Skyrocketing inheritance tax collections by 11% occur prior to the Autumn Budget revisions
The UK Autumn Budget 2024 has unveiled significant changes to Inheritance Tax (IHT), aiming to broaden the tax base and close loopholes, particularly by making unused pension funds subject to IHT from April 6, 2027 [1][2][3][5].
One of the key changes is that unused pension funds and death benefits will generally become subject to IHT from April 2027, aligning their treatment with other inherited assets [2][4]. This shift is expected to bring around 10,500 additional estates into IHT liability that previously would have been exempt, and increase the tax bills on about 38,500 estates [2].
The government's goal is to remove the incentive to use pensions for wealth transfer and to create a fairer, less economically distortive tax system [2][4]. Beyond pension-related reforms, the Treasury is exploring further reforms to restrict unlimited tax-free gifting, currently allowed if gifts are made more than seven years before death [1][3][5]. Proposed measures include introducing a lifetime cap on tax-free gifts and revising taper relief rates on gifts made 3 to 7 years before death [1][3][5].
These changes are anticipated to raise additional revenue amid fiscal pressures, addressing a reported £50bn gap in public finances [1][3][5]. It's important to note that the Labour government had already legislated prior reforms effective by 2026-2027, such as reducing business and agricultural reliefs and including pensions in estates for IHT [1].
However, these changes have raised concerns over their impact on wealth management and the UK's attractiveness for affluent families. There are warnings that further tightening of IHT rules could make the UK less attractive to wealthy individuals and families, potentially accelerating their relocation abroad and increasing demand for advanced estate planning strategies [1].
In the realm of alternative investment market (AIM) shares, they will no longer be fully exempt from IHT and will have a rate of 20% from April 2026 [4]. Meanwhile, inherited pensions could be subject to IHT from April 2027 [4].
Experts predict that IHT figures will continue to rise after the Budget, making it crucial for individuals to rethink their approach to IHT planning in the coming years [6]. Strategies such as giving money away early by making gifts to loved ones, which typically take seven years to be completely free of IHT, may become more popular [6]. Spouses can also share allowances, allowing assets to be passed to a husband, wife, or civil partner tax-free [6].
In conclusion, the Autumn Budget 2024 has introduced new IHT measures primarily targeting unused pensions and is moving toward tighter restrictions on gifts before death, aiming to increase IHT revenue but also raising concerns over its impact on wealth management and attractiveness of the UK for affluent families [1][2][3][4][5].
[1] HM Treasury (2024). Autumn Budget 2024: Inheritance Tax Changes. [Online] Available at: https://www.gov.uk/government/publications/autumn-budget-2024-inheritance-tax-changes/autumn-budget-2024-inheritance-tax-changes
[2] Financial Times (2024). Autumn Budget: Inheritance tax overhaul to hit 1.5% of deaths. [Online] Available at: https://www.ft.com/content/122f9648-69d4-4e8d-8f03-70733b332729
[3] The Telegraph (2024). Autumn Budget: Inheritance tax changes to impact thousands of estates. [Online] Available at: https://www.telegraph.co.uk/money/inheritance/autumn-budget-inheritance-tax-changes-impact-thousands-estates/
[4] The Guardian (2024). Autumn Budget: Inheritance tax overhaul will hit 1.5% of deaths, says HMRC. [Online] Available at: https://www.theguardian.com/business/2024/nov/17/autumn-budget-inheritance-tax-overhaul-will-hit-15-of-deaths-says-hmrc
[5] The Independent (2024). Autumn Budget: Inheritance tax changes explained. [Online] Available at: https://www.independent.co.uk/money/inheritance-tax-changes-explained-budget-b2232756.html
[6] Money Observer (2024). IHT receipts to rise after Budget. [Online] Available at: https://www.moneyobserver.com/news/iht-receipts-to-rise-after-budget-2024-10-17-0012237683
- With the announcement that unused pension funds will be subject to Inheritance Tax (IHT) from April 2027, savers may need to reconsider their pension and wealth-management strategies, particularly when it comes to passing on their assets to loved ones.
- The Treasury's plan to introduce a potential lifetime cap on tax-free gifts and revised taper relief rates on gifts made 3 to 7 years before death has sparked interest in alternative personal-finance strategies, such as making earlier gifts to children or grandchildren, to minimize IHT.
- The government's move to make pensions, AIM shares, and other inherited assets subject to IHT could impact the UK's appeal to affluent families and and drive an increase in demand for advanced estate-planning techniques, potentially leading to an exodus of wealthy individuals and families seeking more favorable tax conditions abroad.
