After much speculation in the press that there would be a complete inheritance tax overhaul especially on lifetime gifts and “loopholes”, our first female chancellor of the exchequer Rachel Reeves announced some surprising changes this afternoon. Julie West Solicitors private client solicitor Emma Westsmith explains:
Individual inheritance tax allowances
The current inheritance tax allowance for an individual on death is £325,000 (the nil rate band) subject to any chargeable lifetime gifts. Gifts to a spouse and also to charities and political parties are exempt from inheritance tax. To the extent that that the allowance is unused on the first death, for example where the estate passes to a surviving spouse who is an exempt beneficiary, then the personal representatives of the second spouse to die can apply to transfer the unused allowance giving a total allowance of up to £650,000.
There is also an additional allowance when a property, or proceeds of a property, that you have lived in at some point (qualifying residential interest), are inherited by a direct descendant (including stepchildren). The allowance for the current tax year is £175,000. This allowance (the residence nil rate band) is also transferable and gives a total combined allowance of up to £1 million for a married couple with qualifying estates. The legislation provides that the residence allowance will be reduced by £1 for every £2 the estate exceeds £2 million. As a result, the additional residence allowance is not available to estates with a value of £2.4 million and above.
These allowances have been frozen until 2030. Although good that these have not been reduced, if property prices continue to rise, more and more estates will be subject to an inheritance tax bill.
Business and agricultural property
From April 2026 business and agricultural assets previously free from inheritance tax will be subject to a combined limit of £1 million. Assets above that value will receive 50% relief. This is likely to present a serious problem for family businesses and farms and business owners will need to make their succession plans carefully to prevent their business being broken up to pay inheritance tax.
Shares listed on AIM and other similar stock exchanges will also be subject to inheritance tax at 20%.
Pensions
This is “the big one”. From April 2027 pensions will be included in the value of estates for inheritance tax. This is likely to mean many more estates will pay inheritance tax. If your pension pays a lump sum on death you are likely to need a lifetime planning review.
Other exemptions are still available for certain types of gift as well as gifts given from excess income.
Capital gains tax
Rates of capital gains tax on residential property have not changed. Rates on the sale/gift of other assets have increased: basic rate from 10% to 18% and higher rate from 20% to 24%.
Stamp duty land tax
Stamp duty land tax on additional property has increased from 3% to 5%. This affects people buying a second home or investment property, but will also affect those who already have an interest in a property as a beneficiary of a trust or ongoing estate even if they do not already own their own home when they do come to buy.
Julie West Solicitors:
Include basic inheritance tax advice with all will instructions
Are able to provide specialist lifetime planning advice
Can handle all inheritance tax aspects of applying for probate and administering estates including deeds of variation/family arrangement
Can assist with capital gains tax when administering estates including deeds of appropriation
Private client solicitor Emma Westsmith
Julie West Solicitors are able to assist with all aspects of private client work including:
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