The Chancellor has extended the current freeze on inheritance tax (IHT) thresholds until 2030 and announced changes to the treatment of inherited pensions and other IHT reliefs.
Currently, unused pension funds can be inherited tax free. From 6 April 2027 amounts accumulated in a pension pot will be included in the deceased’s estate and subject to IHT at 40%, which is proposed will be payable from the pension pot. This may also impact other reliefs, for example where 10% or more of the estate is left to charity, in order to qualify for the lower IHT rate of 36%.
The Chancellor also announced plans to reform business property relief (BPR) and agricultural property relief (APR). From 6 April 2026, the first £1m of combined business and agricultural assets will continue to attract IHT relief at 100% but for assets over £1m, the relief will be halved to 50% relief. Assets including AIM shares that qualify for BPR and/or APR will suffer IHT at an effective rate of 20%.
The nil-rate band (NRB) is the amount of any estate that can be inherited tax free. It has been £325,000 since April 2009. If the deceased’s estate includes a residential property that is passed to direct descendants, an additional £175,000 residence-nil-rate-band (RNRB) is available, increasing the total tax-free amount to £500,000* (or £1m* if the tax-free allowance is passed to a surviving spouse).
The NRB and the RNRB had been frozen by the previous Government until 5 April 2028. This will be extended for a further two years until 5 April 2030, bringing many more estates into the scope of IHT.
*The RNRB is reduced by £1 for every £2 that your estate, before reliefs such as APR/BPR, exceeds £2M.
Contact Debbie Wilson today on Debbie.wilson@hhllp.co.uk to discuss how these changes might affect your succession planning.
