Autumn Budget 2024 introduces major changes to estate planning and tax reporting responsibilities

The UK Government’s Autumn Budget 2024 has introduced changes to the landscape of Inheritance Tax (IHT) and agricultural property relief, set to reshape estate planning strategies and tax reporting responsibilities.

From 6 April, 2027, most unused pension funds and death benefits will be brought into a person’s estate for inheritance tax purposes. This significant change for occupational pension’s schemes, will have profound implications for estates with substantial pension savings.

Under the new rules, pension schemes administrators will assume the responsibility of calculating, reporting, and paying IHT directly to HMRC. This shift from the current system, where unused pension funds are generally exempt from IHT, marks a significant departure from traditional estate planning practices.

A technical consultation has been launched to gather industry feedback on the practical implications of the new rules. This consultation aims to ensure a smooth transition and to address any operational challenges that may arise for pension scheme administrators.

Additionally, it was announced that the inheritance tax personal allowance threshold will be frozen a further two years, until 2030. The nil-rate band and residence nil-rate band will remain fixed at their current levels, meaning that for individuals who pass away before 2030, the current £325,000 nil-rate band will apply. It’s important to note that this £325,000 threshold, introduced in April 2009, would be equivalent to over £500,000 in today’s money, if the rate had risen with inflation.

Meanwhile, changes to Agricultural Property Relief (APR), which provides relief from IHT on the value of agricultural land and buildings remains eligible for tax relief. The government has reaffirmed that land actively used for agriculture remains eligible for APR, even if it is managed using sustainable land management practices such as soil improvement.

However, it has been clarified that land taken out of agricultural use for extended periods, for example, as part of environmental projects, will not qualify for APR. This decision emphasises the importance of active agricultural use as a key criteria for APR eligibility.

From 6^th April, 2026 a tiered relief system will apply to agricultural and business property relief. The first £1 million of combined value will continue to receive 100% relief tax. However, for values exceeding £1 million, a 50% relief rate will apply. This effectively introduces a second tier of taxation, further complicating the already complex Inheritance Tax landscape.

The Autumn Budget 2024 has ushered in a period of change for estate planning and tax reporting. The inclusion of unused pension funds within IHT, coupled with freezing of IHT thresholds, will necessitate careful planning to mitigate potential tax liabilities.