The Autumn 2024 budget (“the Budget”) was publicly announced on 30 October 2024 and whilst it has brought some significant changes, there are many policies that remain the same and some anticipated reforms which were overlooked.
This article presents an overview of key changes that are affecting pensions, followed by the reforms introduced to business property relief and agricultural property relief. It further analyses the extent these changes are likely to impact individuals when thinking about how to structure their estates in the most tax efficient way for the future.
Pensions
At present most pension death benefits where the pension scheme trustees have discretion over who to appoint as the beneficiaries, are considered to fall outside the estate for inheritance tax purposes. This has been the position for years thereby reducing a hefty Inheritance Tax (“IHT”) payment to HMRC. It is no surprise that the Budget was faced with opposition when it announced that from 6 April 2027 defined benefit and defined contribution occupation pensions and lump sums will now be deemed to fall within an individual’s estate and therefore brought into the scope of IHT; mirroring the current tax treatment which applies to non-discretionary schemes (such as the NHS pension). It has been noted that, “in recent years, pension schemes have been increasingly used and marketed as a tax planning tool to transfer wealth without an Inheritance Tax Charge, rather than for their intended purpose of funding retirement.”1 The government is hopeful that by bringing pensions within an individual’s estate in this way, it will “restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance.”2
Similarly, this change also affects Qualifying Recognised Overseas Pension Schemes (“QROPS”). In order to avoid a situation where those individuals with a QROPS are benefiting from double tax-free allowances. Unlike UK registered pension schemes, this change was brought in with immediate effect, in order to align these pensions with the tax treatment of UK pension schemes.
Additionally, the government announced that from 6 April 2027 pension scheme administrators (“PSAs”) (who must be UK resident with effect from 6 April 2026) will have a legal obligation to report and pay any IHT which is due on the unused pension funds and death benefits. A PSA could be a large pension provider, such as Standard Life or Legal & General, alternatively, it could be a trustee or a third-party administrator that would have responsibilities from handling regulatory compliance, to ensuring an effective payment of pensions, and in the case of the Budget, they will also be responsible for reporting and paying any IHT on unused pension funds. Although PSAs will begin to have increased duties, exposing them to more accountability, this reform is advantageous in a number of ways. For example, it will easily facilitate the settlement of IHT as the PSAs will be able to make the payment directly out of the pension scheme funds, as opposed to the personal representatives having to try to access the funds.
Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”)
These reforms mean that individuals may have to reassess their estates in order to align with the recent budget changes and planning alternative means to make their estates as tax efficient as possible.
An example would be to invest in agricultural and/or business property; given that these types of assets are likely to qualify for APR and BPR, reducing their overall IHT liability. That being said, the Budget has also restricted the amount of relief that will be available for APR and BPR.
Currently, agricultural assets qualifying for APR receive a 100% relief for the first £1 million of assets and likewise business assets qualifying for BPR also receive the same rate of relief at the same threshold. However, from April 2026 APR and BPR will be combined so that there will be a 100% relief for the first £1 million of both agricultural and business assets combined. After that threshold, the relief will be reduced to 50%. It seems obvious therefore that this change will significantly affect those individuals whose estates consist of both types of assets and are valued at a substantial sum. Fortunately, the nil rate band thresholds remain unchanged, despite the scaremongering and speculations leading up to the Budget concerning potential reductions to the nil rate bands. However, the Budget did not introduce any changes to the £325,000 nil rate band or the residence nil rate band of £175,000.
We may see a rise amongst some individuals, especially the wealthy, to make more lifetime gifts to their intended beneficiaries. This is a method of distributing estates even before death as a way to benefit from either the annual exemption from inheritance tax for gifts under £3,000 or the exemption from IHT where the gifts are made more than 7 years before the donor’s death. Of course, gifting in this way will largely be dependent on the age and health of the donor given that the IHT charge (and any taper relief) will be triggered if the donor dies before the 7-year mark (unless it qualifies for the annual exemption) and that is something to consider during estate planning.
How we can help
Our Private Client Team has expert knowledge and experience in helping individuals efficiently plan their estates for the future. If you have any questions on the changes made by the Autumn 2024 budget as discussed in this article or if you need further guidance, then please get in touch with our team.
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Disclaimer: This publication is provided by Laytons LLP for information purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to your regular contact at Laytons LLP or Laytons’ Private Client team.