Budget Update - Big changes to inheritance tax

On Wednesday 30 October 2024, Chancellor of the Exchequer, Rachel Reeves, delivered the first budget of the new Labour Government.

Below, Senior Associate, Tessa Bonser, outlines the headline changes affecting inheritance tax, capital gains tax, income tax, and stamp duty land tax.

Inheritance tax (IHT)

The budget has heralded the biggest changes to inheritance tax since 2006.  

These changes will not take effect until April 2026 at the earliest, which gives a little bit of time to consider the detail of the plans yet to be confirmed.  

The freeze of the IHT threshold known as the Nil Rate Band (£325k) has been extended to 2030, meaning more estates will be drawn into paying IHT.

There is to be reform of Agricultural Property Relief (APR) and Business Property Relief (BPR). This will see 100% relief on the first £1m of combined APR/BPR and 50% thereafter.

Additionally, BPR will be restricted to 50% for all shares designated as “not listed” on a recognised stock exchange, such as AIM, from April 2026.

Undrawn pension funds and pension death benefits are to be subject to IHT from April 2027.

Bringing pension pots into the IHT regime, along with agricultural and business assets worth over £1m, sees a significant shift towards the treasury seeking to receive higher tax receipts from IHT.  

In light of this budget, our clients will need to reconsider their estate planning strategies.

Capital gains tax (CGT)

Effective immediately, main rates of CGT have increased from 10% to 18% and from 20% to 24%.

Residential property CGT rates will stay the same at 18% and 24%.

Business Asset Disposal Relief and Investors’ Relief rates will undergo phased increases to 14% from 6 April 2025 and 18% from 6 April 2026.

Income Tax

There will be no changes to income tax rates, but the freeze of personal allowances will not be extended after April 2028.

Stamp duty land tax (SDLT)

Effective from 31 October 2024, there will be an increase in the higher rate of SDLT for the purchase of a second property to an additional 5%.

For advice on any of the above, please contact our Trusts & Estates Team.