The Impact of the 2024 Budget on Your Estate Planning

The latest UK budget introduced several measures that may significantly impact your estate planning, with implications for Inheritance Tax (IHT), Capital Gains Tax (CGT) and pension transfers. These changes may affect the way you manage your estate, make tax-efficient transfers to beneficiaries, or utilise reliefs and exemptions effectively.

‘Given these substantial changes, it is crucial you seek professional advice to navigate the new landscape and ensure your estate planning strategies remain effective and compliant,’ says Andrew Durkan, Head of the Wills, Trusts & Probate Team. ‘Each person’s circumstances will be unique, so it may also be necessary to involve your independent financial advisor and your accountant.’

Andrew explores some of the key budget changes which may affect your estate planning and IHT position.

IHT Bands Remain Frozen

The budget preserved the current nil-rate band (£325,000) and the residence nil-rate band (£175,000) and these will continue to be fixed at these levels until at least 2028. This freeze ignores inflation, so effectively means that more estates will be above the taxable threshold, potentially increasing tax liabilities for your estate and reducing the amount available for your beneficiaries.

Transferable Pension Assets to Become Taxable

Until now, wealth passed on from a pension fund has generally been excluded from an individual’s estate for IHT purposes, allowing these funds to pass to beneficiaries tax-free.

However, from April 2027, any money inherited from a pension will become subject to IHT, bringing it within the same tax framework as cash or other investment assets. This change represents a substantial shift in IHT planning and will likely bring many more estates above the taxable threshold.

Reductions in Agricultural Property Relief and Business Property Relief

Starting in April 2026, the 100% relief for Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1 million. For asset values above this threshold, the relief will drop to 50%, resulting in an effective marginal IHT rate of 20% on farms or businesses exceeding £1 million in value - unless the standard nil-rate band or residence nil-rate band is available to reduce the taxable estate.

The Government has confirmed that, as of April 2025, APR will extend to land involved in an Environment Land Management scheme, a policy introduced in the previous Spring Budget.

Alternative Investment Market (AIM) Investments

Investments in AIM shares are also seeing limitations. Currently, AIM-listed shares can qualify for 100% BPR after a two-year holding period, often serving as a useful short-term IHT planning tool for clients wary of the seven-year survival period required for lifetime gifts.

However, from April 2026, the relief rate will be reduced to 50% for AIM-listed shares and other quoted shares classified as ‘not listed’ on recognised stock exchanges.

This means a 20% IHT rate will apply to such investments if the nil-rate band has been used elsewhere, potentially diminishing AIM shares' appeal as a planning strategy due to their higher risk profile.

Capital Gains Tax on Shares and Other Assets Increased

CGT changes had been much anticipated ahead of the Budget announcement. The Chancellor confirmed that the CGT rate for basic-rate taxpayers will rise from 10% to 18%, while higher-rate taxpayers will see their rate increase from 20% to 24%. These new rates took effect immediately and now match the CGT rates applied to the sales of residential property.

The annual CGT allowance remains fixed at £3,000 per person, providing limited offset for the heightened rates.

Non-domiciled Tax Regime

The Chancellor confirmed the abolition of the non-domiciled (the so-called ‘non-dom’) tax regime. This long-standing arrangement, which allowed individuals to limit their UK tax liability on overseas income and gains, will no longer be available, significantly impacting wealthy residents with international ties.

Looking Ahead

A key question raised by the Office of Budget Responsibility is whether these new restrictions will lead to passing wealth down to younger generations sooner. However, this approach can carry its own risks, such as the need for you to survive seven years post-gift, potential complications from divorce, and possible CGT implications in certain circumstances.

While trusts remain a potentially viable route, they can add complexity. Insurance solutions, though helpful in some cases, can be costly.

How We Can Help

Navigating these changes requires careful consideration and expert advice. Our private client team has extensive experience in estate planning, inheritance tax strategy, and protecting wealth. We are here to help you understand the impacts of the recent budget on your estate, explore options for IHT relief, and provide tailored guidance on managing CGT and pension assets effectively.

For more information or to discuss how we can assist with your estate planning, contact ourWills, Trusts & Probate Team on 0800 542 4245 or via email at info@sillslegal.co.uk. We have experienced, knowledgeable teams in all of our offices across the region.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Photo by T Leish