The Autumn Budget 2024 introduces several reforms to the existing inheritance tax framework, discussed by solicitor Georgia Contos from our Private Client team.
Freezing the inheritance tax threshold
When you pass away, your estate (everything you own less any debts you have) benefits from what is called a ‘nil-rate band’. This is the value you can own at your death where do not need to pay inheritance tax. At present, this threshold is £325,000. This threshold was frozen until April 2028, and the Autumn budget has extended this freeze by a further two years.
The same freeze has been applied to the ‘residential nil-rate band’. This band is an additional threshold of £175,000 which can only be applied when you die leaving residential property to a direct descendant (children or stepchildren). Once the value of your estate exceeds £2,000,000, the residential property nil-rate band is reduced and may no longer be available.
Since there has been no increase and there are set to be no increases for a number of years to theses thresholds, it’s likely that more estates will need to pay inheritance tax, particularly given the increasing property values.
The rate of inheritance tax where due, is 40% and remains unchanged and any unused proportion of these thresholds can pass to a surviving spouse.
Changes to Business Property Relief (BPR) and Agricultural Relief (AGR)
The Autumn budget has introduced a change to how BPR and AGR operate. Estates will not have to pay inheritance tax on the first £1,000,000 of combined agricultural and business property. Anything above this sum will qualify for 50% relief, meaning there will be an effective rate of inheritance tax of 20% on assets of this type above £1,000,000.
Importantly, this relief does not operate like the nil-rate bands, it cannot be transferred between spouses or civil partners.
Pensions and Unlisted Shares
Prior to the Autumn budget, unused pension pots and death benefits were not deemed part of the estate for inheritance tax purposes. However, these will be included in the estate for inheritance tax purposes from 6 April 2027.
Furthermore, shares listed on the Alternative Investment Market (AIM) are, at present, exempt from inheritance tax due to the availability of BPR. Effective from April 2026, AIM shares will see a 50% reduction in that relief, resulting in an effective inheritance tax rate of 20%.
Case Studies
Sam and Charlie
Sam and Charlie are married. They jointly own a property worth £700,000. Sam has savings of £50,000. Charlie has unused pension funds worth £20,000. Sam and Charlie jointly own farmland which has been valued at £1,500,000. Charlie also has a business which is valued at £500,000. Both Sam and Charlie plan to leave each other their assets, then to their children when they have both passed away.
Current position before 6th April 2026:
Their combined estate is £2,750,000. Notably, Charlie’s pension funds are not considered as part of his estate.
As their estate is over £2,700,000, the residential nil rate band is no longer available.
Sam and Charlie would both still have a combined nil-rate band of £650,000. The taxable value of their estate is therefore £2,120,000.
The farmland qualifies for APR and BPR and therefore there is no inheritance tax to pay.
From 6th April 2026:
Their combined estate is £2,750,000. Notably, Charlie’s pension funds are not considered as part of his estate.
As their estate is over £2,700,000, the residential nil rate band is no longer available.
Sam and Charlie would both still have a combined nil-rate band of £650,000. The taxable value of their estate is therefore £2,100,000.
Together, they can utilise Business Property Relief and Agricultural Relief which would result in a further tax-free sum of £1,000,000. This is applied proportionally to their agricultural and business assets. 50% of everything above this sum is taxed at 40%. The taxable value is therefore £1,100,000.
The ultimate inheritance tax bill would be £220,000 for their combined estates.
From 6th April 2027:
Their combined estate is £2,770,000. Notably, Charlie’s pension funds are considered as part of his estate after 6th April 2027.
As their estate is over £2,700,000, the residential nil rate band is no longer available.
Sam and Charlie would both still have a combined nil-rate band of £650,000. The taxable value of their estate is therefore £2,120,000.
Together, they can utilise Business Property Relief and Agricultural Relief which would result in a further tax-free sum of £1,000,000. This is applied proportionally to their agricultural and business assets. 50% of everything above this sum is taxed at 40%. The taxable value is therefore £1,120,000.
The ultimate inheritance tax bill would be £224,000 for their combined estates.
Solicitor Georgia Contos from our Private Client team.
Helen
Helen owns a property worth £200,000. She is unmarried and runs her own business which is worth £500,000. Helen has a private pension which is valued at £100,000 and AIM shares of £600,000.
Current position before 6th April 2026:
The total value of Helen’s estate is £1,300,000 (the pension funds are not included). Helen has a tax-free nil-rate band of £325,000. She is not passing her property to a direct descendant so she cannot use the residential nil rate band.
Her business and Aim shares qualify for 100% BPR and therefore there is no inheritance tax to pay.
From 6th April 2026:
The total value of Helen’s estate is £1,300,000 (the pension funds are not included). Helen has a tax-free nil-rate band of £325,000. She is not passing her property to a direct descendant so she cannot use the residential nil rate band.
Helen does not need to pay inheritance tax on her business, this is covered by BPR at 100% and falls within the £1m threshold, her home also falls within her nil rate band, leaving £125,000 to off-set against the AIM shares.
Helen’s AIM shares qualify for BPR at 50%, leading to an inheritance tax rate of 20%.
Helen’s final inheritance tax bill would be £95,000.
From 6th April 2027:
The total value of Helen’s estate is £1,400,000 which includes her pension. Helen has a tax-free nil-rate band of £325,000. She is not passing her property to a direct descendant so she cannot use the residential nil rate band.
Helen does not need to pay inheritance tax on her business, this is covered by BPR at 100% and falls within the £1m threshold, her home and pension also fall within her nil rate band, leaving £25,000 to off-set against the AIM shares.
Helen’s AIM shares qualify for BPR at 50%, leading to an inheritance tax rate of 20%.
Helen’s final inheritance tax bill would be £115,000.
With the reforms to inheritance tax, it is all the more important to consider a more strategic approach to planning for your future. Speaking to a specialist solicitor can mean that you can minimise inheritance tax and ensure that your assets pass to your loved ones.
Contact PCnewenquiries@hughjonessolicitors.co.uk to speak to a specialist solicitor or telephone 0161 871 3680.