 of your estate that doesn’t pay IHT) and Residence Nil Rate Band (RNRB = the first £175,000 of your estate that doesn’t pay IHT if you leave your main residence to your descendants) remain unchanged until 2030.
Potentially Exempt Transfers (PETs)
You can still make gifts during your lifetime to who you want for how much you want and if you live 7 years, they are not counted as part of your estate. These are known as PETs and this regime was not altered. Therefore, this is still a viable option to reduce your estate for IHT should you be in the position to lifetime gift (as well as other options, like gifts to charity, gifts from excess income and annual gift allowances).
Contact Us to Talk Through the Budget and Your Assets
If you have any other questions about how the budget may affect your estate planning and your Wills, we would be happy to discuss this with you. Call our team on 0113 320500 or email wills&probate@winstonsolicitors.co.uk
We can also help you with Powers of Attorney, Deputyships and Trusts.
